<PAGE>
May 7, 1997
VIA EDGAR
Securities and Exchange Commission
Office of Filings, Information and Consumer Services
450 Fifth Street, NW
Washington, D.C. 20549
RE: GMO Trust (the "Trust")
File No. 811-4347
Ladies and Gentlemen:
Pursuant to Rule 30(b)(2)-1 under the Investment Company Act of 1940,
as amended, we are transmitting via EDGAR the GMO Trust Annual Reports for the
period ended February 28, 1997. Please be advised that the above-referenced
Fund's financials for the aforementioned period are included in this document.
If you have any questions, please telephone the undersigned at (617)
330-6027. Thank you for your assistance with this matter.
Very truly yours,
Donna M. McCarthy
Account Manager
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Short-Term Income Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Short-Term Income Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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, 1997
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 96.9%
Asset Backed Securities - 35.8%
$ 463,100 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + .88% (6.42%), due 11/15/03 463,678
5,000,000 First Chicago Master Trust II 95-0
Variable Rate, 1 mo. LIBOR + .23% (5.65%), due 2/15/04 5,018,750
2,000,000 MBNA Master Credit Card Trust 96-J Class A,
Variable Rate, 1 mo. LIBOR + .15% (5.57%), due 2/15/06 2,005,000
1,000,000 National Premier Finance 95-2, 6.21% due 6/01/99 144A 998,000
1,500,000 National Premier Finance IX 96-1A, 7.20% due 7/01/00 1,524,000
2,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30% (5.74%), due 8/25/07 2,015,625
500,000 Premier Auto Trust 94-4 Certificates, 6.85% due 5/02/99 504,730
2,000,000 Student Loan Marketing Association Series 96-2 Class A2,
Variable Rate, 3 mo. LIBOR +.71% (5.85%), due 7/27/09 2,007,000
118,050 Wilshire Liquidating Trust Series 96-1 144A Class 1,
Variable Rate, 1 mo. LIBOR + .50% (6.00%), due 9/25/01 117,755
-----------------
14,654,538
-----------------
Structured Notes - 9.0%
750,000 Federal Home Loan Bank,
Variable Rate,((.50 x 10YR CMT) + 1.25%)(4.71%), due 3/16/98 736,664
1,000,000 Federal National Mortgage Association,
Variable Rate,((.50 x 2YR CMT) + 1.80%)(4.91%), due 3/10/98 987,000
2,000,000 Student Loan Marketing Association,
Variable Rate, (10.25% - 5YR DM SWAP)(4.84%), due 3/23/98 1,958,000
-----------------
3,681,664
-----------------
U.S. Government - 22.8%
9,000,000 U.S. Treasury Note, 7.75% due 11/30/99 9,345,924
-----------------
U.S. Government Agency - 29.3%
350,000 Agency for International Development Floater (Support of Botswana),
Variable Rate, 6 mo. U.S. Treasury Bill + .40% (5.63%), due 10/01/12 348,250
2,250,000 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40% (5.63%), due 10/01/12 2,247,188
2,500,000 Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill x 117% (5.82%), due 10/01/11 2,501,563
104,830 Agency for International Development Floater (Support of Peru),
Variable Rate, 6 mo. U.S. Treasury Bill + .35% (5.58%), due 5/01/14 104,306
6,750,298 Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18% (6.06%), due 8/25/18 6,804,300
-----------------
12,005,607
-----------------
TOTAL DEBT OBLIGATIONS (Cost $39,740,590) 39,687,733
-----------------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments-continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.7%
Repurchase Agreement - 1.7%
$ 687,131 Salomon Brothers Repurchase Agreement, dated 2/28/97,
due 3/3/97 with a maturity value of $687,409 and an effective
yield of 4.85%, collateralized by U.S. Treasury Obligations
with rates ranging from 7.25% to 11.88%, with maturity dates
ranging from 11/15/03 to 5/15/20 and with an aggregate market
value of $701,618 (Cost $687,131). 687,131
--------------------
TOTAL INVESTMENTS - 98.6%
(Cost $40,427,721) * 40,374,864
Other Assets and Liabilities (net) - 1.4% 562,073
--------------------
TOTAL NET ASSETS - 100.0% $ 40,936,937
====================
Notes to the Schedule of Investments:
CMT - Constant Maturity Treasury Index
DM SWAP - 5 year Deutsche Mark Constant Maturity Swap Rate
Variable rates - The rates shown on variable rate notes
are the current interest rates at February 28,
1997, which are subject to change based on the
terms of the security.
144A Securities exempt from registration under Rule
144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
* The aggregate identified cost for federal income
tax purposes is $40,427,721, resulting in gross
unrealized appreciation and depreciation of $50,243
and $103,100, respectively, and net unrealized
depreciation of $52,857.
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $40,427,721) (Note 1) $ 40,374,864
Receivable for investments sold 12,708
Receivable for Fund shares sold 25,689
Interest receivable 548,688
Receivable for expenses waived or borne by Manager (Note 2) 12,432
---------------
Total assets 40,974,381
---------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 7,864
Shareholder service fee 4,719
Accrued expenses 24,861
---------------
Total liabilities 37,444
---------------
Net assets $ 40,936,937
---------------
Net assets consist of:
Paid-in capital $ 40,679,507
Accumulated undistributed net investment income 328,181
Accumulated undistributed net realized loss (17,894)
Net unrealized depreciation (52,857)
===============
$ 40,936,937
===============
Shares outstanding 4,187,806
===============
Net asset value per share $ 9.78
===============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Interest $ 1,679,824
---------------
Expenses:
Management fee (Note 2) 69,134
Audit fees 25,193
Registration fees 10,526
Custodian and transfer agent fees 5,617
Legal fees 1,204
Trustee fee (Note 2) 150
Miscellaneous 430
Fees waived or borne by Manager (Note 2) (93,681)
---------------
18,573
Shareholder service fee (Note 2) 36,264
---------------
Net expenses 54,837
---------------
Net investment income 1,624,987
---------------
Realized and unrealized gain (loss):
Net realized gain on investments 76,160
Change in net unrealized appreciation (depreciation) on investments (75,627)
---------------
Net realized and unrealized gain 533
---------------
Net increase in net assets resulting from operations $ 1,625,520
===============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
---------------------- -----------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,624,987 $ 556,078
Net realized gain 76,160 74,630
Change in net unrealized appreciation (depreciation) (75,627) 31,945
--------------------- ---------------------
Net increase in net assets resulting from operations 1,625,520 662,653
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (1,442,981) (509,777)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 94,033,050 29,521,366
Net asset value of shares issued to shareholders
in payment of distributions declared 1,044,258 477,330
Cost of shares repurchased (65,388,935) (27,279,043)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 29,688,373 2,719,653
--------------------- ---------------------
Total increase in net assets 29,870,912 2,872,529
Net assets:
Beginning of period 11,066,025 8,193,496
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $328,181 and
$146,175, respectively) $ 40,936,937 $ 11,066,025
===================== =====================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Financial Highlights
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.77 $ 9.56 $ 9.79 $ 10.05 $ 10.11
--------------- ------------ ------------- ------------ ------------
Income from investment operations:
Net investment income 0.47 0.57 0.63 0.44 0.46
Net realized and unrealized gain (loss) 0.06 0.20 (0.28) (0.09) 0.30
--------------- ------------ ------------- ------------ ------------
Total from investment operations 0.53 0.77 0.35 0.35 0.76
--------------- ------------ ------------- ------------ ------------
Less distributions to shareholders:
From net investment income (0.52) (0.56) (0.58) (0.46) (0.38)
From net realized gains - - - (0.15) (0.44)
--------------- ------------ ------------- ------------ ------------
Total distributions (0.52) (0.56) (0.58) (0.61) (0.82)
--------------- ------------ ------------- ------------ ------------
Net asset value, end of period $ 9.78 $ 9.77 $ 9.56 $ 9.79 $ 10.05
=============== ============ ============= ============ ============
Total Return (a) 5.62% 8.32% 3.78% 3.54% 8.25%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 40,937 $ 11,066 $ 8,193 $ 8,095 $ 10,499
Net expenses to average
daily net assets 0.20% 0.25% 0.25% 0.25% 0.25%
Net investment income to average
daily net assets 5.88% 6.49% 5.02% 4.35% 4.94%
Portfolio turnover rate 287% 139% 335% 243% 649%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.03
</TABLE>
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares.
The Fund seeks current income to the extent consistent with the
preservation of capital and liquidity through investment in a portfolio of
high quality short-term instruments.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 28, 1997, the
total value of these securities represented 10% of net assets. These prices
may differ from the value that would have been used had a broader market
for the securities existed.
7
<PAGE>
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 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 28, 1997, the Fund had
no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
8
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts and amortization of premiums. In determining the net gain or loss
on securities sold, the cost of securities is determined on the identified
cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of the Fund at the
annual rate of .15%.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .05% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .20%;
thus, the net annual expense ratio after the waiver is unchanged.
9
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $150. 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 28, 1997, 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 $ 71,114,672 $ 50,153,867
Investments (non-U.S. Government securities) 30,569,442 20,125,755
</TABLE>
4. Principal shareholders
At February 28, 1997, 61% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits 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 28, 1997 February 29, 1996
--------------------------- ----------------------------
<S> <C> <C>
Shares sold 9,668,234 3,044,961
Shares issued to shareholders in reinvestment
of distributions 108,123 49,952
Shares repurchased (6,721,285) (2,819,011)
------------------- -------------------
Net increase 3,055,072 275,902
Fund shares:
Beginning of period 1,132,734 856,832
------------------- -------------------
End of period 4,187,806 1,132,734
=================== ===================
</TABLE>
10
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions-(Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income.
At February 28, 1997, the Fund had a capital loss carryforward available to
offset future capital gains, if any, of the following amounts:
<TABLE>
<CAPTION>
<S> <C>
Year of Expiration Amount
------------------ ------
2003 $ 17,757
</TABLE>
The Fund has also elected to defer to March 1, 1997 post-October losses of $137.
11
<PAGE>
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. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. LLC since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Short-Term Income Fund returned 5.6% for the fiscal year ended February 28,
1997, as compared to 5.2% for the Salomon Brothers 3 Month Treasury Bill Index.
Consistent with the Fund's investment objectives and policies, the Fund was
substantially invested in high-quality, fixed income instruments throughout the
period.
Although short-term interest rates rose modestly in the U.S. during the fiscal
year, the Fund outperformed its benchmark by 0.4%. This was due to the Fund's
holdings of highly-rated asset-backed securities and higher-yielding government
agency issues.
At the fiscal year end approximately 36% of the Fund was invested in
highly-rated, floating rate, asset-backed securities. These included issues
backed by auto, truck, credit card and health care receivables. The additional
yield provided by these holdings offset losses due to the longer-than-benchmark
maturity of the Fund.
GMO believes that asset-backed securities will continue to offer attractive
opportunities to enhance the return of the Fund.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advise.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Short-Term Income Fund Class III shares and the
Salomon Brothers 3 Month Treasury Bill Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 06/30/91
<S> <C> <C> <C>
Class III 5.6% 5.9% 5.9%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Short-Term Income Fund Salomon Brothers 3 Month Treasury-Bill Index
<S> <C> <C>
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
02/28/97 13,817 12,817
</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. Class III shares are a
redesignation of the single class of shares that has been offered by the Fund
since inception. Past performance is not indicative of future performance.
Information is unaudited.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO International Core Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Core Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 96.8%
Australia - 5.5%
97,500 Aberfoyle Ltd 289,096
364,643 Adelaide Brighton Ltd 523,616
427,200 Advance Property Fund 494,073
116,500 Amalgamated Holdings Ltd 538,042
39,200 Amcor Ltd 258,021
8,962 Ashton Mining Ltd 13,982
4,420,872 Australia and New Zealand Banking Group Ltd 27,589,106
161,900 Australian Gas & Light 926,164
1,738,634 Australian National Industries Ltd 1,929,825
3,660,471 Boral Ltd 9,944,402
89,945 Bougainville Copper Ltd * 39,097
219,800 Broken Hill Proprietary Ltd 2,908,879
185,100 BT Property Trust 247,120
1,099,505 Burns Philp & Co Ltd 1,706,872
255,435 Caltex Australia Ltd 862,469
30,200 Capcount Property Trust 20,628
393,900 Capral Aluminum Ltd 1,357,509
197,200 Centaur Mining & Exploration Ltd * 292,357
184,700 Coca-Cola Amatil Ltd 1,691,697
3,939,827 Coles Myer Ltd 17,339,391
227,822 Commonwealth Bank of Australia 2,267,030
237,773 Consolidated Rutile Ltd 191,942
228,589 Cortecs International Ltd * 860,539
13,200 Coventry Group Ltd 52,766
253,200 CRA Ltd 3,791,531
130,900 CSL Ltd 665,510
2,972,464 CSR Ltd 10,497,881
668,800 Cultus Petroleum * 1,100,540
34,929 Dominion Mining Ltd Warrants 12/31/98 * 10,845
69,859 Dominion Mining Ltd * 48,260
403,891 Email Ltd 1,275,946
149,700 Emperor Mines Ltd * 261,444
57,482 Energy Resources of Australia Class A 267,705
100,000 FAI Life Ltd 63,648
103,900 Faulding (FH) & Co Ltd 604,854
270,327 Foodland Associated 1,300,932
5,764,273 Fosters Brewing Group Ltd 12,035,675
76,525 G E Crane Holdings Ltd 694,965
967,928 General Property Trust Units 1,885,777
3,937,376 Goodman Fielder Ltd 4,767,658
175,900 Grosvenor Trust 208,896
131,000 GWA International Ltd 224,718
673,207 Hardie (James) Industries Ltd 1,933,410
238,051 HIH Winterthur International Holdings 570,955
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
10,500 Hills Motorway Group 15,078
43,500 Holyman Ltd 176,792
13,200 Jupiters Ltd 28,483
70,400 KLZ Ltd 193,441
192,322 Leighton Holdings 835,970
14,400 Lend Lease Corp Ltd 263,337
441,990 Macmahon Holdings 343,073
218,300 Mayne Nickless Ltd 1,289,472
5,550 Memtec Ltd 114,160
111,680 Metal Manufactures Ltd 272,194
2,104,103 MIM Holdings Ltd 2,923,437
277,488 Mirvac Ltd 568,620
93,694 Mount Leyshon Gold Mines 161,450
511,528 National Australia Bank Ltd 6,440,119
51,901 National Consolidated Ltd 37,868
6,023,115 News Corp Ltd 32,071,473
3,028,955 News Corp Ltd Preferred 1.19% 13,683,256
205,701 Normandy Mining Ltd 284,204
481,362 North Broken Hill Peko Ltd 1,558,050
287,836 Orbital Engine Corp * 230,121
7,400 Pacific BBA Ltd 24,699
1,465,447 Pacific Dunlop Ltd 3,526,188
54,400 Petroleum Securities Australia * 232,239
4,834,270 Pioneer International Ltd 14,371,540
407,321 PMP Communications Ltd 1,027,528
157,800 Portman Mining Ltd 325,808
87,342 Publishing & Broadcasting Ltd 437,277
893,789 Qantas Airways Ltd 1,692,772
102,400 QBE Insurance Group Ltd 512,665
1,197,769 QCT Resources Ltd 1,654,881
904,154 QNI Ltd 1,866,800
80,700 Reinsurance Australia 274,360
429,800 RGC Ltd 1,708,087
404,581 Rothmans Holdings Ltd 2,732,111
1,855,559 Santos Ltd 6,682,922
1,618,836 Schroders Property 2,990,566
120,500 Sea World Property Trust 159,005
65,445 Siddons Ramset Ltd 339,333
143,739 Simsmetal Ltd 870,471
24,300 Skilled Engineering Ltd 64,130
128,400 Smith (Howard) Ltd 1,077,070
443,400 Southcorp Holdings Ltd 1,569,402
41,912 St George Bank 250,497
682,064 Stockland Trust Group 1,752,374
211,900 Tabcorp Holdings 972,058
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
274,984 Ticor Ltd * 228,384
88,900 Village Roadshow 294,648
19,799 W H Soul Pattison & Co Ltd 860,607
569,571 Walker Corp 402,312
95,300 Westfield Holdings 1,472,040
1,338,284 Westfield Trust Units 2,576,165
1,079,191 Westpac Banking Corp 6,114,977
317,200 Westpac Property Trust 438,255
209,191 Wills (WD & HO) Holdings Ltd 407,559
-------------------
235,956,101
-------------------
Austria - 1.2%
2,366 Allgemeine Baugesellschaft AG Preferred 7.00% 86,824
1,851 Allgemeine Baugesellschaft AG * 166,698
5,701 Austrian Airlines * 849,306
32,818 Bank Austria AG (Participating Certificate) 966,763
35,877 Bau Holding AG Preferred 2.42% (Non Voting) 1,721,197
46,357 Brau Union AG 2,614,146
3,247 BWT AG 340,245
71,776 Creditanstalt-Bankverein 4,410,033
58,138 Creditanstalt-Bankverein Preferred 1.65% 2,225,952
5,512 EA-Generali AG 1,530,956
2,985 EA-Generali AG Preferred 6.00% 310,780
32,448 EVN Energie-Versorgung Niederoesterreich AG 4,776,584
6,295 Jenbacher Werke AG 182,791
11,247 Lenzing AG 541,468
19,627 Leykam-Muerztaler Papier und Zellstoff AG 546,791
5,940 Miba Holding AG Class B Preferred 1.34% 257,974
57,039 OEMV AG 6,721,089
11,739 Oesterreichische Brau Beteiligungs AG 721,263
95,365 Oesterreichische Elektrizitaetswirtschafts AG 6,926,909
114,562 Oesterreichische Laenderbank AG 7,839,183
35,056 Oesterreichische Laenderbank AG Preferred (Non Voting) 1,230,377
5,562 Perlmooser Zementwerke AG 287,903
49,253 Radex-Heraklith AG 1,786,485
7,962 RAS Versicherungs AG 984,427
18,054 Steyr-Daimler-Puch AG * 319,104
4,103 Strabag Oesterreich AG 238,627
8,443 Universale Bau AG 333,991
945 Wiener Allianz Versicherungs AG 107,376
10,873 Wienerberger Baustoffindustrie AG 1,973,964
-------------------
50,999,206
-------------------
Belgium - 0.0%
2,908 Banque Bruxelles Lambert 629,596
412 Banque Nationale de Belgique 627,594
2,987 Powerfin SA 428,846
-------------------
1,686,036
-------------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - 2.6%
78,302 Abitibi-Price Inc 1,291,762
30,907 Agrium Inc * 423,957
59,800 Air Canada Inc * 301,866
138,105 Alberta Energy Ltd 2,904,762
77,200 Anderson Exploration Ltd * 917,770
12,800 Avenor Inc 220,528
73,916 Bank of Nova Scotia 2,817,341
41,200 BC Telecom Inc 901,222
128,392 BCE Inc 6,236,907
13,800 BCE Mobile Communications * 439,169
1,000 Biochem Pharma Inc * 53,040
126,900 Bombardier Inc Class B 2,436,992
40,500 Brascan Ltd Class A (Convertible) 970,353
20,900 CAE Industries Inc 174,307
13,400 Cambridge Shopping Centres Ltd 103,424
119,606 Canadian Imperial Bank of Commerce 5,801,359
24,100 Canadian Marconi Co 305,900
41,300 Canadian National Railway 1,495,611
6,612 Canadian Natural Resources * 157,693
44,400 Canadian Pacific Ltd 1,091,404
64,700 Canadian Tire Corp Ltd Class A 1,178,601
17,400 Canfor Corp 184,578
29,800 CCL Industries Class B 346,638
193,411 Cominco Ltd 5,518,347
119,100 Corel Corp * 775,470
25,200 Co-Steel Inc 414,807
32,800 Cott Corp * 322,745
50,700 Dofasco Inc 918,008
64,900 Dominion Textile Inc 303,870
256,118 Domtar Inc 2,332,774
32,700 Donohue Inc Class A 629,168
3,600 Dupont Canada Class A 87,044
58,800 Echo Bay Mines Ltd * 455,981
47,000 Edper Group Ltd Class A 804,594
10,000 Extendicare (Voting Shares) * 134,611
6,000 Falconbridge Ltd 140,025
120,107 Fletcher Challenge Canada Class A 1,994,607
130,002 Gulf Canada Resources Ltd * 913,029
8,300 Hudsons Bay Co 166,073
143,200 Imasco Ltd 3,928,598
122,307 Imperial Oil Ltd 5,368,659
54,200 Inco Ltd 1,909,233
39,300 Inmet Mining Ltd * 264,511
18,600 International Forest Products A * 136,074
4,600 IPL Energy Inc 134,443
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
13,500 Ipsco Inc 390,116
87,700 Laidlaw Inc Class B (Non Voting) 1,215,828
268,919 Macmillan Bloedel Ltd 3,718,318
23,800 Magna International Class A 1,254,510
1,100 MDS Inc Class B 22,332
112,400 Methanex Corp * 1,101,880
35,000 Mitel Corp * 197,161
43,300 Molson Co Ltd, Class A 753,925
42,100 Moore Corporation Ltd 930,149
133,200 Newbridge Networks Corp * 4,234,062
9,800 Noma Industries Ltd Class A 29,753
84,801 Noranda Forest Inc 589,370
5,100 Noranda Inc 122,939
73,602 Norcen Energy Resource 1,574,993
442,500 Nova Corp of Alberta 4,062,751
79,500 Nova Scotia Power Inc 822,975
39,800 Numac Energy Inc * 181,981
35,300 Oshawa Group Ltd Class A 528,118
801 Petro Canada 11,603
3,900 Potash Corp of Saskatchewan 307,144
700 Power Corp of Canada Ltd 14,851
6,800 Provigo Inc * 28,107
2,600 QLT Phototherapeutics * 70,378
28,800 Quebecor Inc Class B 528,846
20,100 Ranger Oil Ltd 181,604
56,700 Repap Enterprises Inc * 100,383
11,900 Rio Algom Ltd 302,528
27,100 Rogers Cantel Mobile Communications Class B * 455,995
103,826 Royal Bank of Canada 4,189,044
170,000 Seagram Ltd 6,635,087
25,900 Sears Canada Inc 249,166
50,800 Semi-Tech Class A 102,202
5,200 Shell Canada Ltd Class A 213,037
16,300 Slocan Forest Products Ltd 175,294
22,400 Southam Inc 345,775
4,300 Spar Aerospace Ltd 47,344
71,200 Stelco Inc Class A * 390,665
21,800 Suncor Inc 971,263
127,506 Teck Corp Class B 3,115,590
111,700 Telus Corp 1,691,558
78,500 Thomson Corp 1,616,633
3,205 Toronto Dominion Bank 90,272
8,200 Torstar Corp Class B 219,563
8,300 Total Petroleum North America 85,010
201,600 Transalta Corp 2,396,664
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
192,400 Transcanada Pipelines Ltd 3,568,176
43,701 United Dominion Inds Ltd 1,181,324
30,855 Westaim Corp * 101,578
109,600 Westcoast Energy Inc 1,992,509
10,800 Weston (George) Ltd 591,792
--------------------
112,110,001
--------------------
Finland - 0.3%
38,400 Amer Group Class A 804,624
16,300 Cultor OY Class 1 987,408
255,000 Enso OY Class A 2,177,799
2,600 Finnair Class A 20,139
5,000 Huhtamaki OY Class L 234,364
23,738 Instrumentarium OY, Class A 891,077
7,991 Instrumentarium OY, Class B 293,618
25,500 Kesko OY 372,252
22,600 Metra AB Class A 1,328,646
60,700 Partek OY 1,004,252
126,508 Rautaruukki OY 1,190,983
2,500 Stockmann AB Class A 144,988
3,700 Stockmann AB Class B 202,089
94,500 Valmet OY 1,717,363
--------------------
11,369,602
--------------------
France - 8.8%
31,999 Accor SA 4,403,352
101 Adecco SA * 32,637
13,847 Air Liquide L Shares 2,177,683
40,811 Alcatel Alsthom Cie Generale d'Electricite SA 4,190,482
350,391 Assurances Generales De France (Bearer) 12,330,998
257,666 Axa SA 17,154,216
257,666 Axa UAP * 922,610
347,785 Banque Nationale de Paris 15,779,829
28,976 Bertrand Faure SA 1,443,892
3,200 BIC SA 518,983
1,790 BIS SA 153,479
2,001 Bongrain 775,492
24,560 Bouygues 2,345,083
11,930 Canal Plus 2,236,365
23,510 Cap Gemini SA * 1,407,967
62,170 Casino Guichard-Perrachon 2,837,168
22,450 Casino Guichard-Perrachon Preferred 860,991
5,645 CEP Communications SA (Bearer) 465,686
158,668 Cerus * 3,854,396
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
8,540 Cetelem 1,058,263
19,298 CGIP 5,504,230
139,567 Cie Bancaire SA 16,927,456
3,601 Cie Generale de Geophysique * 308,758
16,813 Ciments Francais 572,503
33,393 Ciments Francais Class B Preferred 15.12% 1,315,253
2,846 Clarins 394,633
12,086 Club Mediterranee SA 928,093
2,759 Colas SA 382,085
311,861 Compagnie de Suez SA 15,239,166
87,760 Credit Commercial de France 4,112,811
69,270 Credit Local de France SA 6,918,124
127,223 Credit Lyonnais * 5,057,836
35,124 Credit National 2,311,885
50 Damart SA 39,492
1,460 Dassault Electronique SA 169,133
20,127 Dollfus-Mieg and Cie 570,889
2,706 Eiffage SA 171,936
250,130 Elf Aquitaine SA 23,927,273
3,440 Elf Gabon 923,806
30,790 Elf Sanofi SA 3,048,033
47,878 Eridania Beghin-Say SA 7,739,743
3,950 Essilor International 1,084,338
5,342 Esso 590,711
880,570 Euro Disney SCA (Bearer) * 1,615,143
300 Europe 1 Communication 71,086
1,375,268 Eurotunnel SA Units (Bearer) * 1,701,795
128,663 Financiere de Paribas SA 8,760,005
82,507 FINEXTEL 1,397,491
136,264 GAN (Group Assurances National) * 3,566,069
2,046 Gaz Et Eaux 904,976
23,965 Generale Des Eaux 3,335,658
2,064 Group Axime * 264,462
7,290 Groupe Andre * 614,186
17,850 Groupe Danone 2,706,966
2,530 GTM-Entrepose 135,885
1,181 Guyenne Et Gascogne 406,291
2,290 Havas Advertising 277,342
900 Imetal 129,535
29,911 INGENICO SA 548,628
2,475 La Peyre 149,874
5,813 Labinal SA 1,321,299
302,215 Lafarge Coppee SA 18,937,173
83,645 Lagardere Groupe 2,466,495
13,190 Legris Industries 627,401
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
37,564 Lyonnaise Des Eaux 3,837,300
11,980 Metaleurop SA * 161,912
217,470 Michelin SA Class B 13,619,310
28,142 Moulinex SA * 652,018
56,856 Nord-Est 1,515,881
992 Parisienne de Reescompte (CPR-Cie) 84,639
20,640 Pechiney SA Class A 872,725
7,415 Pernod-Ricard 404,765
132,483 Peugeot SA 14,649,797
780 Pinault Printemps Redoute 330,083
16,120 Remy Cointreau SA 420,167
213,900 Renault SA 5,515,228
488,700 Rhone Poulenc SA Class A 17,155,495
13,264 Saint Louis 3,482,868
96,942 Saint-Gobain 14,292,960
19,450 Salomon SA 1,335,858
70 SAT SA De Telecommunication 20,777
900 SEFIMEG (Registered) 74,483
31,640 Seita 1,210,665
32,940 SGS Thomson Microelectronics * 2,165,241
49,350 Skis Rossignol 1,342,610
10,830 Societe Eurafrance 5,113,422
26,010 Societe Generale d 'Entreprise SA * 602,166
182,852 Societe Generale Paris 21,182,371
290 Sodexho Alliance 161,357
114,190 Sommer Allibert 3,467,409
152,948 SPIE Batignolles 8,056,394
6,703 Strafor Facom 529,435
7,020 Sylea (Bearer) 677,689
11,760 Technip SA (Compagnie Francaise) 1,188,942
198,923 Thomson CSF 6,302,214
98,330 Total SA 7,844,239
9,650 TV Francaise 894,318
330 Union Immobiliere de France 27,339
302,720 Usinor Sacilor 4,675,787
54,790 Valeo 3,692,865
21,912 Vallourec 1,294,190
51,619 Worms et Compagnie SA 3,442,898
---------------
375,423,336
---------------
Germany - 9.0%
51,550 Adidas AG 4,931,480
176,800 AGIV AG * 2,921,881
363,000 Bankgesellschaft Berlin AG 6,945,208
854,950 BASF AG 31,525,078
1,574,800 Bayer AG 66,463,985
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
50,350 Bayerische Hypotheken-und Wechsel - Bank AG 1,488,251
20,894 Berliner Kraft und Licht AG Class A 5,841,706
402,050 BHF Bank AG 9,526,123
32,500 Bilfinger & Berger 1,309,087
2,450 Brau und Brunnen * 204,626
11,100 Bremer Vulkan Verbund AG * 12,821
621,400 Continental AG 12,109,975
48,550 Deutsche Babcock & Wilcox * 2,185,642
6,750 Didier-Werke AG 551,771
6,950 DLW AG * 574,295
250,400 Douglas Holdings AG 8,825,258
21,790 Draegerwerk AG Preferred 311,064
300 Escada AG 56,154
1,000 Escada AG Preferred (Non Voting) 1.43% 171,188
684,905 FAG Kugelfischer 10,467,095
83,900 Fresenius AG Preferred 18,090,037
42,000 Friedrich Krupp AG 6,712,238
870 GEA AG Preferred 3.13% 297,868
10,487 Hamburgische Electricitaets-Werke AG 2,994,156
89,000 Henkel KGAA Preferred 4,744,699
140,000 Hochtief AG 6,095,249
1,450 Horten AG 188,959
4,000 Kaufhalle AG * 405,165
465,073 Klockner Humboldt Deutz * 2,314,070
31,150 Klockner-Werke AG * 1,955,870
29,250 Kolbenschmidt * 466,073
26,870 Leirheit AG 891,316
763,150 Lufthansa AG 10,125,909
19,950 MAN AG 5,099,174
4,350 MAN AG Preferred 926,327
606,450 Metallgesellschaft * 12,928,643
11,950 Pfaff (GM) AG * 258,367
400 Philips Kommunikations Industrie AG 121,076
30,000 Phoenix AG 438,929
12,868 Porsche AG Preferred (Non Voting) 14,482,407
20,850 Preussag AG 5,353,912
59,650 Puma AG Preferred 2,084,676
4,070 Rheinmetall Berlin AG 671,422
1,670 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 224,751
3,250 Rosenthal AG * 248,341
331,700 RWE Preferred 12,054,138
850 Salamander AG 100,699
234,359 Schering AG 21,253,621
200 Schmalbach-Lubeca 40,990
131,750 Schwarz Pharma AG 9,833,254
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
195,200 Siemens AG 9,868,689
427,492 SKW Trostberg AG 13,015,691
1,050 Strabag Bau AG Preferred 95,161
3,550 Strabag Bau AG * 308,485
80,200 Thyssen AG 17,011,977
920 Varta AG * 152,589
60,800 Veba AG 3,479,019
64,150 Viag AG 28,328,293
2,050 Villeroy and Boch AG 276,863
1,975 Volkswagen AG Preferred .79% 752,236
1,750 Zanders Feinpapiere * 112,990
-----------------
381,227,017
-----------------
Hong Kong - 9.9%
20,561,000 Allied Properties Ltd 3,770,225
9,421,500 Amoy Properties Ltd 11,253,729
1,154,000 ASM Pacific Technology 961,170
14,119,000 Cathay Pacific Airways Ltd 21,969,777
1,282,000 Century City International 455,256
5,984,000 Champion Technology Holdings 904,091
1,196,800 Champion Technology Holdings Warrants 6/30/98 * 72,636
3,484,000 Cheung Kong Holdings 33,179,881
709,000 China Light & Power Co 3,277,660
10,800,000 China Overseas Land & Investment Ltd 6,310,692
2,104,000 Chinese Estates Holdings Ltd 2,241,477
2,692,000 CP Pokphand Co * 973,347
39,000 Cross Harbour Tunnel Co Ltd 85,363
108,800 Dah Sing Financial Services 455,207
3,962,352 Dairy Farm International 3,070,823
334,000 Dao Heng Bank 1,716,581
3,276,000 Denway Investments * 283,435
529,200 Dickson Concept International Ltd 1,930,514
8,215,000 Elec & Eltek International Holdings Ltd 2,100,426
658,105 First Sign International Holdings 174,214
1,846,000 FPB Bank Holding Co 852,202
266,100 Furama Hotel Enterprises Ltd 446,707
2,159,000 Gold Peak Industry 1,407,922
758,000 Goldlion Holdings Ltd 675,387
3,624,739 Great Eagle Holdings Ltd 13,597,452
4,365,000 Guangzhou Investment Co 2,212,374
344,000 Guoco Group 1,923,450
12,273,300 Hang Lung Development Co Ltd 24,724,106
1,179,400 Hang Seng Bank 13,630,721
219,000 Harbour Centre Development Ltd 323,806
16,138,000 Henderson Investment Ltd 18,130,243
3,913,000 Henderson Land Development Co Ltd 34,991,639
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
1,116,000 HKCB Bank Holding Co Ltd 374,690
2,250,000 HKR International Ltd 3,399,406
2,358,400 Hon Kwok Land Investment 860,341
1,422,700 Hong Kong Ferry Co Ltd 2,709,817
2,814,186 Hong Kong Land Holdings 8,020,430
1,586,100 Hongkong Aircraft Engineering Co Ltd 5,028,248
676,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 1,191,555
5,735,300 Hongkong Electric Holdings Ltd 19,848,404
3,115,000 Hysan Development Co Ltd 10,921,003
484,000 Innovative International 201,563
320,574 Jardine Strategic Warrants 5/02/98 * 108,995
168,000 Johnson Electric Holdings Ltd 464,256
530,840 Kantone Holdings Ltd * 78,831
4,078,000 Kumagai Gumi Hong Kong Ltd 4,660,421
3,120,800 Lai Sun Development 4,674,752
1,864,000 Lai Sun Garment International Ltd 2,719,938
165,000 Lane Crawford International Ltd Class B 19,602
206,000 Laws International Holdings Ltd 31,921
1,586,000 Leading Spirit Holdings 372,743
1,027,000 Liu Chong Hing Bank Ltd 1,949,496
1,608,000 Liu Chong Hing Investment Ltd 2,003,771
1,109,398 Mandarin Oriental 1,508,781
36,000 National Mutual Asia Ltd 39,282
1,384,000 New Asia Realty & Trust A Shares 5,030,940
4,314,743 New World Development Co Ltd 26,744,275
5,650,000 Oriental Press Group 2,352,951
711,200 Oriental Press Group Warrants 10/2/98 * 38,113
4,128,000 Paul Y- ITC Construction Holdings Ltd 948,843
313,000 Peregrine Investments Holdings 571,920
1,326,000 Playmate Toys Holding 325,336
164,000 Realty Development Corp Ltd Class A 632,154
35,042,913 Regal Hotels International Ltd 10,407,890
282,800 San Miguel Brewery Ltd 118,685
1,365,000 Shaw Brothers Ltd 1,559,950
1,769,000 Shell Electric Co Ltd 1,153,596
8,634,000 Shun Tak Holdings Ltd 6,132,102
656,000 Sino Land Co Ltd 753,926
10,442,000 South China Morning Post Ltd 9,371,371
1,184,000 Sun Hung Kai Properties Ltd 13,722,107
5,273,000 Sun Hung Kai & Co Ltd 1,395,874
1,145,800 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 99,133
4,404,500 Swire Pacific Ltd Class B 6,000,449
3,390,707 Tai Cheung Holdings Ltd 3,064,947
974,000 Tem Fat Hing Fung 311,293
708,000 Texwinca Holdings Ltd 539,411
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
24,000 Union Bank of Hong Kong 37,190
3,885,000 Wharf Holdings Ltd 17,257,748
9,583,000 Wheelock & Co Ltd 25,801,337
359,100 Wing Lung Bank 2,562,019
218,500 Winsor Industrial Corp Ltd 53,327
531,000 Winsor Properties Holdings Ltd * 983,968
5,994,000 World Trade Centre Group Ltd 1,176,508
4,678,000 Yizheng Chemical Fibre Co 1,093,386
4,618,000 Yue Yuen Industrial Holding 1,878,448
---------------
421,409,956
---------------
Italy - 4.6%
3,049,300 Alitalia Linee Aeree Italiane Class A * 1,100,635
219,500 Alleanza Assicurazioni SPA 1,580,660
371,000 Ansaldo Transporti SPA * 381,976
19,000 Assicurazioni di Milano 52,840
599,750 Assicurazioni Generali SPA 10,894,867
3,430,500 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 7,084,287
1,031,000 Banca Commerciale Italiana SPA 2,086,402
174,000 Banca Commerciale Italiana SPA (Non Convertible) 389,183
5,569,300 Banca di Roma * 4,089,646
1,511,500 Banca Fideuram SPA 3,810,053
131,716 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 50,660
44,000 Banca Nazionale dell'Agricoltura * 30,331
44,300 Banca Popolare di Bergamo Credit 657,947
244,000 Banca Popolare di Milano 1,335,503
217,200 Banca Toscana 411,266
249,000 Banco Ambrosiano Veneto SPA (Non Convertible) 458,219
136,000 Banco Ambrosiano Veneto SPA 346,036
1,845,268 Banco di Napoli di Risp * 829,825
550,000 Bastogi-IRBS SPA * 20,991
220,100 Benetton Group SPA 2,525,289
754,300 Cartiere Burgo SPA 3,459,068
446,000 Cementir Cementerie del Tirreno SPA 286,337
1,587,800 Cia Italiana del Grandi Alberghi Cigahotels SPA * 740,347
615,300 COFIDE SPA (Non Convertible) * 160,196
1,192,243 COFIDE SPA * 500,883
333,000 Cogefar Impresit Costruzioni Generali SPA * 248,469
180,750 Comau Finanziaria SPA 550,806
335,000 Compart SA * 147,678
1,580,500 Credito Italiano (Non Convertible) 2,020,047
987,500 Credito Italiano 1,349,778
2,907,200 Dalmine SPA * 643,369
25,600 Danieli and Co SPA 187,001
757,900 Edison SPA 4,166,208
69,500 Editoriale L'Espresso SPA 234,408
10,250 Ericsson SPA 131,612
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
515,600 Falck Acciaierie and Ferriere Lombarde 2,286,640
669,000 Fiat SPA 2,066,379
898,000 Fiat SPA Preferred 1,509,065
2,267,200 Fiat SPA (Non Convertible) 3,836,800
173,500 Finmeccanica SPA (Non Convertible) * 68,784
290,944 Finmeccanica SPA * 129,289
114,750 Fondiaria SPA 440,667
6,768,700 Gemina * 3,840,937
627,440 Gilardini SPA 840,918
588,000 Grassetto SPA (b) * 3
1,243,500 IFI Istituto Finanziario Preferred 2.46% 15,267,825
438,100 IFIL Finanziaria di Partecipazioni SPA 1,309,115
1,367,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 2,629,615
1,607,000 Industriali Riunite SPA (Non Convertible) * 658,014
1,407,850 Industriali Riunite SPA * 936,345
331,500 Istituto Bancario San Paolo 2,351,885
497,500 Istituto Mobilaire Italiano 4,345,030
7,965,299 Istituto Nazionale Delle Assicurazioni 10,416,160
81,350 Italcementi Fabbriche Riunite Cemento SPA 441,649
255,650 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 621,729
187,300 Italgas SPA 667,741
11,000 Italmobiliare SPA 173,136
87,800 Luxottica Group Sponsored ADR 5,114,350
373,000 Mediobanco SPA 2,435,536
231,508 Mondadori Editore 1,513,706
880,000 Montedison SPA (Non Convertible) * 593,609
9,984,798 Montedison SPA * 7,207,961
440,342 Montefibre SPA 270,719
75,000 Olivetti and Co SPA Preferred * 68,787
11,264,150 Olivetti and Co SPA * 4,132,410
10,670,880 Parmalat Finanziaria SPA 14,680,353
1,056,786 Permafin Finanziaria * 312,659
1,586,575 Pirelli and Co 2,224,960
67,500 Pirelli and Co (Non Convertible) 82,877
212,200 Pirelli SPA (Non Convertible) 327,717
211,000 RAS SPA 1,902,746
112,750 RAS SPA (Non Convertible) 610,451
109,200 Rinascente per l'Esercizio di Grandi Magazzini SPA 547,292
406,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 804,793
270,600 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 658,887
235,500 SAFFA SPA * 565,757
36,612 SAFILO SPA 608,756
45,500 SAI 380,962
161,400 Saipem SPA 736,805
146,000 Sasib SPA 431,953
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
158,200 Sasib SPA (Non Convertible) 309,847
1,496,592 SMI (Societa Metallurgica Italy) * 666,825
162,700 Snia BPD SPA 162,315
205,000 Sopaf SPA 230,473
400,600 Stefanel SPA * 359,118
872,500 STET di Risp (Non Convertible) 3,051,169
2,700,000 Telecom Italia Mobile SPA (Non Convertible) 4,129,882
5,307,500 Telecom Italia Mobile SPA 13,896,857
2,953,300 Telecom Italia RNC 5,941,550
4,531,900 Telecom Italia SPA 10,645,943
35,000 Toro Assicurazioni 434,911
------------------
193,843,485
------------------
Japan - 13.7%
54,000 77th Bank 440,716
207,000 Advantest Corp 11,697,241
115,000 Aisin Seiki Co Ltd 1,610,324
27,000 Aiwa Co 503,356
64,000 Alps Electric Co Ltd 678,764
453,000 Amada Co Ltd 3,306,761
1,711,000 Aoki Corp * 2,466,766
33,000 Aoki International 601,541
70,000 Aoyama Trading 1,757,395
17,300 Arabian Oil Co Ltd 551,868
245,000 Asahi Breweries Ltd 2,375,093
38,000 Asahi Optical Co 159,002
316,000 Ashikaga Bank Ltd 1,055,166
59,000 Asics Corp * 118,792
13,000 Autobacs Seven 916,646
29,000 Bandai Co 598,310
281,000 Bank of Yokohama Ltd 1,345,745
66,000 Banyu Pharmaceutical Co Ltd 962,466
14,000 Best Denki Co Ltd 149,640
84,700 Canon Sales Co Inc 1,642,207
66,000 Chiyoda Corp * 349,988
116,200 Chubu Electric Power Co Inc 2,050,758
7,000 Chudenko Corp 200,099
240,000 Chugai Pharmaceutical Co Ltd 1,895,103
43,500 Chugoku Electric Power Co Inc 753,294
654,000 Cosmo Oil Co Ltd 2,546,856
78,000 Credit Saison Co 1,660,950
237,800 CSK Corp 5,654,868
851,000 Daicel Chemical Industries Ltd 3,666,584
98,000 Daido Steel Co Ltd 297,191
181,000 Daiei Inc 1,196,769
209,000 Daiichi Seiyaku Co Ltd 3,411,467
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
65,000 Daikin Industries Ltd 509,487
96,000 Daikyo Inc 361,919
477,000 Dainippon Printing Co Ltd 7,944,072
410,000 Dainippon Screen Manufacturing Co Ltd 3,308,808
45,000 Daishowa Paper Manufacturing * 180,835
71,200 Daito Trust Construction Co Ltd 696,131
82,000 Daiwa House Industry Co Ltd 910,432
1,100 Denny's Japan Co Ltd 28,254
211,000 Denso Corp 4,056,011
16,000 Dowa Mining Co 56,078
1,129 East Japan Railway Co 4,808,236
152,000 Eisai Co Ltd 2,846,300
81,300 Fanuc Co 2,526,100
415,000 Fuji Heavy Industries Ltd 1,977,173
274,000 Fuji Photo Film Co Ltd 9,171,928
414,000 Fujikara Ltd 3,245,041
783,000 Fujisawa Pharmaceutical Co Ltd 6,812,081
12,000 Fujita Kanko Inc 132,240
44,000 Fujitec Co 404,673
1,565,000 Fujitsu Ltd 15,430,856
40,000 Furukawa Electric Co Ltd 185,931
292,000 Gakken Co Ltd 1,318,585
58,000 General Sekiyu (KK) 350,816
140,000 Green Cross Corp 579,998
705,000 Hankyu Corp 3,382,177
38,000 Hanwa Co Ltd * 102,958
1,040,000 Haseko Corp * 2,016,406
41,000 Heiwa Corp 567,321
17,000 Higo Bank Ltd 95,783
22,000 Hirose Electric 1,232,248
13,000 Hitachi Chemical Co 97,050
1,760,300 Hitachi Ltd 15,168,713
29,000 Hitachi Maxell Ltd 581,490
112,000 Hitachi Metals Ltd 779,518
51,300 Hokkaido Electric Power 875,615
107,000 Honda Motor Co Ltd 3,306,902
45,000 Hosiden Corp * 309,843
25,000 House Foods Corp 347,999
165,000 Hoya Corp 7,027,094
6,000 Hyogo Bank Ltd (b) * 1
259,000 INAX Corp 1,706,065
392,000 Industrial Bank of Japan 4,677,107
23,000 Intec Inc 272,516
108,000 Ishihara Sangyo Kaisha * 249,664
74,000 Isuzu Motors Ltd 334,162
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
119,000 Ito-Yokado 5,403,265
33,000 Japan Airlines Co * 136,987
10,000 Japan Airport Terminal Co Ltd 101,914
41,000 Japan Aviation Electronics 239,838
114,000 Japan Metals & Chemicals * 290,927
94,000 Japan Radio Co 903,472
724,000 Japan Synthetic Rubber Co Ltd 5,135,007
832 Japan Tobacco Inc 5,583,893
136,000 JGC Corp 776,402
170,000 Joshin Denki Co Ltd 1,535,338
47,000 Kaken Pharmaceutical Co Ltd 242,613
148,000 Kamigumi Co Ltd 779,915
50,000 Kandenko Co 422,570
229,000 Kanebo Ltd * 396,561
89,000 Kaneka Corp 446,880
32,000 Kankaku Securities Co Ltd * 63,104
109,200 Kansai Electric Power 1,981,506
79,000 Kansai Paint Co Ltd 326,630
233,000 Kao Corp 2,548,347
29,000 Katokichi Co Ltd 466,153
89,000 Kawasaki Heavy Industry 368,713
329,000 Keihin Electric Express Railway Co Ltd 1,420,242
118,000 Kenwood Corp * 503,521
14,000 Keyence Corp 1,705,195
67,000 Kinden Corp 871,572
1,028,000 Kinki Nippon Railway Co Ltd 6,175,325
270,000 Kirin Brewery Co Ltd 2,304,251
26,000 Kissei Pharmaceutical Co Ltd 519,181
53,000 Kokusai Electric 821,195
195,000 Kokusai Kogyo Co Ltd 1,615,710
93,000 Kokuyo Co Ltd 1,988,069
51,000 Komori Corp 1,064,877
31,000 Konami Co Ltd 888,723
62,000 Koyo Seiko Co Ltd 460,800
226,000 Kubota Corp 1,028,039
618,000 Kurabo Industries Ltd 1,546,408
48,000 Kurita Water Industries Ltd 1,014,169
104,000 Kyocera Corp 6,161,240
79,000 Kyowa Exeo Corp 621,187
96,000 Kyowa Hakko Kogyo Co Ltd 637,136
30,000 Kyudenko Corp 228,685
101,100 Kyushu Electric Power Co Inc 1,750,758
500 Long Term Credit Bank of Japan 1,802
18,000 Mabuchi Motor Co 896,346
99,000 Maeda Corp 601,268
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
62,000 Maeda Road Construction 529,124
60,000 Makino Milling Machine Co Ltd 421,079
26,000 Makita Corp 357,610
25,000 Marudai Food Co Ltd 107,714
534,000 Marui Co Ltd 7,654,487
40,000 Maruichi Steel Tube 626,398
117,000 Matsushita Communications 3,073,080
768,000 Matsushita Electric Industrial Co Ltd 11,835,943
568,000 Matsushita Electric Works Ltd 4,988,649
70,000 Matsushita Kotubuki 2,000,994
954,000 Mazda Motor Corp * 2,782,401
78,000 Meiji Milk Products Co Ltd 347,701
633,000 Minebea Co Ltd 5,234,352
134,000 Minolta Co Ltd 827,160
55,000 Misawa Homes 335,405
345,000 Mitsubishi Corp 3,201,591
628,000 Mitsubishi Electric Corp 3,527,914
675,000 Mitsubishi Gas Chemical Co Inc 2,472,036
406,000 Mitsubishi Materials Corp 1,507,068
276,000 Mitsubishi Oil Co Ltd 1,147,999
153,000 Mitsubishi Paper Mills Ltd 567,934
131,000 Mitsubishi Rayon Co Ltd 475,416
130,000 Mitsubishi Steel Manufacturing * 447,013
1,931,000 Mitsui Engineering & Shipbuilding * 3,631,925
125,000 Mitsui Fudosan Co Ltd 1,356,782
406,000 Mitsui Mining & Smelting Co Ltd 1,560,892
270,000 Mitsui OSK Lines * 536,913
160,000 Mitsui Petrochemical Industries Ltd 734,444
39,000 Mochida Pharmaceutical Co Ltd 326,373
3,000 Mori Seiki Co Ltd 40,268
92,000 Murata Manufacturing Co Ltd 3,224,459
69,000 Nachi Fujikoshi Co 206,960
9,000 Nagase & Co 59,135
130,000 Nagoya Railroad Co Ltd 480,404
16,400 Namco Ltd 463,369
102,000 National House Industrial 1,233,905
825,000 NEC Corp 9,569,973
87,000 New Japan Securities Co Ltd * 267,437
381,000 New Oji Paper Co Ltd 2,121,402
51,000 NGK Insulators 464,827
180,000 NGK Spark Plug Co 1,849,366
9,000 NHK Spring Co Ltd 32,066
103,000 Nichicon Corp 1,186,262
241,000 Nichii Co Ltd 3,095,120
58,000 Nihon Cement Co Ltd 276,328
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
244,000 Nikon Corp 3,578,424
167,400 Nintendo Co Ltd 11,803,579
2,000 Nippon Beet Sugar Manufacturing Co Ltd 6,745
440,000 Nippon Carbon Co Ltd * 1,221,311
66,000 Nippon Chemical 432,563
15,000 Nippon Comsys 165,300
48,000 Nippon Electric Glass Co 660,204
404,000 Nippon Express Co Ltd 2,600,945
36,000 Nippon Hodo Co 291,126
157,000 Nippon Light Metal 558,066
60,000 Nippon Meat Packers Inc 601,541
4,147,000 Nippon Oil Co Ltd 17,489,626
237,000 Nippon Paper Industries 1,111,459
13,000 Nippon Shinpan Co Ltd 54,934
96,000 Nippon Shokubai Corp 612,478
231,000 Nippon Soda Chemical Co Ltd 1,684,315
32,000 Nippon Suisan Kaisha Ltd * 85,111
4,364 Nippon Telegraph & Telephone 31,060,370
5,000 Nippon Television Network 1,487,281
44,000 Nippon Yusen (KK) 171,348
241,000 Nishimatsu Construction 1,797,166
1,401,000 Nissan Motor Co Ltd 8,265,076
458,000 Nisshinbo Industries Inc 3,301,516
472,000 Nissho Iwai Corp 1,779,435
27,000 Nissin Food Products Co Ltd 516,779
150,000 Nitto Boseki Co Ltd 461,099
395,000 Nitto Denko Corp 5,269,285
470,000 Odakyu Electric Railway Co Ltd 2,418,345
656,000 Oki Electric Industry 3,456,923
122,000 Okumura Corp 644,925
82,000 Olympus Optical Co Ltd 686,221
134,000 Omron Corp 2,109,537
118,000 Ono Pharmaceutical Co Ltd 3,793,521
19,000 Onoda Cement Co Ltd 66,750
4,000 Onward Kashiyama Co Ltd 49,051
30,000 Orient Corp 133,980
270,000 Pioneer Electronics Corp 5,212,528
1,000 Rasa Industries Ltd 5,344
1,078,000 Renown Inc * 2,143,674
449,000 Ricoh Co Ltd 5,282,791
6,000 Rinnai Corp 108,377
170,000 Royal Co Ltd 2,873,478
36,000 Sagami Railway Co Ltd 129,754
174,000 Sanden Corp 1,398,459
190,000 Sankyo Co Ltd 5,289,585
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
54,000 Sanrio Co Ltd * 340,045
9,000 Sanwa Shutter Corp 65,101
20,000 Sanyo Securities Co Ltd * 44,908
158,000 Sato Kogyo Co Ltd 353,468
47,500 Secom Co Ltd 2,676,278
101,300 Sega Enterprises 2,836,971
56,000 Seino Transportation Co Ltd 556,798
62,000 Seiyu 534,261
414,000 Sekisui Chemical Co Ltd 4,287,845
154,000 Sekisui House Ltd 1,429,116
84,000 Seven-Eleven Japan 5,052,946
50,000 Shikoku Electric Power 865,855
205,000 Shin-Etsu Chemical Co Ltd 3,957,660
216,000 Shionogi and Co Ltd 1,344,072
241,000 Shiseido Co Ltd 2,815,561
109,000 Shokusan Jutaku Sogo Co Ltd * 183,337
448,000 Showa Denko 983,677
209,000 Showa Line Ltd * 211,269
339,000 Showa Shell Sekiyu 2,530,773
148,000 Skylark Co Ltd 2,133,731
28,000 SMC 1,904,715
110,000 Sony Corp 7,938,520
208,000 Stanley Electric Co Ltd 1,058,182
518,000 Sumitomo Corp 3,892,833
51,000 Sumitomo Electric 705,692
53,000 Sumitomo Forestry Co Ltd 606,015
412,000 Sumitomo Heavy Industries Ltd 1,242,588
34,000 Sumitomo Osaka Cement Co Ltd 92,965
70,000 Sumitomo Rubber Inc 461,099
154,000 Taisho Pharmaceutical Co Ltd 3,547,270
166,000 Taiyo Yuden Co Ltd 1,939,349
62,000 Takara Standard Co 462,855
132,000 Takashimaya Co 1,454,636
257,000 Takeda Chemical Industries Ltd 5,153,202
114,000 Takuma Corp 1,294,059
100,000 Tanabe Seiyaku Co Ltd 724,998
174,000 TDK Corp 11,649,018
218,000 Terumo Corp 3,179,054
86,000 Toda Corp 493,811
3,400 Toho Co Ltd 445,107
82,400 Tohoku Electric Power Co Inc 1,413,274
73,000 Tokyo Broadcasting System Inc 1,058,497
116,000 Tokyo Electric Co Ltd * 422,902
218,700 Tokyo Electric Power 4,059,060
193,000 Tokyo Steel Manufacturing Co 2,126,854
See accompanying notes to the financial statements. 19
</TABLE>
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
51,000 Tokyo Style Co Ltd 583,147
77,000 Tokyo Tatemono Co Ltd 334,949
525,000 Tokyu Construction Co Ltd 1,157,097
100,000 Tokyu Land Corp * 343,856
403,000 Toppan Printing Co Ltd 4,641,395
46,000 Toray Industries Inc 266,037
1,198,000 Toshiba Corp 6,749,855
34,000 Toshiba Tungaloy Co Ltd 152,125
54,000 Tostem Corp 1,252,796
13,000 Toyo Exterior Co Ltd 177,728
66,000 Toyo Seikan Kaisha Ltd 1,547,601
179,000 Toyo Trust & Banking Co Ltd 1,278,465
75,000 Toyoda Auto Loom 1,298,782
154,000 Toyota Motor Corp 3,942,829
51,000 Tsubakimoto Chain 265,797
32,000 Tsumura and Co 198,857
15,000 Unicharm Corp 385,285
61,000 Uniden Corp 657,055
16,000 UNY Co Ltd 282,376
231,000 Wacoal Corp 2,335,073
54,000 Yakult Honsha Co Ltd 545,861
13,000 Yamaguchi Bank Ltd 159,417
168,000 Yamaha Corp 3,201,591
313,000 Yamanouchi Pharmaceutical Co Ltd 6,535,421
197,000 Yamato Transport Co Ltd 1,942,414
38,000 Yamazaki Baking Co Ltd 569,890
93,000 Yodogawa Steel Works 531,693
179,000 Yokogawa Electric Corp 1,371,903
2,000 Yoshitomi Pharmaceutical Industries Ltd 13,622
------------------
583,881,224
------------------
Malaysia - 4.6%
201,000 Aluminum Co Malaysia 322,183
1,051,000 Amalgamated Steel Mills Berhad 931,212
2,016,596 Amcol Holdings Ltd (c) 1,909,120
478,200 AMMB Holdings Berhad 4,506,597
455,000 Aokam Perdana Berhad * 980,366
312,000 Arab Malaysian Finance (Foreign Registered) 2,173,822
42,000 Ayer Hitam Tin Dredging * 95,570
2,028,000 Berjaya Group 2,825,969
1,166,000 Berjaya Industrial Berhad 1,868,981
1,078,000 Berjaya Leisure Berhad 3,017,358
884,000 Berjaya Sports Toto 5,126,702
109,000 Carlsberg Brew Malaysia 939,428
274,000 Cement Industries of Malaysia Berhad 833,145
182,000 DMIB Berhad 216,963
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
687,000 Edaran Otomobil Berhad 7,055,377
359,000 Ekran Berhad 1,286,790
203,000 Esso Malaysia Berhad 560,028
266,000 Faber Group Berhad * 340,669
355,000 Genting Berhad 2,416,230
550,000 Golden Hope Plantations Berhad 992,348
186,000 Golden Plus Holdings 479,420
208,000 Guinness Anchor Berhad 536,126
240,000 Highlands and Lowlands Berhad 429,158
194,600 Hong Leong Industries Berhad 666,170
18,800 Hong Leong Industries Berhad Class A 64,358
607,000 Hong Leong Properties Berhad 1,124,527
170,000 Hume Industries Berhad 1,074,909
832,000 IJM Corp Berhad Class A 2,228,272
228,000 Innovest Berhad 867,741
1,273,000 IOI Corporation Berhad 2,296,834
307,000 Jaya Tiasa Holdings Berhad 1,681,514
390,000 Johan Holdings Berhad 420,942
697,000 Kedah Cement Berhad 1,353,006
148,000 Kelanamas Industries 312,928
419,000 Kemayan Corporation Berhad 631,116
192,000 Kian Joo Can Factory 904,712
36,000 Kuala Lumpur Kepong Berhad 108,739
1,147,000 Kuala Lumpur Kepong Berhad (Singapore) 3,378,261
947,000 Kumpulan Guthrie Berhad 1,647,620
814,000 Land & General Berhad 1,655,538
533,000 Landmark Berhad 957,382
890,000 Leader Universal Holdings 1,899,718
2,058,000 Magnum Corp Berhad 4,268,506
364,000 Malayan Cement Berhad 952,880
1,917,000 Malayan United Industries Berhad 1,752,553
264,000 Malayawata Steel 520,983
1,231,000 Malaysian Airline Systems 3,272,090
988,000 Malaysian Helicopter Berhad 1,400,628
782,000 Malaysian International Ship (Alien Market) 2,062,868
346,000 Malaysian Mosaics 601,981
120,000 Malaysian Oxygen Berhad 647,604
266,000 Malaysian Pacific Industries 1,103,423
272,000 Malaysian Plantations Rights 4/9/97 * 118,309
408,000 Malaysian Plantations 961,257
310,000 Malaysian Resources Corp 1,310,914
47,000 Matsushita Electric 459,968
1,780,000 MBF Capital Berhad 3,656,061
2,717,000 MBF Holdings Berhad 1,805,497
1,178,000 Metroplex Berhad 1,603,560
See accompanying notes to the financial statements 21
</TABLE>
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
805,000 Mulpha International 875,352
1,106,000 Multi Purpose Holdings 2,628,031
161,000 Nestle Malaysia 1,225,493
311,000 New Straits Times 1,978,977
773,600 Oriental Holdings Berhad 6,978,913
172,000 OYL Industries Berhad 1,676,359
1,116,000 Pan Malaysia Cement 1,330,391
670,500 Perlis Plantations 2,079,279
897,000 Pernas International Hotel & Property 1,105,445
2,209,000 Perusahaan Otomobil 14,590,254
291,000 Petaling Garden Berhad 496,915
447,000 Petronas Dagangan Berhad 1,197,161
299,000 Petronas Gas Berhad 1,089,791
257,000 Pilecon Engineering Berhad 465,767
326,000 PJ Development Holdings 376,810
678,000 Promet Berhad * 767,290
2,870,000 Public Bank Berhad (Alien Market) 6,703,987
3,277,000 Renong Berhad 5,965,381
653,000 Resorts World Berhad 3,050,665
285,000 RJ Reynolds Berhad 780,507
54,000 Rothmans of Pall Mall Malaysia Berhad 560,008
1,689,000 Sarawak Enterprises Corp 3,224,269
338,000 Shell Refinery Co 1,089,005
234,000 Sime Darby 270,442
950,000 Sime Darby Berhad 3,596,456
60,000 Sime UEP Properties Berhad 161,901
224,000 Sistem Television Malaysia 460,089
345,000 Sungei Way Holdings 1,000,403
974,000 TA Enterprise Berhad 1,545,534
3,214,000 Tan Chong Motor Holdings Berhad 6,536,730
650,000 Technology Resources Industries 1,518,325
772,000 Telekom Malaysia 6,249,376
2,016,000 Tenaga Nasional 9,661,861
635,000 Time Engineering Berhad 1,432,139
235,000 Tractors Malaysia Holdings Berhad 492,147
1,196,000 UMW Holdings Berhad 6,309,948
177,000 Uniphone Telecommunications 246,645
523,000 Westmont Industries Berhad 1,063,693
711,000 YTL Corp 4,123,399
---------------
194,522,069
---------------
Netherlands - 0.1%
5,200 ACF Holding NV 83,526
850 Cap Volmac Group NV 28,426
41,470 Elsevier NV 663,939
4,200 Fortis Amev NV 161,470
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Netherlands - continued
4,100 Getronics NV 133,874
1,500 Gist Brocades NV 50,795
18,300 ING Groep NV 708,368
1,000 Internatio-Muller 30,230
2,900 KLM Ltd 88,888
4,823 Kon Bolswessanen 84,583
4,000 Koninklijke KNP BT 91,426
1,266 Koninklijke Pakhoed 39,671
11,400 Schroders International Property Fund 23,449
2,200 Telegraaf Holdings CVA 48,431
10,940 VNU 226,428
---------------
2,463,504
---------------
New Zealand - 0.1%
482,442 Fletcher Challenge Energy 1,238,225
1,839,929 Lion Nathan Ltd 4,531,392
23,697 Trans Tasman Properties 12,131
---------------
5,781,748
---------------
Norway - 1.6%
202,555 Bergesen D Y AS Class A 4,208,248
56,300 Dyno Industrier AS 1,336,776
31,250 Elkem AS Class A 500,846
78,940 Kvaerner Industrier AS 3,877,532
182,574 Leif Hoegh and Co AS 3,522,189
832,290 Norsk Hydro AS 41,684,901
98,144 Nycomed ASA B Shares 1,456,445
87,390 Orkla-Borregaard AS Class A 6,964,122
236,634 SAS Norge ASA Class B 2,352,785
121,210 Unitor AS 1,564,905
---------------
67,468,749
---------------
Singapore - 2.7%
2,719,852 Chuan Hup Holdings Ltd 2,098,063
3,581,096 DBS Land Ltd 13,937,646
198,200 Faber Group Berhad * 247,403
1,109,309 First Capital Corp Ltd 3,329,483
1,365,577 Fraser and Neave Ltd 12,257,634
8,000 Golden Hope Plantations Berhad 14,530
75,000 Goodman Fielder Asia Holdings Ltd 129,909
3,550,936 Hai Sun Hup Group Ltd 2,639,546
1,393,351 Haw Par Brothers International Ltd 3,243,987
139,335 Haw Par Brothers International Ltd Warrants 7/18/2001 * 134,840
785,000 Highlands and Lowlands Berhad 1,425,771
2,511,104 Hotel Properties Ltd 4,437,575
584,708 Inchcape Berhad 2,041,968
2,480,621 Jardine Matheson Holdings Ltd 15,007,757
5,529,521 Jardine Strategic Holdings Ltd 18,136,829
</TABLE>
See accompanying notes to the financial statements 23
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Singapore - continued
583,712 Jurong Shipyard Ltd 2,783,479
1,281,849 Lum Chang Holdings Ltd 1,204,543
980,000 Malaysia Mining Corp Berhad 1,340,112
1,000 Marco Polo Developments Ltd 2,272
565,000 Metro Holdings Ltd 1,846,353
4,519,556 Neptune Orient Lines Ltd 3,898,355
259,200 Prima Ltd 901,565
448,424 Robinson and Co Ltd 1,839,608
249,651 Shangri-La Hotel Ltd 787,819
316,712 Singapore Land Ltd 1,787,890
2,315,168 Straits Trading Co Ltd 5,714,861
392,036 Times Publishing Ltd 874,246
264,000 United Engineers 457,279
9,447,960 United Industrial Corp Ltd 8,149,362
1,361,116 United Overseas Land Ltd 2,176,258
570,300 Wearne Brothers Ltd 1,559,727
---------------
114,406,670
---------------
Spain - 3.5%
341,678 Argentaria Corporacion Bancaria de Espana SA 13,681,421
13,570 Azucarera de Espana SA 639,925
626,979 Banco Bilbao Vizcaya SA 36,958,302
307,004 Banco Central Hispanoamericano SA 8,138,230
9,300 Banco Zaragozano SA 188,141
1,100 Bodegas Y Bebidas SA 30,195
11,959 Cristaleria Espanola SA 993,594
212,055 Dragados y Construcciones SA 3,210,041
83,715 Empresa Nacional de Electricidad SA 5,109,915
180,525 Ercros SA * 117,118
8,573 Fabricacion de Automoviles Renault de Espana SA 164,463
2,231,326 FENOSA SA 17,666,934
747,654 Fuerzas Electricas de Cataluna SA 5,971,844
38,886 Grupo Duro Felguera SA * 394,692
1,373,280 Iberdrola SA 14,992,558
366,774 Repsol SA 13,944,320
132,610 Sarrio SA 481,966
605,519 Sevillana de Electricidad 5,491,278
111,886 Tabacalera SA Class A 5,065,505
79,001 Tableros Defibras Class B 763,281
552,904 Telefonica de Espana SA 12,728,170
4,800 Telefonica de Espana SA ADR 330,600
180,175 Uralita SA 1,414,000
---------------
148,476,493
---------------
Sweden - 4.4%
76,977 Assi Doman 1,996,776
48,600 Autoliv AB 2,210,240
148,000 Avesta Sheffield AB 1,500,113
470,000 Bilspedition AB Class B * 1,748,843
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Sweden - continued
139,967 Celsius Industrier AB Class B 2,697,381
4,103 Custos AB Series Class A 95,214
28,100 Custos AB Series Class B 650,211
6,346 Diligentia AB * 84,212
333,020 Electrolux AB Class B 20,830,128
461,700 Ericsson LM Class B 14,685,780
81,100 Esselte AB Class A 1,963,117
58,200 Esselte AB Class B 1,412,678
37,640 Euroc Industri AB Class A 1,400,563
43,200 Hennes and Mauritz AB Class B 6,141,716
20,303 Industrivarden AB Class A 1,020,823
3,378 Industrivarden AB Class C (Bearer) 162,185
74,200 Kinnevik Investment Class B 2,102,866
130,820 Marieberg Tidnings AB Class A 3,628,994
552,200 Mo Och Domsjo AB Class B 17,527,587
161,800 Nordbanken 5,869,434
1,400 Perstorp AB Class B 25,206
7,800 Securitas AB 223,657
22,600 Skandia Group Foersaekrings AB 687,214
933,460 Skandinaviska Enskilda Banken Class A 9,834,937
524,540 Skanska AB Class B 23,155,565
59,020 SKF AB Class B 1,408,968
476,700 Sparbanken Sverige AB Class A 9,409,264
223,600 Ssab Swedish Steel Class A 3,802,163
78,900 Ssab Swedish Steel Class B 1,341,640
161,388 Stena Line AB Class B 766,249
969,900 Stora Kopparberg Bergslags Class A 13,258,659
243,700 Stora Kopparberg Bergslags Class B 3,298,909
715,472 Svenska Cellulosa Class B 15,887,503
183,600 Svenska Handelsbanken Class A 5,142,103
4,400 Svenska Handelsbanken Class B 117,950
17,200 Svenska Kullagerfabriken AB 406,023
4,486 Sydkraft AB Class A 101,708
11,977 Sydkraft AB Class C 233,211
346,700 Trelleborg AB Class B 5,433,010
41,382 Trygg Hansa Holdings AB Class B 872,002
22,200 Volvo AB Class A 552,180
100,850 Volvo AB Class B 2,528,614
---------------
186,215,596
---------------
Switzerland - 0.9%
2,875 Adia SA (Bearer) 931,695
1,355 Bobst SA (Bearer) 1,833,614
1,553 Bobst SA (Registered) 968,651
879 Danzas Holding AG (Registered) 941,573
3,747 Elektrowatt AG (Bearer) 1,348,920
410 Fischer (George) AG (Bearer) 418,339
350 Fischer (George) AG (Registered) 67,390
</TABLE>
See accompanying notes to the financial statments. 25
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
Switzerland - continued
<S> <C> <C>
850 Forbo Holdings AG (Registered) 344,034
285 Helvetia Patria Holding * 107,817
296 Hero AG (Bearer) 136,461
4,600 Hilti AG, Schaan (Participating Certificate) 2,900,339
3,604 Holderbank Financiere Glarus AG (Bearer) 2,682,842
16,160 Holderbank Financiere Glarus AG (Registered) 2,421,261
6,720 Interdiscount Holdings (Bearer) * 74,717
460 Kuoni Reisen Holdings AG (Registered) 1,210,034
770 Magazine zum Globus (Registered) 375,864
6,926 Merkur Holding AG (Registered) 1,460,329
3,758 Novartis AG (Bearer) 4,300,681
3,758 Novartis Rights 3/12/97 * 237,837
980 Pargesa Holding SA (Bearer) 996,610
650 Saurer Group Holdings (Registered) 308,475
1,649 Schindler Holding AG (Participating Certificate) 1,844,644
1,558 Schindler Holding AG (Registered) 1,658,346
2,376 Sika Finanz AG (Bearer) 589,570
3,983 SMH AG (Bearer) 2,268,285
17,092 SMH AG (Registered) 2,250,929
700 Societe Generale de Surveillance Holdings Ltd (Registered) 291,864
2,115 Sulzer Gebrueder AG (Registered) 1,319,186
19,874 Zurich Vericher Namen (Registered) 5,915,041
------------------
40,205,348
<CAPTION> ------------------
United Kingdom - 23.3%
<S> <C> <C>
180,200 3 Group Plc 1,496,441
272,700 Allied Colloids 571,709
1,925,350 Allied Domecq Plc 13,679,963
981,321 AMEC 1,905,220
101,510 Amersham International 2,144,696
695,320 Amstrad Plc 2,166,732
519,300 Anglian Water Plc 5,490,102
454,187 Argos Plc 5,083,302
1,029,900 Arjo Wiggins Appleton Plc 2,722,057
19,820,200 ASDA Group 36,217,055
372,640 Ashley (Laura) Holdings 957,540
1,065,120 Associated British Foods 8,445,432
328,900 Associated British Ports Holdings Ltd 1,682,242
219,000 Astec (BSR) 514,510
1,581,000 Bank of Scotland 8,808,656
960,200 Barratt Development 4,347,221
1,904,530 Bass 26,566,908
214,700 BAT Industries 1,881,020
83,300 BBA Group 466,151
902,500 Beazer Holmes Plc 2,944,858
176,200 Berisford International 393,834
</TABLE>
26 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
United Kingdom - continued
<S> <C> <C>
7,634,500 BG Plc 21,236,946
139,844 BICC 629,709
341,300 Blue Circle Industries 2,218,971
341,920 Booker Plc 1,913,400
441,400 BPB Industries Plc 2,462,893
725,626 British Aerospace 15,097,160
609,885 British Airways 6,273,648
133,110 British Land Co 1,161,854
2,872,300 British Petroleum 31,842,440
5,211,200 British Steel 12,753,109
10,005,600 British Telecom Plc 69,473,892
943,369 BTR 3,701,551
424,892 Bunzl Co 1,459,210
172,200 Burmah Castrol Plc 2,904,964
5,439,000 Burton Group 13,887,385
435,400 Caradon 1,939,269
83,320 Carlton Communications 709,589
7,634,500 Centrica Plc * 8,158,475
6,398 Charter Plc (Registered) 77,035
38,400 Chubb Security 267,514
2,568,994 Coats Viyella 5,406,795
24,800 Cobham Group Plc 237,305
1,227,772 Cookson Group 4,687,277
433,000 Cordiant Plc * 690,545
157,900 Costain Group (c) 115,926
138,800 Courtaulds 824,286
209,100 Courtaulds Textiles Plc 846,044
160,439 Dalgety Plc 858,560
1,086,000 Dawson International 1,222,548
620 De La Rue Plc 6,292
209,900 Delta 1,202,006
311,600 Electrocomponents Plc 2,041,127
27,462 Energy Group Plc * 233,878
873,471 English China Clays Plc 3,049,645
1,325,400 Enterprise Oil 13,450,066
1,058,400 Eurotunnel SA Units (Registered) * 1,312,353
277,397 FKI 846,312
3,516,315 General Electric 21,398,517
1,127,510 Glaxo Wellcome Plc 19,112,743
211,850 Granada Group 3,193,651
2,436 Grand Metropolitan 18,083
192,600 Great Portland Estates Plc 663,019
428,849 Great Universal Stores Plc 4,554,833
665,453 Greenalls Group Plc 6,058,131
55,500 Greycoat Plc 144,877
</TABLE>
See accompanying notes to the financial statements. 27
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
357,100 Guinness 2,668,348
47,100 Hambros 199,793
48,463 Hammerson 346,315
34,328 Hanson Plc 154,017
503,630 Harrisons & Crosfield 1,084,608
630,300 Hazlewood Foods 1,223,718
36,993 Hepworth 158,128
3,581,151 Hillsdown Holdings 11,159,457
233,990 Hyder Plc 3,168,564
1,720,910 Imperial Chemical Industries Plc 21,254,022
27,462 Imperial Tobacco Group Plc * 190,418
246,084 Inchcape 1,067,953
1,093,820 Kingfisher 12,081,521
223,960 Kwik Save Group 1,116,269
5,879,715 Ladbroke Group 22,063,337
2,800 Laird Group 16,423
4,000 Laporte Plc 41,962
4,151,000 Lasmo 16,321,379
2,033,200 Legal & General Group 12,970,118
411,325 Lex Service 2,342,058
1,243,548 Lloyds TSB Group 10,347,128
885,300 London International 2,412,093
5,543,777 Lonrho 13,024,328
815,457 Lucas Variety Plc * 2,720,705
536,726 Marley 1,085,829
487,100 Meggitt 842,386
18,000 MEPC Ord 137,438
115,580 Mercury Asset Management 2,541,907
260,000 Meyer International 1,705,244
646,100 MFI Furniture Group 2,066,060
3,922 Millennium Chemicals Inc 75,008
2,261,789 Mirror Group Plc 7,730,778
228,000 National Grid Holdings Plc 770,003
2,828,130 National Power 22,666,737
395,400 Next 3,838,316
80,165 NFC Plc 224,957
1,303,499 Norcros Plc 1,956,526
331,200 Northern Foods Plc 1,150,951
171,700 Ocean Group 1,315,204
1,811,800 Orange Plc 6,266,618
2,938,300 Peninsular & Oriental Steam Navigation Co 31,974,889
5,113,449 Pilkington 12,096,758
23,100 Powell Duffryn 153,766
848,276 Powergen 8,552,887
98,200 Premier Farnell Plc 789,852
</TABLE>
30 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
448,800 Racal Electronics 2,123,430
475,600 Railtrack Group Plc 3,511,135
2,235,320 Rank Group Plc * 15,207,675
415,477 Reckitt & Colman 5,402,470
1,029,646 Redland 5,845,939
1,426,100 Rentokil Plc 10,493,336
1,560,500 Reuters Holdings 16,726,929
488,950 Rexam Plc 2,592,596
262,850 RMC Group 4,084,699
3,188,038 Rolls-Royce 12,066,979
125,491 Royal & Sun Alliance Insurance 1,007,314
544,900 Rugby Group 969,015
267,021 Safeway Plc 1,577,034
123,400 Sainsbury (J) 622,101
2,600 Salvesen (Christian) 13,595
13,790 Schroders 381,348
803,400 Scottish Hydro-Electric Plc 4,666,260
2,324,544 Scottish Power Plc 13,273,727
320,800 Scottish & Newcastle Plc 3,543,318
5,381,600 Sears 7,111,865
377,361 Securicor Plc 1,927,030
997,476 Severn Trent Plc 11,603,234
480,810 Shell Transport & Trading (Registered) 8,150,347
451,710 Siebe Plc 7,133,820
1,821,045 Signet Group Plc * 950,731
788,019 Simon Engineering 539,974
77,000 Slough Estates 356,776
179,826 Smith & Nephew Plc 566,235
1,308,202 Smithkline Beecham Plc 19,571,820
80,810 Smiths Industries 1,017,817
590,700 Southern Electric Plc 7,632,718
210,300 Southwest Water 2,353,697
1,233,737 Storehouse Plc 5,515,187
3,060,331 T & N 8,138,476
7,869,600 Tarmac 12,967,645
159,600 Tate & Lyle 1,136,591
2,620,500 Taylor Woodrow Plc 8,165,910
10,700 Telewest Communications Plc * 20,948
3,492,655 Tesco 19,260,141
905,600 Thames Water 10,150,332
30,000 Thistle Hotels Plc * 100,827
225,800 TI Group Plc 1,941,430
1,445,890 Tomkins Plc 6,723,063
362,500 Transport Development Group 1,212,408
134,300 Unigate 1,001,335
303,460 Unilever Plc 7,805,173
1,872,759 United Biscuits 7,332,975
</TABLE>
See accompanying notes to the financial statements. 31
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
124,900 United News & Media Plc 1,442,722
1,608,100 United Utilities 17,394,568
249,930 Vendome Luxury Group Plc Units 2,144,822
301,500 Vickers 1,328,123
742,950 Vodafone Group Plc 3,527,278
699,100 Waste Management International * 2,691,773
563,725 Wessex Water Plc 3,310,982
1,196,840 Whitbread Plc Class A 15,347,785
100,700 Willis Corroon Group Plc 251,367
611,474 Wilson (Connolly) Holdings 1,566,263
2,216,200 Wimpey (George) 5,098,180
47,162 Wolseley 362,410
299,200 Yorkshire Electricity Group 4,359,133
706,200 Yorkshire Water 8,284,069
------------------
996,511,138
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $3,829,977,485) 4,123,957,279
------------------
SHORT-TERM INVESTMENTS - 13.9%
Cash Equivalents - 12.2%
$ 53,200,000 Republic Bank of New York Time Deposit, 5.34% due 3/3/97 53,200,000
465,118,468 The Boston Global Investment Trust (d) 465,118,468
------------------
518,318,468
------------------
U.S. Government - 1.7%
$ 74,000,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 70,618,221
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $588,929,520) 588,936,689
------------------
TOTAL INVESTMENTS - 110.7%
(Cost $4,418,907,005) * * 4,712,893,968
Other Assets and Liabilities (net) - (10.7%) (454,446,677)
------------------
TOTAL NET ASSETS - 100.0% $ 4,258,447,291
==================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) All or a portion of this security is held as
collateral for open futures contracts.
(b) Bankrupt issuer.
(c) Valued by management (Note 1).
(d) Represents investment of security lending collateral
(Note 1).
* Non-income producing security. A dividend has not been
declared for the year ended February 28, 1997.
** The aggregate identified cost for federal income tax
purposes is $4,444,715,156, resulting in gross
unrealized appreciation and depreciation of
$492,635,990 and $224,457,178, respectively, and net
unrealized appreciation of $268,178,812.
32 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector (Unaudited)
<TABLE>
<S> <C>
Banking 8.2%
Conglomerates 7.1
Services 6.4
Utilities 5.8
Real Estate 5.7
Construction 5.4
Oil and Gas 5.4
Consumer Goods 5.0
Chemicals 4.7
Retail Trade 4.6
Telecommunications 4.2
Machinery 4.0
Health Care 4.0
Electronic Equipment 3.9
Transportation 3.4
Food and Beverage 3.2
Automotive 2.6
Communications 2.2
Metals and Mining 2.1
Insurance 2.1
Paper and Allied Products 2.1
Financial Services 1.2
Aerospace 1.1
Textiles 0.7
Computers 0.7
Miscellaneous 4.2
-----
100.0%
=====
</TABLE>
See accompanying notes to the financial statements. 31
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $4,418,907,005) (Note 1) $ 4,712,893,968
Foreign currency, at value (cost $10,330,708) (Note 1) 10,322,949
Cash 69,550
Receivable for Fund shares sold 11,788
Receivable for investments sold 110,214,504
Dividends and interest receivable 3,966,583
Foreign withholding taxes receivable 4,818,096
Receivable for open swap contracts (Note 1) 22,592,200
Receivable for daily variation margin on open futures contracts 235,333
Receivable for open forward foreign currency contracts (Note 6) 75,418,471
Receivable for expenses waived or borne by Manager (Note 2) 1,183,642
-------------------
Total assets 4,941,727,084
-------------------
Liabilities:
Payable upon return of securities loaned (Note 1) 465,118,468
Payable for investments purchased 100,587,432
Payable for open forward foreign currency contracts (Note 6) 103,379,768
Payable for Fund shares repurchased 10,085,397
Payable to affiliate for (Note 2):
Management fee 2,463,680
Shareholder service fee 494,215
Accrued expenses 1,150,833
-------------------
Total liabilities 683,279,793
-------------------
Net assets $ 4,258,447,291
===================
Net assets consist of:
Paid-in capital $ 3,883,061,264
Accumulated undistributed net investment income 9,222,649
Accumulated undistributed net realized gain 81,342,864
Net unrealized appreciation 284,820,514
-------------------
$ 4,258,447,291
===================
Net assets attributable to:
Class I Shares $ 208,388
===================
Class II Shares $ 25,302,379
===================
Class III Shares $ 4,232,936,524
===================
Shares outstanding:
Class I 8,554
===================
Class II 1,038,814
===================
Class III 173,673,156
===================
Net asset value per share:
Class I $ 24.36
===================
Class II $ 24.36
===================
Class III $ 24.37
===================
</TABLE>
32 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Year Ended February 28, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income:
Dividends (net of foreign tax expense of $13,152,317) $ 116,755,028
Interest (including securities lending income of $2,678,216) 17,528,094
---------------------
Total income 134,283,122
---------------------
Expenses:
Management fee (Note 2) 33,112,051
Custodian fees 3,179,085
Stamp duties and transfer taxes 763,267
Legal fees 230,796
Audit fees 84,433
Registration fees 56,542
Transfer agent fees 45,289
Trustees fee (Note 2) 22,361
Miscellaneous 40,182
Fees waived or borne by Manager (Note 2) (11,195,222)
---------------------
26,338,784
Shareholder service fee (Note 2)
Class I 266
Class II 21,305
Class III 4,872,989
---------------------
Net expenses 31,233,344
---------------------
Net investment income 103,049,778
---------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 347,712,058
Closed futures contracts (37,831,976)
Closed swap contracts (12,233,075)
Foreign currency, forward contracts and foreign
currency related transactions (65,761,352)
---------------------
Net realized gain 231,885,655
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments (52,573,782)
Open futures contracts (4,472,726)
Open swap contracts 24,926,117
Foreign currency, forward contracts and foreign
currency related transactions (10,241,123)
---------------------
Net unrealized loss (42,361,514)
---------------------
Net realized and unrealized gain 189,524,141
---------------------
Net increase in net assets resulting from operations $ 292,573,919
=====================
</TABLE>
See accompanying notes to the financial statements. 33
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
----------------------- -----------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income $ 103,049,778 $ 65,306,198
Net realized gain 231,885,655 109,487,879
Change in net unrealized appreciation (depreciation) (42,361,514) 289,471,168
----------------------- -----------------------
Net increase in net assets resulting from
operations 292,573,919 464,265,245
----------------------- -----------------------
Distributions to shareholders from:
Net investment income
Class I (2,078) -
Class II (231,954) -
Class III (56,618,907) (62,905,553)
----------------------- -----------------------
Total distributions from net investment income (56,852,939) (62,905,553)
----------------------- -----------------------
Net realized gains
Class I (8,575) -
Class II (932,158) -
Class III (264,270,135) (102,400,553)
----------------------- -----------------------
Total distributions from net realized gains (265,210,868) (102,400,553)
----------------------- -----------------------
Net share transactions: (Note 5)
Class I 206,837 -
Class II 25,522,151 -
Class III (275,828,032) 1,647,431,232
----------------------- -----------------------
Increase (decrease) in net assets from net fund share transactions (250,099,044) 1,647,431,232
----------------------- -----------------------
Total increase (decrease) in net assets (279,588,932) 1,946,390,371
Net assets:
Beginning of period 4,538,036,223 2,591,645,852
----------------------- -----------------------
End of period (including accumulated undistributed
net investment income (loss) of $9,222,649 and
$(5,469,509), respectively) $ 4,258,447,291 $ 4,538,036,223
======================= =======================
</TABLE>
34 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 10, 1996
(commencement of operations)
to February 28, 1997
--------------------
<S> <C>
Net asset value, beginning of period $ 24.17
-------------------------------
Income (loss) from investment operations:
Net investment income 0.14
Net realized and unrealized gain (loss)
on investments 1.38
-------------------------------
Total from investment operations 1.52
-------------------------------
Less distributions to shareholders:
From net investment income (0.26)
From net realized gains (1.07)
-------------------------------
Total distributions (1.33)
-------------------------------
Net asset value, end of period $ 24.36
===============================
Total Return (a) 6.38%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 208
Net expenses to average
daily net assets 0.85%*(b)
Net investment income to average
daily net assets 1.12%*
Portfolio turnover rate 97%
Average broker commission rate (c) $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total return would have
been lower had certain expenses not been waived during the period
shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .03% of average daily net assets.
(c) The average broker commission rate will vary depending on the markets
in which trades are executed.
See accompanying notes to the financial statements. 35
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 26, 1996
(commencement of operations)
to February 28, 1997
--------------------
<S> <C>
Net asset value, beginning of period $ 24.60
--------------------
Income (loss) from investment operations:
Net investment income 0.14
Net realized and unrealized gain (loss)
on investments 0.96
--------------------
Total from investment operations 1.10
--------------------
Less distributions to shareholders:
From net investment income (0.27)
From net realized gains (1.07)
--------------------
Total distributions (1.34)
--------------------
Net asset value, end of period $ 24.36
====================
Total Return (a) 4.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 25,302
Net expenses to average daily net assets 0.80% *(b)
Net investment income to average
daily net assets 0.98%*
Portfolio turnover rate 97%
Average broker commission rate (c) $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.05
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total return would have
been lower had certain expenses not been waived during the period
shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .04% of average daily net assets.
(c) The average broker commission rate will vary depending on the
markets in which trades are executed.
36 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.62 $ 22.32 $ 25.56 $ 18.51 $ 18.80
------------ ----------- ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income 0.59 0.36 0.27 0.29 0.29
Net realized and unrealized gain (loss)
on investments 1.02 3.09 (1.57) 7.44 (0.04)
------------ ----------- ------------ ------------ ------------
Total from investment operations 1.61 3.45 (1.30) 7.73 0.25
------------ ----------- ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.33) (0.39) (0.35) (0.27) (0.20)
From net realized gains (1.53) (0.76) (1.59) (0.41) (0.34)
------------ ----------- ------------ ------------ ------------
Total distributions (1.86) (1.15) (1.94) (0.68) (0.54)
------------ ----------- ------------ ------------ ------------
Net asset value, end of period $ 24.37 $ 24.62 $ 22.32 $ 25.56 $ 18.51
============ =========== ============ ============ ============
Total Return (a) 6.72% 15.72% (5.31%) 42.10% 1.43%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,232,937 $ 4,538,036 $ 2,591,646 $ 2,286,431 $ 918,332
Net expenses to average daily net assets 0.71% (b) 0.72% (b) 0.70% 0.71% (b) 0.70%
Net investment income to average
daily net assets 2.34% 1.93% 1.48% 1.48% 2.36%
Portfolio turnover rate 97% 14% 53% 23% 23%
Average broker commission rate (c) $ 0.0062 N/A N/A N/A N/A
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.06 $ 0.03 $ 0.03 $ 0.03 $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .02% of average daily net assets.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission
rate will vary depending on the markets in which trades are executed.
See accompanying notes to the financial statements. 37
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market- makers or estimates of market values obtained from
yield data relating to investments or securities with similar
characteristics.
38
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may purchase and sell stock index futures contracts. Stock index
futures contracts represent commitments for future delivery of cash based
upon the level of a specified index of equity securities at a specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock and currency markets. Buying futures tends to
increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. Upon purchase of a futures contract, the Fund is
required to deposit with its custodian, in a segregated account in the name
of the futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is subsequently settled. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts held as of February 28, 1997.
39
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of February 28, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 6 for a
summary of all open swap agreements as of February 28, 1997.
40
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At February 28, 1997, the Fund loaned securities having a
market value of $425,345,558 collateralized by cash in the amount of
$465,118,468, which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss carryover
for federal income tax purposes. Therefore, no provision for federal income
or excise tax is necessary. Taxes on foreign interest and dividend income
have been withheld in accordance with the applicable country's tax treaty
with the United States. Dividends received by shareholders of the Fund
which are derived from foreign source income and foreign taxes paid by the
Fund are to be treated, to the extent allowable under the Code, as if
received and paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency and passive foreign investment
company transactions and redemptions in-kind. Gains resulting from such
in-kind transactions amounted to $11,290,578.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
41
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Undistributed Net Investment Accumulated Net Realized
Income Gain/(Loss) Paid-in Capital
------------------------------------- --------------------------------- --------------------------
($31,504,681) $20,249,536 $11,255,145
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
the amount invested. All purchase premiums are paid to and recorded as paid
in capital by the Fund. For the year ended February 28, 1997, the Fund
received $2,286,211 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments 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.
42
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO receives a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee until further notice to the
extent that the Fund's annual expenses (including the management fee but
excluding brokerage commissions, certain other transaction costs (including
stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed .54% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for fees exceeding .69%; thus the
net annual expense ratio after the waiver for a Class III shareholder is
unchanged. Additionally, 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
Trustees during the year ended February 28, 1997, was $22,361. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 28, 1997 aggregated
$4,272,351,520 and $3,985,379,651, respectively.
4. Principal shareholders
At February 28, 1997, 98% of the outstanding Class I shares of the Fund
were held by one shareholder and 100% of the outstanding Class II shares of
the Fund were held by two shareholders, each holding in excess of 10% of
the outstanding shares of the respective class.
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:
43
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 10, 1996
(commencement of operations)
to February 28, 1997
--------------------------------------------------------
Class I: Shares Amount
------------------------ ------------------------
<S> <C> <C>
Shares sold 8,196 $ 198,184
Shares issued to shareholders in reinvestment
of distributions 440 10,653
Shares repurchased (82) (2,000)
------------------------ ------------------------
Net increase 8,554 $ 206,837
======================== ========================
<CAPTION>
Period from September 26, 1996
(commencement of operations)
to February 28, 1997
------------------------------------------------------------
Class II: Shares Amount
---------------------------- ---------------------------
Shares sold 990,710 $ 24,358,040
Shares issued to shareholders in reinvestment
of distributions 48,104 1,164,111
Shares repurchased - -
---------------------------- ---------------------------
Net increase 1,038,814 $ 25,522,151
============================ ===========================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
-------------------------------------------- -----------------------------------------
Class III: Shares Amount Shares Amount
------------------- ---------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 26,694,331 $ 662,148,445 83,979,899 $ 2,029,145,465
Shares issued to shareholders
in reinvestment of
distributions 12,151,121 296,116,351 6,005,465 141,837,051
Shares repurchased (49,513,521) (1,234,092,828) (21,748,238) (523,551,284)
------------------- ---------------------- ----------------- --------------------
Net increase (10,668,069) $ (275,828,032) 68,237,126 $ 1,647,431,232
=================== ====================== ================= ====================
</TABLE>
44
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Buys
3/3/97 ATS 332,677,454 $ 28,000,324 $ (745,179)
3/3/97 AUD 3,011,707 2,337,536 (1,054)
3/7/97 AUD 2,424,335 1,881,539 (21,346)
4/9/97 AUD 14,871,000 11,530,081 (218,009)
5/9/97 AUD 13,490,860 10,456,226 (37,774)
7/11/97 AUD 795,665 616,388 361
3/3/97 BEF 80,527,213 2,312,273 1,592
3/7/97 BEF 2,914,255,748 83,693,078 (9,633,853)
4/9/97 BEF 981,760,650 28,224,652 (2,570,851)
5/7/97 BEF 1,825,664,415 52,571,498 (1,811,985)
7/11/97 BEF 2,824,880,035 81,667,771 (35,195)
4/9/97 CAD 954,000 699,680 (11,343)
5/9/97 CAD 792,863 582,682 (11,000)
3/3/97 CHF 2,866,174 1,943,169 0
3/7/97 CHF 1,868,753 1,267,329 2,949
5/9/97 CHF 1,558,590 1,063,660 (46,012)
3/3/97 DEM 498,218,745 295,127,059 (22,112,142)
3/7/97 DEM 2,622,824 1,553,956 (31,813)
4/9/97 DEM 51,340,000 30,479,316 (2,686,059)
5/9/97 DEM 116,263,679 69,157,107 (2,793,003)
3/3/97 DKK 13,172,527 2,045,328 (67,404)
3/7/97 DKK 11,743,077 1,823,653 (185,529)
3/3/97 ESP 315,513,430 2,201,001 (6,777)
3/7/97 ESP 803,840,311 5,607,176 (16,992)
</TABLE>
45
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Buys - continued
4/9/97 ESP 3,737,715,000 $ 26,043,237 $ (2,272,785)
6/13/97 ESP 22,373,549,433 155,747,781 (2,715,219)
3/3/97 FIM 3,655,073 725,955 (3,601)
3/7/97 FIM 192,960,118 38,332,077 (2,590,246)
7/11/97 FIM 48,881,120 9,788,048 (30,395)
3/3/97 FRF 28,411,999 4,986,967 (238,036)
3/7/97 FRF 8,055,103 1,414,106 (59,298)
4/9/97 FRF 734,502,260 129,206,864 (9,051,184)
3/3/97 GBP 8,172,149 13,332,861 (267,638)
3/7/97 GBP 2,415,314 3,940,377 (70,867)
3/10/97 GBP 14,398,848 23,489,252 (484,830)
4/9/97 GBP 115,805,144 188,810,676 6,474,948
3/3/97 HKD 78,017,583 10,074,585 (651)
3/7/97 HKD 6,173,248 797,154 112
5/9/97 HKD 285,505,525 36,855,211 (52,789)
3/3/97 IEP 15,039,411 23,816,412 (1,421,424)
3/7/97 IEP 17,703,251 28,033,919 (159,676)
3/3/97 ITL 15,222,762,000 9,007,551 (781,071)
3/7/97 ITL 964,708,870 570,737 (26,680)
5/9/97 ITL 8,304,765,650 4,896,418 (236,848)
6/13/97 ITL 51,510,023,590 30,316,430 (1,278,570)
3/3/97 JPY 7,196,683,325 59,629,491 (2,670,824)
3/7/97 JPY 19,548,771,569 162,042,397 (6,737,425)
4/9/97 JPY 21,735,478,363 180,966,117 (8,699,464)
7/11/97 JPY 13,660,843,264 115,279,497 827,330
3/3/97 MYR 266,396 107,288 220
3/7/97 MYR 1,488,530 599,411 1,226
</TABLE>
46
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Buys - continued
5/9/97 MYR 4,050,880 $ 1,627,232 $ 3,112
3/3/97 NLG 343,140 180,714 (5,159)
3/7/97 NLG 153,784,918 81,005,758 (2,282,873)
4/9/97 NLG 158,768,084 83,815,360 (6,325,760)
5/9/97 NLG 9,547,257 5,050,342 (146,010)
3/3/97 NOK 192,774,186 28,607,666 (1,190,827)
3/7/97 NOK 703,365 104,397 (4,235)
4/9/97 NOK 188,862,200 28,086,480 (1,608,834)
6/13/97 NOK 694,369,326 103,568,099 (3,538,901)
3/3/97 NZD 33,961,701 23,493,007 (384,591)
4/9/97 NZD 33,789,410 23,322,464 16,219
5/9/97 NZD 11,902,230 8,199,565 18,567
3/3/97 SEK 126,757,784 16,905,433 (187,907)
3/7/97 SEK 3,770,917 502,969 (1,955)
6/13/97 SEK 626,772,229 83,859,312 (1,209,688)
3/3/97 SGD 294,788 206,724 (4,276)
3/7/97 SGD 445,731 312,570 (4,552)
------------------
$ (92,441,773)
==================
Sales
3/3/97 ATS 332,677,454 $ 28,000,324 $ 2,536,676
3/3/97 AUD 3,011,707 2,337,536 106,464
3/7/97 AUD 2,424,335 1,881,539 14,520
4/9/97 AUD 136,058,330 105,600,312 1,885,768
7/11/97 AUD 3,011,707 2,335,659 (984)
3/3/97 BEF 80,527,213 2,312,273 242,727
3/7/97 BEF 2,914,225,748 83,693,078 (46,547)
</TABLE>
47
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Sales - continued
7/11/97 BEF 8,848,500 $ 256,337 $ (896)
4/9/97 CAD 954,000 699,680 (1,546)
5/9/97 CAD 792,863 582,682 9,360
3/3/97 CHF 2,866,174 1,943,169 272,831
3/7/97 CHF 1,868,753 1,267,329 127,471
7/11/97 CHF 4,734,927 3,256,611 (7,016)
3/3/97 DEM 498,218,745 295,127,059 10,949,947
3/7/97 DEM 2,622,824 1,553,956 138,844
4/9/97 DEM 51,340,000 30,479,316 625,750
5/9/97 DEM 116,263,679 69,157,107 1,432,404
3/3/97 DKK 13,172,527 2,045,328 233,338
3/7/97 DKK 11,743,077 1,823,653 67,583
3/3/97 ESP 315,513,430 2,201,001 224,999
3/7/97 ESP 803,840,311 5,607,176 619,367
7/11/97 ESP 1,119,353,741 7,798,273 23,032
3/3/97 FIM 3,655,073 725,955 70,045
3/7/97 FIM 192,960,118 38,332,077 1,520,353
7/11/97 FIM 19,973,671 4,006,559 13,097
3/3/97 FRF 28,411,999 4,986,967 480,033
3/7/97 FRF 8,055,103 1,414,106 129,094
4/9/97 FRF 734,502,260 129,206,864 7,887,109
3/3/97 GBP 8,172,149 13,332,861 375,102
3/7/97 GBP 2,415,314 3,940,377 135,223
3/10/97 GBP 14,398,848 23,489,252 (1,070,246)
4/9/97 GBP 115,805,144 188,810,676 3,236,387
3/3/97 HKD 78,017,583 10,074,585 11,580
3/7/97 HKD 6,173,248 797,154 846
</TABLE>
48
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Forward currency contracts - continued
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Sales - continued
4/9/97 HKD 1,428,954,700 $ 184,513,625 $ 219,781
6/5/97 HKD 913,202,000 117,893,314 106,686
7/11/97 HKD 84,190,831 10,867,199 (870)
11/7/97 HKD 830,535,241 107,153,547 74,552
3/3/97 IEP 15,039,411 23,816,412 89,287
3/7/97 IEP 17,703,251 28,033,919 1,120,067
3/3/97 ITL 15,222,762,000 9,007,551 559,197
3/7/97 ITL 964,708,870 570,737 57,063
5/9/97 ITL 8,304,765,650 4,896,418 220,183
3/3/97 JPY 7,196,683,325 59,629,491 2,117,081
3/7/97 JPY 19,548,771,569 162,042,397 5,417,382
5/9/97 JPY 4,155,999,995 34,780,571 968,429
6/13/97 JPY 7,995,990,800 67,246,507 (1,218,507)
7/11/97 JPY 11,862,575,758 100,181,366 (1,148,900)
3/3/97 MYR 266,396 107,288 (2,288)
3/7/97 MYR 1,488,530 599,411 (12,011)
5/9/97 MYR 4,050,880 1,627,232 (5,777)
3/3/97 NLG 343,140 180,714 19,286
3/7/97 NLG 153,784,918 81,005,758 9,684,747
4/9/97 NLG 158,768,084 83,815,360 3,906,627
5/9/97 NLG 9,547,258 5,050,342 215,658
3/3/97 NOK 192,774,186 28,607,666 1,886,456
3/7/97 NOK 703,365 104,397 5,003
4/9/97 NOK 188,862,200 28,086,480 1,096,030
3/3/97 NZD 33,961,701 23,493,007 (75,771)
4/9/97 NZD 33,789,410 23,322,464 499,070
5/9/97 NZD 11,902,230 8,199,565 139,435
49
</TABLE>
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
-------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Sales - continued
3/3/97 SEK 126,757,784 $ 16,905,433 $ 1,832,131
3/7/97 SEK 3,770,917 502,969 46,231
4/9/97 SEK 38,030,000 5,080,557 435,834
5/9/97 SEK 967,793,711 129,438,522 3,806,121
7/11/97 SEK 130,528,701 17,503,097 169,991
3/3/97 SGD 294,788 206,724 2,926
3/7/97 SGD 445,731 312,570 6,631
------------------
$ 64,480,476
==================
</TABLE>
Currency Abbreviations
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc MYR Malaysian Ringgit
DEM German Mark NLG Netherlands Guilder
DKK Danish Krona NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
FIM Finnish Markka SEK Swedish Krona
FRF French Franc SGD Singapore Dollar
GBP British Pound
50
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------------- --------------------- ---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Buys
1,332 MIB30 March 1997 $ 136,699,456 $ 12,297,679
1,636 OMX March 1997 44,805,031 (949,624)
860 TOPIX March 1997 99,332,173 871,024
1,969 TSE 35 March 1997 234,928,824 11,713,449
---------------------
$ 23,932,528
=====================
Sales
226 DAX March 1997 $ 43,655,136 $ (5,542,402)
157 FT-SE 100 March 1997 27,439,626 (1,525,174)
1,926 Hang Seng March 1997 165,018,208 2,360,179
198 IBEX March 1997 7,294,301 353,135
3,986 All Ords March 1997 187,724,506 (3,872,344)
1,882 CAC 40 March 1997 173,358,187 (18,962,293)
---------------------
$ (27,188,899)
=====================
</TABLE>
At February 28, 1997 the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
51
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Notional Expiration Unrealized
Amount Date Description Appreciation
------------------------- --------------- ---------------------------------------------------- -----------------
<S> <C> <C> <C>
CHF 144,196,000 08/06/97 Agreement with Swiss Bank Corporation dated August
6, 1996 to pay the notional amount multiplied by 6
month LIBOR adjusted by a specified spread and to
receive (pay) the notional amount multiplied by
the return on the Swiss Market Index (including
dividends).
$ 22,592,200
=================
</TABLE>
52
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
69.80% of distributions as net capital gain dividends.
53
<PAGE>
GMO International 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. LLC for more than
fifteen years.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the GMO International Core Fund returned 6.7% for the
fiscal year ended February 28, 1997 as compared to 3.2% for EAFE and 7.7% for
the GMO EAFE-Lite Index. Consistent with the Fund's investment objective and
policies, the Fund was invested substantially in common stocks throughout the
period.
Effect of country weights (local currency terms)
With the exception of Japan and Singapore, the majority of the EAFE countries
experienced strong performance during the year. The Japanese market declined by
- -8.8% in local terms, while EAFE ex-Japan rose by 25.6%. These returns were
depressed somewhat for U.S. investors as a result of the dollar's rally during
the period, 7.6% versus an EAFE-Lite basket of currencies.
Relative to the GMO EAFE-Lite Index, the impact of the Fund's country weights
negatively impacted performance for the year, in spite of a modest underweight
in Japan. The primary influence was the Fund's underweighting of the
Netherlands, an expensive market which strongly outperformed the index during
the year. Additionally, underweightings in France and Germany and an
overweighting in Singapore contributed negatively as well. These results were
partially offset by the positive impact of the Fund's underweighting of Japan
and overweighting of Canada, Italy and Spain.
Relative to EAFE, country selection added value, primarily due to the Fund's
underweight in Japan.
Effect of currency weights
The effect of the Fund's currency weights added value to the account's relative
performance, primarily from underweighting the yen, Swiss franc and Dutch
guilder. The Fund also benefited from an overweight position in the pound
sterling, which was the strongest performing currency for the year. The Fund was
modestly hedged back to the U.S. dollar during the year, which added value as
well.
<PAGE>
Effect of stock selection
Stock selection contributed negatively to the Fund's performance for the year.
Growth stocks led the strong performance in many of the developed international
markets, while value-based investing lagged. International small capitalization
stocks outperformed modestly, following on very weak performance in 1995.
Portfolio structure and outlook
Country selection. We modestly favor Canada, Italy, Singapore and Spain and are
underweight in Japan and the major European countries (Germany, the U.K., France
and Switzerland). We also continue to underweight the Netherlands, which,
following its strong run this year, looks even more expensive to us than it has
been in the past.
Stock selection. Over time we have gradually broadened the techniques used by
the International Core Fund to select stocks. From the simple value screens we
began using successfully fifteen years ago, today value includes a proprietary
price-to-dividend discount measure. We expect that the use of the dividend
discount model, which focuses on value stocks while giving companies credit for
financial and operating "quality", will enable the portfolio to be most
responsive to opportunities for a value-based strategy in a more competitive
investing environment.
We have diversified the techniques used to select stocks in the portfolio to
include momentum screens which allow the portfolio to own selected growth stocks
with attractive characteristics. As a result, we expect the portfolio to more
flexible than it has been previously, weathering those periods when value
investing is out of favor. Further, the Fund's stock selection models have been
customized to add value on a country basis.
Today the portfolio is positioned to be flexible to style shifts in the
international markets. Value remains at the heart of our approach, however, as
the staying power of growth and momentum-based techniques tends to be more
limited than value investing and reversals tend to be more severe.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo
& Co LLC Management. They are not meant as investment advise.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO International Core Fund Class III shares and the
MSCI EAFE Index
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
Since
1 Year 5 Year Inception
<S> <C> <C> <C>
Class III 3/31/87
6.1% 10.9% 10.5%
Class II 9/26/96
n/a n/a 3.9%
Class I 9/10/96
n/a n/a 5.7%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO International Core Fund MSCI EAFE Index
<S> <C> <C>
03/31/87 9,940 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
02/28/97 26,903 17,860
</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 60 bp on the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Performance for
Class I shares and Class II shares may be different due to higher shareholder
service fees. Past performance is not indicative of future performance.
Information is unaudited.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders
of GMO Japan Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Japan Fund at February 28,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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, 1997
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 88.5%
Automotive - 6.0%
141,000 Fuji Heavy Industries Ltd 671,762
56,000 Hino Motors 337,327
14,000 Honda Motor Co Ltd 432,679
4,900 Mabuchi Motor Co 244,005
444,000 Mazda Motor Corp * 1,294,954
7,000 Mitsubishi Motors 51,330
22,000 NGK Insulators 200,514
23,000 NGK Spark Plug Co 236,308
711,000 Nissan Motor Co Ltd 4,194,482
20,000 Suzuki Motor Corp 187,257
189,000 Toyota Motor Corp 4,838,926
33,000 Yamaha Motor Co 281,631
21,000 Yokohama Rubber Co 86,130
19,000 Yuasa Corp * 69,268
--------------------
13,126,573
--------------------
Banking - 6.7%
25,000 77th Bank 204,035
78,000 Asahi Bank Ltd 571,315
36,000 Ashikaga Bank Ltd 120,209
55,000 Bank of Fukuoka Ltd 288,466
7,000 Bank of Kyoto Ltd 30,450
134,000 Bank of Tokyo-Mitsubishi 2,198,359
81,000 Bank of Yokohama Ltd 387,919
19,000 Chiba Bank Ltd 112,404
27,000 Chugoku Bank Ltd 357,942
7,000 Credit Saison Co 149,060
146,000 Daiwa Bank Ltd 586,710
70,000 Fuji Bank 817,798
37,000 Gunma Bank Ltd 286,337
19,000 Hachijuni Bank 166,874
1,000 Higo Bank Ltd 5,634
53,000 Hiroshima Bank Ltd 214,740
123,000 Hokkaido Bank Ltd 166,120
224,000 Hokkaido Takushoku Bank Ltd 280,255
16,000 Hokuriku Bank Ltd 55,017
149,000 Industrial Bank of Japan 1,777,778
58,000 Long Term Credit Bank of Japan 209,048
45,000 Mitsubishi Trust & Banking Corp 495,899
8,000 Nishi Nippon Bank Ltd 39,904
281,000 Sakura Bank Ltd 1,795,103
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking - continued
35,000 Sanwa Bank Ltd 403,099
96,000 Sumitomo Trust & Banking Co Ltd 783,495
86,000 Tokai Bank Ltd 695,468
79,000 Toyo Trust & Banking Co Ltd 564,239
2,000 Yamaguchi Bank Ltd 24,526
218,000 Yasuda Trust and Banking Co Ltd 592,460
--------------------
14,380,663
--------------------
Chemicals - 3.2%
75,000 Daicel Chemical Industries Ltd 323,142
119,000 Dainippon Ink & Chemicals Inc 375,665
39,000 Denki Kagaku Kogyo 86,925
1,000 Hitachi Chemical Co 7,465
82,000 Ishihara Sangyo Kaisha * 189,560
55,000 Japan Synthetic Rubber Co Ltd 390,090
36,000 Kansai Paint Co Ltd 148,844
35,000 Kureha Chemical Industry Co Ltd 135,140
167,000 Mitsubishi Gas Chemical Co Inc 611,600
371,000 Mitsubishi Kasei Corp 1,029,787
23,000 Mitsubishi Rayon Co Ltd 83,470
64,000 Mitsui Petrochemical Industries Ltd 293,777
29,000 Nippon Carbon Co Ltd * 80,495
18,000 Nippon Chemical 117,972
1,000 Nippon Shokubai Corp 6,380
1,000 Nippon Soda Chemical Co Ltd 7,291
196,000 Sekisui Chemical Co Ltd 2,029,994
8,000 Shin-Etsu Chemical Co Ltd 154,445
16,000 Showa Denko 35,131
162,000 Teijin Ltd 644,295
3,000 Toagosei Chemical Industry Co Ltd 10,589
24,000 Tokyo Ink Manufacturing Co Ltd 90,877
18,000 Toray Industries Inc 104,101
--------------------
6,957,035
--------------------
Computers and Office Equipment - 0.3%
60,000 Casio Computer Co 462,342
23,000 NCR Japan Ltd 178,184
--------------------
640,526
--------------------
Construction - 3.8%
184,000 Aoki Corp * 265,275
2,000 Chudenko Corp 57,171
8,700 Daito Trust Construction Co Ltd 85,061
2,000 Daiwa House Industry Co Ltd 22,206
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction - continued
90,000 Fujita Corp 160,328
103,000 Haseko Corp * 199,702
54,000 Hazama-Gumi Ltd 120,805
40,000 INAX Corp 263,485
35,000 Kajima Corp 191,399
3,000 Kandenko Co 25,354
93,000 Kawasaki Heavy Industry 385,285
172,000 Kumagai Gumi Co Ltd 270,776
46,000 Maeda Corp 279,377
33,000 Misawa Homes 201,243
197,000 Mitsui Engineering & Shipbuilding * 370,528
18,000 National House Industrial 217,748
14,000 Nichiei Co Ltd 26,100
66,000 Nihon Cement Co Ltd 314,442
29,000 Obayashi Corp 179,012
26,000 Okumura Corp 137,443
78,000 Onoda Cement Co Ltd 274,024
37,000 Penta Ocean Construction 132,132
18,000 Sankyo Aluminum Industry Co Ltd 59,508
29,000 Sanwa Shutter Corp 209,769
32,000 Sato Kogyo Co Ltd 71,588
108,000 Sekisui House Ltd 1,002,237
21,000 Shimizu Corp 126,672
17,000 Shokusan Jutaku Sogo Co Ltd * 28,594
165,000 Sumitomo Heavy Industries Ltd 497,639
97,000 Sumitomo Osaka Cement Co Ltd 265,225
121,000 Taisei Corp 521,336
15,000 Tekken Corp 59,284
1,000 Toa Corp 4,657
52,000 Tokyo Construction Co Ltd 114,608
24,000 Tostem Corp 556,798
41,000 Toto Ltd 417,847
5,000 Toyo Exterior Co Ltd 68,357
5,000 Yokogawa Bridge Corp 42,257
--------------------
8,225,272
--------------------
Consumer Goods - 8.3%
66,000 Ajinomoto Co Inc 596,073
34,000 Citizen Watch Co 242,274
31,000 Ezaki Glico Co Ltd 256,856
119,000 Fuji Photo Film Co Ltd 3,983,429
21,000 Hitachi Maxell Ltd 421,079
115,000 Kao Corp 1,257,768
106,000 Konica Corp 637,634
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods - continued
67,000 Minolta Co Ltd 413,580
52,000 Nikon Corp 762,615
3,700 Nintendo Co Ltd 260,892
124,000 Olympus Optical Co Ltd 1,037,700
332,000 Sanyo Electric Co Ltd 1,383,677
62,000 Sony Corp 4,474,439
145,000 Victor Co of Japan Ltd 1,381,639
27,000 Yakult Honsha Co Ltd 272,931
42,000 Yamaha Corp 800,398
--------------------
18,182,984
--------------------
Electric - 4.7%
19,000 Alps Electric Co Ltd 201,508
75,000 Fuji Electric Co 309,471
137,000 Furukawa Electric Co Ltd 636,813
4,000 Hirose Electric 224,045
8,000 Hitachi Cable Ltd 54,089
10,000 Kokusai Electric 154,942
17,000 Kyushu Matsushita Electric 185,931
221,000 Matsushita Electric Industrial Co Ltd 3,405,916
122,000 Matsushita Electric Works Ltd 1,071,506
477,000 Mitsubishi Electric Corp 2,679,642
5,000 Mitsumi Electric Co Ltd 93,214
64,000 Oki Electric Industry 337,261
52,000 Showa Electric Wire & Cable 174,928
47,000 Stanley Electric Co Ltd 239,108
85,000 Tokyo Electric Co Ltd * 309,885
27,000 Yokogawa Electric Corp 206,935
--------------------
10,285,194
--------------------
Electronics - 3.1%
9,000 Advantest Corp 508,576
15,000 Anritsu Corp 171,514
37,100 Fanuc Co 1,152,747
1,000 Hosiden Corp * 6,885
10,000 Japan Aviation Electronics 58,497
7,000 Jeol 41,412
58,000 Kenwood Corp 247,494
20,000 Kyocera Corp 1,184,854
9,000 Matsushita Kotubuki 257,271
10,000 Nichicon Corp 115,171
33,000 Tokyo Electron 1,153,865
338,000 Toshiba Corp 1,904,383
6,000 Uniden Corp 64,628
--------------------
6,867,297
--------------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services - 1.9%
72,000 Kankaku Securities Co Ltd * 141,984
46,000 Mitsui Trust & Banking Co Ltd 284,332
6,000 New Japan Securities Co Ltd * 18,444
35,000 Nippon Shinpan Co Ltd 147,900
206,000 Nomura Securities Co Ltd 2,748,032
41,000 Orient Corp 183,105
1,000 Orix Corp 42,257
4,000 Sanyo Securities Co Ltd * 8,982
160,000 Yamaichi Securities Co Ltd 554,147
--------------------
4,129,183
--------------------
Food and Beverage - 2.4%
99,000 Asahi Breweries Ltd 959,732
3,300 Denny's Japan Co Ltd 84,763
14,000 Katokichi Co Ltd 225,023
200,000 Kirin Brewery Co Ltd 1,706,852
23,000 Mercian Corp 131,875
35,000 Nippon Meat Packers Inc 350,899
83,000 Nippon Suisan Kaisha Ltd * 220,756
11,000 Nissin Food Products Co Ltd 210,539
26,700 Q.P. Corp 201,317
59,000 Sapporo Breweries Ltd 436,548
48,000 Snow Brand Milk Products Co Ltd 233,458
37,000 Takara Shuzo Co Ltd 223,183
23,000 Yamazaki Baking Co Ltd 344,933
--------------------
5,329,878
--------------------
Health Care - 3.8%
46,000 Daiichi Seiyaku Co Ltd 750,849
61,000 Eisai Co Ltd 1,142,265
22,000 Green Cross Corp 91,143
25,000 Hoya Corp 1,064,711
60,000 Kyowa Hakko Kogyo Co Ltd 398,210
69,000 Lion Corp 288,715
106,000 Sankyo Co Ltd 2,951,032
50,000 Shionogi and Co Ltd 311,128
96,000 Shiseido Co Ltd 1,121,551
9,000 Unicharm Corp 231,171
--------------------
8,350,775
--------------------
Insurance - 0.1%
2,000 Chiyoda Fire & Marine Insurance Co Ltd 8,451
21,000 Dai Tokyo Fire & Marine Insurance Co Ltd 106,140
22,000 Nichido Fire & Marine Insurance Co Ltd 122,496
8,000 Sumitomo Marine & Fire Insurance Co Ltd 46,267
------------------
283,354
------------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leisure - 0.3%
37,000 Tokyo Dome Corp 508,907
49,000 Tokyotokeiba Co Ltd 133,980
--------------------
642,887
--------------------
Machinery - 3.2%
10,000 Aida Engineering Ltd 65,291
33,000 Aisin Seiki Co Ltd 462,093
144,000 Amada Co Ltd 1,051,156
10,000 Amano Corp 100,257
19,000 Daifuku Ltd 223,548
20,000 Daikin Industries Ltd 156,765
30,000 Ebara Corp 377,827
26,000 Furukawa Co Ltd 86,171
81,000 Komatsu Ltd 604,027
8,000 Komori Corp 167,040
27,000 Koyo Seiko Co Ltd 200,671
148,000 Kubota Corp 673,229
3,000 Kurita Water Industries Ltd 63,386
15,000 Makino Milling Machine Co Ltd 105,270
34,000 Minebea Co Ltd 281,150
10,000 Mori Seiki Co Ltd 134,228
28,000 NHK Spring Co Ltd 99,760
34,000 Niigata Engineering Co Ltd * 66,484
8,000 Nippon Piston Ring Co Ltd 24,128
178,000 NSK Ltd 1,020,598
42,000 Okuma Corp 347,999
3,000 Sanden Corp 24,111
88,000 The Japan Steel Works Ltd * 185,202
8,000 Toshiba Tungaloy Co Ltd 35,794
15,000 Toyo Kanetsu (KK) 43,873
17,000 Toyoda Automatic Loom Works 294,391
3,000 Tsubakimoto Chain 15,635
9,000 Tsugami Corp 21,477
--------------------
6,931,561
--------------------
Manufacturing - 0.2%
29,000 Iwatani & Co 105,725
17,000 Nippon Electric Glass Co 233,822
61,000 Ube Industries 170,329
--------------------
509,876
--------------------
Metals and Mining - 2.0%
29,000 Fujikara Ltd 227,310
34,000 Hitachi Metals Ltd 236,639
33,000 Hitachi Zosen Corp 132,066
14,000 Japan Metals & Chemicals * 35,728
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Metals and Mining - continued
18,000 Kawasaki Steel 48,173
448,000 Mitsubishi Materials Corp 1,662,971
33,000 Mitsui Mining Co Ltd * 88,044
48,000 Mitsui Mining & Smelting Co Ltd 184,539
46,000 Nippon Light Metal 163,510
70,000 Nippon Sheet Glass Co Ltd 223,299
24,000 Nitto Denko Corp 320,159
7,000 Sumitomo Coal Mining Co Ltd 23,896
85,000 Sumitomo Metal Mining 588,077
2,000 Sumitomo Sitix Corp 36,623
5,000 Toho Zinc Co 21,336
19,000 Tokai Carbon Co Ltd 67,222
4,000 Tokyo Steel Manufacturing Co 44,080
13,000 Toyo Seikan Kaisha Ltd 304,831
--------------------
4,408,503
--------------------
Oil and Gas - 4.0%
12,900 Arabian Oil Co Ltd 411,509
194,000 Cosmo Oil Co Ltd 755,489
86,000 General Sekiyu (KK) 520,176
381,000 Japan Energy Co Ltd 896,545
170,000 Mitsubishi Oil Co Ltd 707,101
606,000 Nippon Oil Co Ltd 2,555,754
98,600 Showa Shell Sekiyu 736,089
119,000 Teikoku Oil Co Ltd 560,046
149,000 Toa Nenryo Kogyo (KK) 1,506,173
--------------------
8,648,882
--------------------
Paper and Allied Products - 0.6%
28,000 Daishowa Paper Manufacturing * 112,520
5,000 Hokuetsu Paper Mills 24,857
37,000 Mitsubishi Paper Mills Ltd 137,344
133,000 New Oji Paper Co Ltd 740,542
15,000 Nippon Paper Industries 70,346
12,000 Sumitomo Forestry Co Ltd 137,211
--------------------
1,222,820
--------------------
Pharmaceuticals - 4.0%
41,000 Chugai Pharmaceutical Co Ltd 323,747
33,000 Dainippon Pharmaceutical Co Ltd 236,242
117,000 Fujisawa Pharmaceutical Co Ltd 1,017,897
10,000 Kaken Pharmaceutical Co Ltd 51,620
11,000 Kissei Pharmaceutical Co Ltd 219,654
10,000 Mochida Pharmaceutical Co Ltd 83,685
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals - continued
25,000 Nippon Kayaku Co Ltd 143,135
8,000 Ono Pharmaceutical Co Ltd 257,188
60,000 Taisho Pharmaceutical Co Ltd 1,382,053
154,000 Takeda Chemical Industries Ltd 3,087,911
54,000 Terumo Corp 787,472
7,000 Tsumura and Co 43,500
49,000 Yamanouchi Pharmaceutical Co Ltd 1,023,117
16,000 Yoshitomi Pharmaceutical Industries Ltd 108,973
--------------------
8,766,194
--------------------
Primary Processing - 0.4%
18,000 Daido Steel Co Ltd 54,586
51,000 Nippon Yakin Kogyo Co Ltd 114,939
62,000 Nisshin Steel Co Ltd 147,949
246,000 Sumitomo Metal Industries Ltd 587,025
--------------------
904,499
--------------------
Real Estate - 1.8%
36,000 Daikyo Inc 135,720
14,000 Daiwa Kosho Lease Co Ltd 110,200
12,000 Heiwa Real Estate Co Ltd 61,646
160,000 Mitsubishi Real Estate Co Ltd 1,882,509
99,000 Mitsui Fudosan Co Ltd 1,074,571
49,000 Sumitomo Realty and Development Co Ltd 343,881
43,000 Tokyo Tatemono Co Ltd 187,049
56,000 Tokyo Land Corp * 192,559
--------------------
3,988,135
--------------------
Retail Trade - 3.0%
5,000 Aoki International 91,143
9,000 Aoyama Trading 225,951
5,940 Familymart 228,367
25,000 Hankyu Department Stores Inc 223,714
46,000 Isetan Co Ltd 503,107
27,000 Joshin Denki Co Ltd 243,848
46,000 Jusco Co 1,303,505
93,000 Marui Co Ltd 1,333,085
19,000 Matsuzakaya Co Ltd 155,539
34,000 Nagasakiya Co Ltd * 96,909
75,000 Nichii Co Ltd 963,212
8,000 Sanrio Co Ltd * 50,377
45,000 Takashimaya Co 495,899
41,000 UNY Co Ltd 723,589
--------------------
6,638,245
--------------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Services - 6.1%
41,800 Canon Sales Co Inc 810,440
22,800 CSK Corp 542,182
145,000 Dainippon Printing Co Ltd 2,414,865
10,000 Hanwa Co Ltd * 27,094
4,000 Intec Inc 47,394
75,000 Itochu Corp 369,128
74,000 Kamigumi Co Ltd 389,958
4,000 Kokusai Kogyo Co Ltd 33,143
47,000 Kokuyo Co Ltd 1,004,723
7,000 Konami Co Ltd 200,679
13,000 Kyodo Printing Co Ltd 96,619
173,000 Marubeni Corp 676,576
27,000 Mitsubishi Warehouse & Transportation Co Ltd 313,199
21,000 Mitsui-Soko Co Ltd 116,406
189,000 Nissho Iwai Corp 712,528
20,000 Okamoto Industries Inc 82,525
25,000 Secom Co Ltd 1,408,567
25,900 Sega Enterprises 725,346
16,000 Seiko Corp 95,319
172,000 Sumitomo Corp 1,292,601
24,000 Sumitomo Warehouse Co Ltd 122,297
157,000 Toppan Printing Co Ltd 1,808,186
15,000 Toshiba Ceramics Co Ltd 116,828
--------------------
13,406,603
--------------------
Technology - 6.2%
35,000 Dainippon Screen Manufacturing Co Ltd 282,459
260,000 Fujitsu Ltd 2,563,593
350,000 Hitachi Ltd 3,015,991
17,000 Makita Corp 233,822
6,300 Murata Manufacturing Co Ltd 220,805
182,000 NEC Corp 2,111,194
10,000 Omron Corp 157,428
25,000 Rohm Co Ltd 1,791,781
28,000 Shimazu Corp 138,736
56,000 Taiyo Yuden Co Ltd 654,238
36,000 TDK Corp 2,410,142
--------------------
13,580,189
--------------------
Telecommunications - 0.7%
14,000 Gakken Co Ltd 63,220
2,000 Nippon Television Network 594,913
9,000 Nitsuko Corp 59,881
58,000 Tokyo Broadcasting System Inc 840,998
--------------------
1,559,012
--------------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Textiles - 1.2%
13,000 Fuji Spinning Co Ltd 45,455
14,000 Japan Wool Textile 87,348
47,000 Kurabo Industries Ltd 117,607
11,000 Kuraray Co 91,143
63,000 Nisshinbo Industries Inc 454,139
69,000 Onward Kashiyama Co Ltd 846,135
95,000 Renown Inc * 188,914
27,000 Tokyo Style Co Ltd 308,725
41,000 Tokyu Department Store Co Ltd 137,584
40,000 Wacoal Corp 404,342
--------------------
2,681,392
--------------------
Tobacco - 0.6%
210 Japan Tobacco Inc 1,409,396
--------------------
Transportation - 5.6%
338 East Japan Railway Co 1,439,490
12,000 Fujita Kanko Inc 132,240
32,000 Fukuyama Transporting Co Ltd 221,924
191,000 Hankyu Corp 916,306
54,000 Japan Airport Terminal Co Ltd 550,336
70,000 Kawasaki Kisen * 142,680
91,000 Keihin Electric Express Railway Co Ltd 392,833
74,000 Keio Teito Electric Railway Co Ltd 337,228
29,000 Keisei Electric Railway Co Ltd 168,440
260,000 Kinki Nippon Railway Co Ltd 1,561,853
91,000 Nagoya Railroad Co Ltd 336,283
9,300 Namco Ltd 262,764
53,000 Nankai Electric Railway Co Ltd 259,094
125,000 Nippon Express Co Ltd 804,748
115,000 Odakyu Electric Railway Co Ltd 591,723
13,000 Royal Co Ltd 219,737
29,000 Seibu Railway Co Ltd 1,239,871
39,000 Seino Transportation Co Ltd 387,770
20,000 Skylark Co Ltd 288,342
99,000 Tobu Railway Co Ltd 442,953
28,000 Toei Co Ltd 174,464
2,300 Toho Co Ltd 301,102
127,000 Tokyu Corp 594,540
39,000 Yamato Transport Co Ltd 384,539
--------------------
12,151,260
--------------------
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities - 4.3%
23,700 Chugoku Electric Power Co Inc 410,415
7,000 Kokusai Denshin Denwa 417,599
35,500 Kyushu Electric Power Co Inc 614,757
1,056 Nippon Telegraph & Telephone 7,515,983
26,400 Tohoku Electric Power Co Inc 452,796
--------------------
9,411,550
--------------------
TOTAL STOCK AND EQUIVALENTS (Cost $240,801,673) 193,619,738
--------------------
<CAPTION>
Par Value($)/ SHORT-TERM INVESTMENTS - 19.1%
Shares Cash Equivalents - 17.7%
<S> <C> <C>
$ 600,000 Republic Bank of New York Time Deposit, 5.34% due 3/3/97 600,000
38,170,377 The Boston Global Investment Trust (b) 38,170,377
--------------------
38,770,377
--------------------
U.S. Government - 1.4%
$ 3,200,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 3,053,761
--------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $41,825,839) 41,824,138
--------------------
TOTAL INVESTMENTS - 107.6%
(Cost $282,627,512) * * 235,443,876
Other Assets and Liabilities (net) - (7.6%) (16,646,952)
--------------------
TOTAL NET ASSETS - 100.0% $ 218,796,924
====================
</TABLE>
Notes to the Schedule of Investments:
(a) This security is held as collateral for open futures
contracts.
(b) Represents investment of security lending collateral
(Note 1).
* Non-income producing security. A dividend has not
been declared for the year ended February 28, 1997.
* * The aggregate identified cost for federal income tax
purposes is $282,691,319, resulting in gross
unrealized appreciation and depreciation of
$5,338,154 and $52,585,597, respectively, and net
unrealized depreciation of $47,247,443.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $282,627,512) (Note 1) $ 235,443,876
Foreign currency, at value (cost $21,823,465) (Note 1) 21,192,287
Cash 69,705
Receivable for Fund shares sold 800,000
Dividends and interest receivable 116,084
Receivable for expenses waived or borne by Manager (Note 2) 82,872
-----------------
Total assets 257,704,824
-----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 38,170,377
Payable for Fund shares repurchased 20,000
Payable for variation margin on open futures contracts (Notes 1 and 6) 446,543
Payable to affiliate for (Note 2):
Management fee 59,080
Shareholder service fee 24,512
Accrued expenses 187,388
-----------------
Total liabilities 38,907,900
-----------------
Net assets $ 218,796,924
=================
Net assets consist of:
Paid-in capital $ 267,726,217
Distributions in excess of net investment income (564,380)
Accumulated net realized loss (103,886)
Net unrealized depreciation (48,261,027)
-----------------
$ 218,796,924
=================
Net assets attributable to Class III Shares $ 218,796,924
=================
Shares outstanding - Class III 31,179,725
=================
Net asset value per share - Class III $ 7.02
==================
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $174,052) $ 1,126,123
Interest (including securities lending income of $135,429) 357,027
---------------
Total income 1,483,150
---------------
Expenses:
Management fee (Note 2) 1,566,406
Custodian fees 211,668
Audit fees 61,806
Registration 43,385
Transfer agent fees 30,260
Stamp duties and transfer taxes 13,261
Legal fees 10,259
Trustees fee (Note 2) 997
Miscellaneous 2,264
Fees waived or borne by Manager (Note 2) (742,507)
---------------
1,197,799
Shareholder service fee - Class III (Note 2) 261,357
---------------
Net expenses 1,459,156
---------------
Net investment income 23,994
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 871,291
Closed futures contracts (834,583)
Foreign currency and foreign currency related
transactions (1,955,083)
---------------
Net realized loss (1,918,375)
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (46,198,193)
Open futures contracts (111,788)
Foreign currency and foreign currency related transactions (398,960)
---------------
Net unrealized loss (46,708,941)
---------------
Net realized and unrealized loss (48,627,316)
---------------
Net decrease in net assets resulting from operations $ (48,603,322)
===============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
------------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ 23,994 $ (109,844)
Net realized gain (loss) (1,918,375) 4,140,734
Change in net unrealized appreciation (depreciation) (46,708,941) 1,050,216
------------------- -------------------
Net increase (decrease) in net assets resulting from operations (48,603,322) 5,081,106
------------------- -------------------
Distributions to shareholders from:
In excess of net investment income - Class III (36,409) -
Net realized gains - Class III - (12,090,051)
------------------- -------------------
(36,409) (12,090,051)
------------------- -------------------
Net share transactions - Class III (Note 5) 141,329,696 72,992,741
------------------- -------------------
Total increase in net assets 92,689,965 65,983,796
Net assets:
Beginning of period 126,106,959 60,123,163
------------------- -------------------
End of period (including distributions in excess of
net investment income of $564,380 and
$189,728, respectively) $ 218,796,924 $ 126,106,959
=================== ===================
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.52 $ 9.12 $ 11.13 $ 7.37 $ 7.73
------------ ----------- ----------- --------- ----------
Income (loss) from investment operations:
Net investment income (loss) - (d) (0.01)(d) - (d) - 0.01
Net realized and unrealized gain (loss) (1.50) 0.79 (1.08) 3.94 (0.36)
------------ ----------- ----------- --------- ----------
Total from investment operations (1.50) 0.78 (1.08) 3.94 (0.35)
------------ ----------- ----------- --------- ----------
Less distributions to shareholders:
From net investment income - - - - (0.01)
In excess of net investment income (0.00) - - (0.01) -
From net realized gains - (1.38) (0.93) (0.17) -
------------ ----------- ----------- --------- ----------
Total distributions (0.00) (1.38) (0.93) (0.18) (0.01)
------------ ----------- ----------- --------- ----------
Net asset value, end of period $ 7.02 $ 8.52 $ 9.12 $ 11.13 $ 7.37
============ =========== =========== ========= ==========
Total Return (a) (17.69%) 8.29% (10.62%) 53.95% (4.49%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 218,797 $ 126,107 $ 60,123 $ 450,351 $ 306,423
Net expenses to average
daily net assets 0.70%(e) 0.92% 0.83% 0.87% 0.88%
Net investment income (loss) to average
daily net assets 0.01% (0.13%) (0.02%) (0.01%) 0.12%
Portfolio turnover rate 4% 23% 60% 8% 17%
Average broker commission rate per equity share (b) $ 0.0066 N/A N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.01 (c) $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived
during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
(c) Fees and expenses waived or borne by the Manager were less than $.01 per
share.
(d) Based on average month end shares outstanding.
(e) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment in Japanese
securities, primarily in common stocks of Japanese companies.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets
invested with GMO, as more fully described in the Trust's prospectus.
Class III shares are the continuation of the Trust's shares that existed
prior to June 1, 1996, and bear the same total operating expenses (after
the voluntary expense waiver) as those shares. At February 28, 1997, Class
III was the only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges. Those values are then translated into U.S. dollars
at the current exchange rate. Short-term investments with a remaining
maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
16
<PAGE>
GMO Japan 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 purchase and sell Japanese futures contracts. Japanese
futures contracts represent commitments for future delivery of cash based
upon the level of a specified index of equity securities at a specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock and currency markets. Buying futures tends to
increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instruments or
hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the accumulation in commitment value
("variation margin") is recorded by the Fund. The payable or receivable is
subsequently settled. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts
involve, to varying degrees, risk of loss in excess of the variation
margin disclosed in the Statement of Assets and Liabilities. Losses may
arise from changes in the value of the underlying instrument, if there is
an illiquid secondary market for the contracts, or if counterparties do
not perform under the contract terms. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they are traded. See Note 6 for all open futures contracts held as
of February 28, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for
lending its securities. At February 28, 1997, the Fund loaned securities
having a market value of $35,850,851, collateralized by cash in the amount
of $38,170,377, which was invested in a short-term instrument.
17
<PAGE>
GMO Japan 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 taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are
to be treated, to the extent allowable under the Code, as if received and
paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's present policy is to declare and pay distributions from net
investment income, if any, semi-annually, and from net realized short-term
and long-term capital gains, if any, at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions. The Fund declares
separate dividends from net investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Investment Income Accumulated Net Realized Gain/(Loss) Paid-in Capital
-------------------------------------------- -------------------------------------- ------------------------------
<S> <C> <C>
($362,237) $1,942,252 ($1,580,015)
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
18
<PAGE>
GMO Japan 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, if later. Interest income is recorded on the accrual
basis and is adjusted for accretion of discounts. In determining the net
gain or loss on securities sold, the cost of securities is determined on
the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .40% of the amount
invested. In the case of cash redemptions, the fee is .61% of the amount
redeemed. Prior to June 1, 1996, the redemption fee was .70% of the amount
redeemed. The Manager may waive such premium or fee to the extent that a
transaction results in minimal brokerage and transaction costs to the
Fund. All purchase premiums and redemption fees are paid to and recorded
as paid-in capital by the Fund. For the year ended February 28, 1997 the
Fund received $693,765 in purchase premiums and no redemption fees. There
is no premium for reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .28% for Class I shares, .22% for Class II
shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including
management fee but excluding brokerage
19
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
commissions, certain other transaction costs (including stamp duties and
transfer taxes), shareholder service fees and extraordinary expenses)
exceed .54% of average daily net assets. Prior to June 1, 1996, a similar
waiver existed for annual expenses exceeding .69%; thus, the net annual
expense ratio after the waiver for a Class III shareholder is unchanged.
Additionally, effective March 14, 1996, the waiver was adjusted to include
custodian fees.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997, was $997. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 28, 1997, aggregated
$148,200,376 and $8,265,787, respectively.
4. Principal shareholders
At February 28, 1997, 26% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Class III: Year Ended Year Ended
February 28, 1997 February 29, 1996
-------------------------------------- ---------------------------------------
Shares Amount Shares Amount
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 22,172,884 $ 188,630,734 8,808,517 $ 79,871,616
Shares issued to
shareholders in 12,090,051
reinvestment of
distributions 3,661 28,076 1,394,470
Shares repurchased (5,789,470) (47,329,114) (2,001,579) (18,968,926)
----------------- ----------------- ----------------- -----------------
Net increase 16,387,075 $ 141,329,696 8,201,408 $ 72,992,741
================= ================= ================= =================
</TABLE>
20
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding futures contracts purchased at February 28, 1997
is as follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
---------------- --------------------- ------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
160 TOPIX March 1997 $ 18,480,404 $ (446,543)
</TABLE>
21
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions -- (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income.
At February 28, 1997, the Fund had a capital loss carryforward available to
offset future capital gains, if any, of the following amount:
<TABLE>
<CAPTION>
Year of Expiration Amount
------------------ ------
<S> <C>
2005 $ 43,013
</TABLE>
The Fund has also elected to defer to March 1, 1997 post-October losses of
$561,446.
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Mr. Forrest Berkley are
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham and Mr. Darnell have been portfolio managers at Grantham, Mayo, Van
Otterloo & Co. LLC for more than fifteen years. Mr. Berkley has been with GMO
and involved in portfolio management for more than nine years.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the GMO Japan Fund's performance outpeformed the MSCI
Japan index for the fiscal year ended February 28, 1997, with a total return of
- -17.7% versus -20.5% 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. Stocks selected using the Fund's style momentum
model, which emphasizes factors which are currently working well in the
markets, added significant value as well.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLP Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Japan Fund Class III shares and the
MSCI Japan Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 06/08/90
<S> <C> <C> <C>
Class III -18.5% 3.0% -1.4%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Japan Fund MSCI Japan Index
<S> <C> <C>
06/08/90 9,960 10,000
02/28/91 9,582 9,615
02/29/92 7,816 7,904
02/28/93 7,465 7,387
02/28/94 11,492 10,826
02/28/95 10,271 9,701
02/29/96 11,136 10,565
02/28/97 9,110 8,401
</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 40 bp on the purchase and 61 bp on the redemption.
Transaction fees are paid to the Fund to cover trading costs. Class III shares
are a redesignation of the single class of shares that has been offered by the
Fund since inception. Class I shares and Class II shares have not commenced
operations. Past performance is not indicative of future performance.
Information is unaudited.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO International Small Companies Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Small Companies
Fund at February 28, 1997, the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 17, 1997
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 92.9%
Australia - 2.3%
99,491 Australian Gas & Light 569,148
162,835 Burns Philp & Co Ltd 252,785
91,800 Caltex Australia Ltd 309,960
89,342 Email Ltd 282,243
438,840 Goodman Fielder Ltd 531,379
101,875 Hardie (James) Industries Ltd 292,579
25,355 Pacific Magazines and Printing Ltd 63,962
266,000 Pasminco Ltd 495,526
52,800 Publishing & Broadcasting Ltd 264,343
254,387 QCT Resources Ltd 351,470
252,887 Santos Ltd 910,790
96,500 Seven Network Ltd 319,837
189,800 Southcorp Holdings Ltd 671,792
------------------
5,315,814
------------------
Austria - 1.9%
888 Allgemeine Baugesellschaft AG Preferred 7.00% 32,587
777 Allgemeine Baugesellschaft AG * 69,975
800 Austrian Airlines * 119,180
11,700 Bank Austria AG (Participating Certificate) 344,662
700 Bau Holding AG Preferred 2.42% (Non Voting) 33,582
1,150 Brau Union AG 64,850
200 BWT AG 20,957
2,800 Creditanstalt-Bankverein 172,036
1,200 Creditanstalt-Bankverein Preferred 1.65% 45,945
100 EA-Generali AG 27,775
1,100 EA-Generali AG Preferred 6.00% 114,525
600 EVN Energie-Versorgung Niederoesterreich AG 88,324
2,300 Flughafen Wien AG 115,182
5,500 Jenbacher Werke AG 159,706
200 Lenzing AG 9,629
300 Leykam-Muerztaler Papier und Zellstoff AG 8,358
800 Miba Holding AG Class B Preferred 1.34% 34,744
7,000 OEMV AG 824,833
1,100 Oesterreichische Brau Beteiligungs AG 67,586
3,000 Oesterreichische Elektrizitaetswirtschafts AG 217,907
7,200 Oesterreichische Laenderbank AG 492,678
700 Oesterreichische Laenderbank AG Preferred (Non Voting) 24,568
110 Perlmooser Zementwerke AG 5,694
18,658 Radex-Heraklith AG 676,755
300 RAS Versicherungs AG 37,092
2,400 Steyr-Daimler-Puch AG * 42,420
1,942 Strabag Oesterreich AG 112,945
3,662 Universale Bau AG 144,862
1,700 VA Technologie AG (Bearer) 256,419
200 Wiener Allianz Versicherungs AG 22,725
------------------
4,388,501
------------------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - 3.7%
6,000 Abitibi-Price Inc 98,983
1,000 Agnico Eagle Mines Ltd 14,302
2,200 Air Canada Inc * 11,105
19,200 Anderson Exploration Ltd * 228,254
5,000 Avenor Inc 86,144
1,400 BCE Mobile Communications * 44,553
700 Bombardier Inc Class A 13,392
2,800 Brascan Ltd Class A (Convertible) 67,086
10,600 CAE Industries Inc 88,404
1,400 Cambior Inc 22,430
18,900 Cameco Corp 704,481
6,600 Canadian Airlines Corp * 7,098
3,100 Canadian Marconi Co 39,348
38,300 Canadian Tire Ltd Class A 697,688
1,200 Canfor Corp 12,730
3,400 CCL Industries Class B 39,549
21,900 Cominco Ltd 624,845
9,600 Corel Corp * 62,506
3,100 Co-Steel Inc 51,028
2,000 Cott Corp * 19,680
9,200 Dofasco Inc 166,581
18,100 Dominion Textile Inc 84,747
24,400 Domtar Inc 222,240
6,700 Donohue Inc Class A 128,912
16,200 Echo Bay Mines Ltd * 125,627
8,600 Elan Energy Inc * 69,208
400 Extendicare (Voting Shares) * 5,384
5,700 Fletcher Challenge Canada Class A 94,659
13,000 Gulf Canada Resources Ltd * 91,301
6,400 Hudsons Bay Co 128,056
100 Inco Ltd Class VBN Shares 2,411
13,000 Inmet Mining Ltd * 87,497
13,900 Inter-City Products Corp * 58,980
5,500 International Forest Products A * 40,237
6,000 IPL Energy Inc 175,360
9,400 Ipsco Inc 271,637
1,100 Laidlaw Inc Class A 15,089
13,200 Macmillan Bloedel Ltd 182,515
25,500 Methanex Corp * 249,982
10,100 Mitel Corp * 56,895
15,300 Molson Co Ltd, Class A 266,398
2,900 Molson Co Ltd, Class B 50,918
12,000 Moore Corporation Ltd 265,125
800 Noma Industries Ltd Class A 2,429
11,300 Noranda Forest Inc 78,535
8,500 Noranda Inc 204,898
1,700 Norcen Energy Resource 36,378
30,100 Nova Scotia Power Inc 311,592
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
300 Numac Energy Inc * 1,372
15,800 Oshawa Group Ltd Class A 236,382
1,100 Pegasus Gold Inc * 9,456
10,600 Power Corp of Canada Ltd 224,888
9,600 Provigo Inc * 39,681
4,900 Quebecor Inc Class B 89,977
7,600 Ranger Oil Ltd 68,666
5,900 Repap Enterprises Inc * 10,446
1,200 Rio Algom Ltd 30,507
2,000 Rogers Cantel Mobile Communications Class B * 33,653
12,800 Rogers Communications Inc Class B * 87,556
6,500 Royal Oak Mines * 22,350
10,200 Sears Canada Inc 98,127
10,700 Semi-Tech Class A 21,527
4,880 Slocan Forest Products Ltd 52,481
1,400 Southam Inc 21,611
700 Spar Aerospace Ltd 7,707
5,100 Stelco Inc Class A * 27,983
6,200 Suncor Inc 276,231
2,100 Teck Corp Class B 51,313
100 Tele Metropole Inc Class B * 1,353
12,400 Telus Corp 187,783
1,000 Torstar Corp Class B 26,776
6,600 Total Petroleum North America 67,598
17,700 Transalta Corp 210,421
25,600 TVX Gold Inc * 227,551
1,600 United Dominion Inds Ltd 43,251
11,400 Westcoast Energy Inc 207,250
700 Weston George Ltd 38,357
------------------
8,829,451
------------------
Denmark - 0.0%
800 Hafnia Holdings Class A (b) * 1
------------------
Finland - 3.2%
11,900 Amer Group Class A 249,350
25,000 Cultor OY Class 1 1,514,429
79,000 Kesko OY 1,153,250
63,700 Partek OY 1,053,886
132,400 Rautaruukki OY 1,246,452
125,200 Valmet OY 2,275,279
------------------
7,492,646
------------------
France - 0.4%
120 Accor SA 16,513
300 Bertrand Faure SA 14,949
180 BIC SA 29,193
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
25 Bongrain 9,689
360 Bouygues 34,374
400 Cap Gemini SA * 23,955
750 Casino Guichard-Perrachon 34,227
190 Castorama Dubois Investment 28,647
220 CEP Communications SA (Bearer) 18,149
80 CGIP 22,818
70 Clarins 9,706
220 Club Mediterranee SA 16,894
70 Comptoirs Modernes 34,636
140 Eridania Beghin-Say SA 22,632
130 Essilor International 35,687
7,600 Euro Disney SCA (Bearer) * 13,940
10,400 Eurotunnel SA Units (Bearer) * 12,869
15 Fromageries Bel La Vache 11,719
30 Gaz Et Eaux 13,269
30 Guyenne Et Gascogne 10,321
250 Havas 19,746
70 Hermes International 19,007
170 Imetal 24,468
1,675 Lagardere Groupe 49,392
150 Pathe SA 37,597
830 Pechiney SA Class A 35,095
700 Pernod-Ricard 38,211
230 Primagaz 23,616
30 Sagem Applic Gen D Electric 16,534
100 Saint Louis 26,258
190 Salomon SA 13,050
130 Seb SA 24,415
1,030 Seita 39,412
220 Sidel (Bearer) 16,102
70 Sodexho Alliance 38,948
120 Sylea (Bearer) 11,584
180 Technip SA (Compagnie Francaise) 18,198
700 Thomson CSF 22,177
280 TV Francaise 25,949
3,500 Usinor Sacilor 54,061
360 Worms et Compagnie SA 24,011
------------------
992,018
------------------
Germany - 2.6%
2,100 AGIV AG * 34,706
200 Ava Allgemeine Handelsgesellschaft der Verbraucher AG * 54,259
550 Bayerische Motorenwerke AG 370,098
250 Berliner Kraft und Licht AG Class A 69,897
2,400 Bilfinger & Berger 96,671
150 Brau und Brunnen * 12,528
7,600 Continental AG 148,110
300 Degussa 127,947
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
550 Deutsche Babcock & Wilcox * 24,760
150 Didier-Werke AG 12,262
900 Douglas Holdings AG 31,720
100 Draegerwerk AG Preferred 1,428
50 Dyckerhoff AG (Non Voting) 15,845
50 Dyckerhoff AG 19,547
2,000 FAG Kugelfischer 30,565
150 Friedrich Grohe AG Preferred (Non Voting) 41,583
1,800 Friedrich Krupp AG 287,667
150 GEA AG Preferred 3.13% 51,356
3,050 Heidelberg Port-Zement 251,125
1,100 Henkel KGAA Preferred 58,642
850 Henkel KGAA (Bearer) 43,502
150 Herlitz AG Preferred 13,905
100 Herlitz AG 9,714
2,450 Hochtief AG 106,667
100 Holsten-Brauerei 19,488
200 Holzmann (Philipp) * 60,538
250 Ind-Werke Karl-Aug 57,680
450 Karstadt AG 147,139
250 Kaufhalle AG * 25,323
2,900 Klockner Humboldt Deutz * 14,430
300 Klockner-Werke AG * 18,837
1,450 Kolbenschmidt * 23,104
50 Krones Preferred 17,178
250 Leirheit AG 8,293
550 Linde AG 358,370
150 Linotype Hell AG * 10,662
14,250 Lufthansa AG 189,077
800 MAN AG 204,478
300 MAN AG Preferred 63,885
250 Metro AG Preferred 16,364
1,400 Metro AG 122,734
300 Papierwerke Waldhof 43,360
1,350 Phoenix AG 19,752
750 Preussag AG 192,587
150 Reutgerswerke AG * 21,147
6,100 Schering AG 553,199
300 Schmalbach-Lubeca 61,486
200 Strabag Bau AG * 17,379
100 TH Goldschmidt AG 36,726
1,850 Thyssen AG 392,427
100 Varta AG * 16,586
1,500 Viag AG 662,392
250 Villeroy and Boch AG 33,764
1,000 Volkswagen AG 484,540
550 Volkswagen AG Preferred .79% 209,483
------------------
6,016,912
------------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - 7.4%
2,856,000 Allied Properties Ltd 523,698
102,000 Amoy Properties Ltd 121,836
129,000 Asia Financial Holdings 46,643
196,000 Asia Standard International Group Ltd 64,540
102,000 ASM Pacific Technology 84,956
250,000 Associated International Hotels 172,714
256,000 Chinese Estates Holdings Ltd 272,727
143,000 Cross Harbour Tunnel Co Ltd 312,997
258,666 Dickson Concept International Ltd 943,610
11,214 Evergo China Holdings * 1,752
118,580 Furama Hotel Enterprises Ltd 199,063
218,000 Grand Hotel Holdings Ltd Class A 97,824
270,000 Great Eagle Holdings Ltd 1,012,849
624,000 Hang Lung Development Co Ltd 1,257,025
265,000 Henderson Investment Ltd 297,714
126,300 Hongkong Aircraft Engineering Co Ltd 400,396
245,000 Hysan Development Co Ltd 858,955
13,000 IMC Holdings 6,043
84,000 Jardine International Motor Holdings Ltd 108,471
113,937 Jardine Strategic Warrants 5/02/98 * 38,739
22,000 Johnson Electric Holdings Ltd 60,795
106,800 Kowloon Motor Bus Co Ltd 214,455
353,000 Kumagai Gumi Hong Kong Ltd 403,416
283,000 Kwong Sang Hong International Ltd 159,882
944,400 Lai Sun Development 1,414,649
278,000 Lai Sun Garment International Ltd 405,656
292,000 Liu Chong Hing Investment Ltd 363,869
80,620 Mandarin Oriental 109,643
1,134,000 Mingly Corp 413,682
146,000 New Asia Realty & Trust A Shares 530,721
340,000 Oriental Press Group 141,593
12,800 Oriental Press Group Warrants 10/2/98 * 686
667,000 Pacific Concord Holdings Ltd 239,014
35,100 Realty Development Corp Ltd Class A 135,296
3,406,509 Regal Hotels International Ltd 1,011,747
1,062,000 Ryoden Development 305,133
92,000 Semi Tech (Global) Co Ltd 106,921
132,000 Shell Electric Co Ltd 86,080
112,000 Shun Tak Holdings Ltd 79,545
1,770,000 South China Morning Post Ltd 1,588,520
21,595 Stelux Holdings International 4,713
460,000 Swire Pacific Ltd Class B 626,679
343,101 Tsim Sha Tsui Properties Ltd 1,052,253
162,000 Wing On Co 187,229
20,000 Wing On International Holdings Ltd 38,481
163,500 Winsor Properties Holdings Ltd * 302,973
1,464,000 World Trade Centre Group Ltd 287,355
637,000 Yizheng Chemical Fibre Co 148,886
----------------
17,242,424
----------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - 5.8%
192,300 Alitalia Linee Aeree Italiane Class A * 69,410
118,000 Alitalia Linee Aeree Italiane Class B Preferred * 30,652
31,400 Ansaldo Transporti SPA * 32,329
355,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 733,107
36,500 Banca Nazionale dell'Agricoltura SPA Preferred 13,693
1,064,200 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 409,308
3,000 Benetton Group SPA 34,420
2,000 Bulgari SPA 34,201
75,000 Caffaro SPA 71,938
33,500 Cartiere Burgo SPA 153,624
200,000 Cementir Cementerie del Tirreno SPA 128,402
172,900 Cia Italiana del Grandi Alberghi Cigahotels SPA * 80,618
42,100 COFIDE SPA (Non Convertible) * 10,961
129,600 COFIDE SPA * 54,447
9,000 Cogefar Impresit Costruzioni Generali SPA * 6,715
167,500 Comau Finanziaria SPA 510,429
5,000 Compart SA * 2,204
37,500 Compart SPA * 18,839
8,800 Danieli and Co SPA 64,282
38,000 Danieli and Co SPA (Non Convertible) 144,805
5,100 Edison SPA 28,035
250 Ericsson SPA 3,210
22,000 Falck Acciaierie and Ferriere Lombarde 97,568
219,000 Fiat SPA Preferred 368,024
307,000 Fiat SPA (Non Convertible) 519,538
700 Fila Holding SPA ADR 42,088
439,500 Finmeccanica SPA (Non Convertible) * 174,240
2,500 Finmeccanica SPA * 1,111
102,000 Fornara SPA (b) * 4,346
230,000 Gemina SPA (Non Convertible) * 127,793
517,800 Gemina * 293,829
75,833 Gilardini SPA 101,634
213,400 Grassetto SPA (b) * 1
29,300 IFI Istituto Finanziario Preferred 2.46% 359,749
96,300 IFIL Finanziaria di Partecipazioni SPA 287,760
108,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 208,462
100,400 Industriali Riunite SPA (Non Convertible) * 41,111
170,200 Industriali Riunite SPA * 113,198
800 Industrie Natuzzi SPA ADR 16,500
33,500 Italcementi Fabbriche Riunite Cemento SPA 181,871
53,000 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 128,893
117,400 Italgas SPA 418,541
400 Italmobiliare SPA 6,296
4,400 Luxottica Group Sponsored ADR 256,300
4,000 Marzotto and Figli SPA 30,769
35,300 Mondadori Editore 230,808
165,000 Montedison SPA (Non Convertible) * 111,302
190,000 Montedison SPA * 137,160
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
139,433 Montefibre SPA 85,722
60,000 Montefibre SPA (Non Convertible) 33,053
38,000 Olivetti and Co SPA Preferred * 34,852
166,000 Olivetti and Co SPA (Non Convertible) * 66,498
463,500 Olivetti and Co SPA * 170,041
319,560 Parmalat Finanziaria SPA 439,631
9,000 Permafin Finanziaria * 2,663
74,750 Pirelli and Co 104,827
77,000 Pirelli and Co (Non Convertible) 94,541
110,000 Pirelli SPA 217,722
31,000 Pirelli SPA (Non Convertible) 47,876
16,000 Recordati Industria Chimica e Farmaceutica SPA 120,521
75,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 308,254
30,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 150,355
220,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 436,095
140,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 340,888
19,500 Rinascente Warrants 12/31/99 * 9,519
167,000 SAFFA SPA * 401,195
3,200 SAFILO SPA 53,207
7,500 Saipem SPA 34,238
13,000 Sasib SPA 38,462
22,400 Sasib SPA (Non Convertible) 43,872
72,500 Seat SPA di Risp * 16,774
44,000 Sirti SPA 272,592
355,200 SMI (Societa Metallurgica Italy) * 158,264
115,000 Snia BPD SPA 114,728
605,000 Snia BPD SPA (Non Convertible) 451,065
42,000 Sorin Biomedica SPA 149,609
39,000 Stefanel SPA * 34,962
72,500 STET di Risp (Non Convertible) 253,536
45,000 Telecom Italia Mobile SPA (Non Convertible) 68,831
358,800 Telecom Italia SPA di Risp (Non Convertible) 721,846
590,274 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 1,550,779
1,000 Unione Cementi Marchino Emiliane e di Augusta-Casale 6,030
----------------
13,927,569
----------------
Japan - 16.1%
3,000 Aida Engineering Ltd 19,587
6,000 Aisin Seiki Co Ltd 84,017
7,000 Ajinomoto Co Inc 63,220
20,000 Alps Electric Co Ltd 212,114
20,000 Amada Co Ltd 145,994
2,000 Amano Corp 20,051
3,000 Anritsu Corp 34,303
72,000 Aoki Corp * 103,803
2,000 Aoki International 36,457
5,000 Aoyama Trading 125,528
5,700 Arabian Oil Co Ltd 181,829
31,000 Asahi Breweries Ltd 300,522
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
6,000 Asahi Denka Kogyo 39,175
6,000 Asahi Optical Co 25,106
1,000 Asatsu Inc 26,763
8,000 Asics Corp * 16,107
11,000 Atsugi Nylon Industrial 36,639
4,000 Bandai Co 82,525
3,000 Bank of Kyoto Ltd 13,050
19,000 Bank of Yokohama Ltd 90,993
6,000 Banyu Pharmaceutical Co Ltd 87,497
2,000 Best Denki Co Ltd 21,377
6,000 Brother Industries Ltd 25,354
11,000 Canon Sales Co Inc 213,274
13,000 Casio Computer Co 100,174
14,000 Chiba Bank Ltd 82,824
9,000 Chiyoda Corp * 47,726
2,000 Chudenko Corp 57,171
23,000 Chugai Pharmaceutical Co Ltd 181,614
3,000 Chugoku Bank Ltd 39,771
23,000 Citizen Watch Co 163,891
68,000 Cosmo Oil Co Ltd 264,811
6,400 CSK Corp 152,192
46,000 Daicel Chemical Industries Ltd 198,194
8,000 Daido Steel Co Ltd 24,261
17,000 Daiichi Seiyaku Co Ltd 277,488
7,000 Daikin Industries Ltd 54,868
33,000 Dainippon Ink & Chemicals Inc 104,176
5,000 Dainippon Pharmaceutical Co Ltd 35,794
4,000 Dainippon Screen Manufacturing Co Ltd 32,281
3,000 Daio Paper Corp 25,354
3,200 Daito Trust Construction Co Ltd 31,287
23,000 Daiwa Bank Ltd 92,427
8,000 Denki Kagaku Kogyo 17,831
1,100 Denny's Japan Co Ltd 28,254
2,000 Descente Ltd 9,744
8,000 Eisai Co Ltd 149,805
4,000 Ezaki Glico Co Ltd 33,143
4,000 Fuji Electric Co 16,505
37,000 Fuji Heavy Industries Ltd 176,278
8,000 Fujikara Ltd 62,706
30,000 Fujisawa Pharmaceutical Co Ltd 260,999
34,000 Fujita Corp 60,568
7,000 Fujita Kanko Inc 77,140
3,000 Fujitec Co 27,591
60,000 Fujiya Co Ltd * 198,857
1,000 Fukuoka City Bank Ltd 4,980
178 Fukuoka City Bank Ltd Rights 3/17/97 282
24,000 Fukuyama Transporting Co Ltd 166,443
11,000 Furukawa Co Ltd 36,457
</TABLE>
See accompanying notes to the financial statements.
9
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
41,000 Furukawa Electric Co Ltd 190,579
95,000 Gakken Co Ltd 428,992
40,000 General Sekiyu (KK) 241,942
39,000 Godo Shusei Co Ltd 128,610
30,000 Green Cross Corp 124,285
7,000 Gunze Ltd 31,958
64,000 Hankyu Corp 307,035
5,000 Hankyu Department Stores Inc 44,743
26,000 Hanwa Co Ltd * 70,445
37,000 Haseko Corp * 71,738
19,000 Hazama-Gumi Ltd 42,506
1,000 Heiwa Corp 13,837
4,000 Higo Bank Ltd 22,537
8,000 Hiroshima Bank Ltd 32,414
8,000 Hitachi Cable Ltd 54,089
50,600 Hitachi Ltd 436,026
22,000 Hitachi Maxell Ltd 441,130
10,000 Hitachi Metals Ltd 69,600
7,000 Hokuetsu Paper Mills 34,800
8,000 Hokuriku Bank Ltd 27,508
6,000 Honen Corp 22,869
3,000 Hosiden Corp * 20,656
3,000 House Foods Corp 41,760
3,000 Hoya Corp 127,765
25,000 Hyogo Bank Ltd (b) * 2
8,000 INAX Corp 52,697
46,000 Intec Inc 545,033
7,000 Isetan Co Ltd 76,560
11,000 Ishihara Sangyo Kaisha * 25,429
13,000 Itoham Foods Inc 67,860
7,000 Izumiya Co Ltd 92,220
25,000 Japan Airport Terminal Co Ltd 254,785
119,000 Japan Energy Co Ltd 280,023
3,000 Japan Radio Co 28,834
119,000 Japan Synthetic Rubber Co Ltd 844,014
3,000 Japan Wool Textile 18,717
11,000 JGC Corp 62,797
35,000 Joshin Denki Co Ltd 316,099
2,000 Kaken Pharmaceutical Co Ltd 10,324
23,000 Kamigumi Co Ltd 121,203
3,000 Kandenko Co 25,354
7,000 Kaneka Corp 35,148
4,000 Kansai Paint Co Ltd 16,538
7,000 Kao Corp 76,560
3,000 Katokichi Co Ltd 48,223
38,000 Keihin Electric Express Railway Co Ltd 164,040
49,000 Keio Teito Electric Railway Co Ltd 223,299
20,000 Keisei Electric Railway Co Ltd 116,165
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
5,000 Kenwood Corp 21,336
7,000 Kikkoman Corp 37,758
9,000 Kinden Corp 117,077
2,000 Kissei Pharmaceutical Co Ltd 39,937
16,000 Koito Manufacturing Co Ltd 108,045
59,000 Kokusai Kogyo Co Ltd 488,856
5,000 Kokuyo Co Ltd 106,885
34,000 Komatsu Ltd 253,542
4,000 Komori Corp 83,520
1,000 Konami Co Ltd 28,668
23,000 Konica Corp 138,354
58,000 Koyo Seiko Co Ltd 431,071
44,000 Kumagai Gumi Co Ltd 69,268
123,000 Kurabo Industries Ltd 307,780
14,000 Kuraray Co 116,000
268,000 Kureha Chemical Industry Co Ltd 1,034,783
4,000 Kyodo Printing Co Ltd 29,729
15,000 Kyowa Hakko Kogyo Co Ltd 99,553
1,000 Kyudenko Corp 7,623
3,000 Kyushu Matsushita Electric 32,811
28,000 Lion Corp 117,160
1,900 Mabuchi Motor Co 94,614
66,000 Maeda Corp 400,845
2,000 Maeda Road Construction 17,069
61,000 Makino Milling Machine Co Ltd 428,097
9,000 Makita Corp 123,788
50,000 Marubeni Corp 195,542
3,000 Marudai Food Co Ltd 12,926
2,000 Maruichi Steel Tube 31,320
15,000 Matsushita Electric Works Ltd 131,742
29,000 Matsushita Refrigeration Co 166,037
7,000 Matsuzakaya Co Ltd 57,304
52,000 Mazda Motor Corp * 151,661
7,000 Meiji Seika Kaisha Ltd 33,756
9,000 Mercian Corp 51,603
3,000 Misawa Homes 18,295
32,000 Mitsubishi Gas Chemical Co Inc 117,193
200 Mitsubishi Kasei Corp 555
37,000 Mitsubishi Materials Corp 137,344
71,000 Mitsubishi Oil Co Ltd 295,319
10,000 Mitsubishi Paper Mills Ltd 37,120
20,000 Mitsubishi Rayon Co Ltd 72,583
6,000 Mitsubishi Steel Manufacturing * 20,631
25,000 Mitsubishi Trust & Banking Corp 275,499
8,000 Mitsubishi Warehouse & Transportation Co Ltd 92,800
54,000 Mitsuboshi Belting Ltd 221,477
13,000 Mitsui Mining Co Ltd * 34,684
15,000 Mitsui Petrochemical Industries Ltd 68,854
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
25,000 Mitsui Toatsu Chemicals Inc 67,114
22,000 Mitsui Trust & Banking Co Ltd 135,985
6,000 Mitsui-Soko Co Ltd 33,259
3,000 Mizuno Corp 18,742
5,000 Mori Seiki Co Ltd 67,114
2,000 MOS Food Services 32,148
83,000 Nagasakiya Co Ltd * 236,573
3,000 Nagase & Co 19,712
60,000 Nagoya Railroad Co Ltd 221,725
2,000 Namco Ltd 56,508
36,000 Nankai Electric Railway Co Ltd 175,988
3,000 National House Industrial 36,291
6,000 NCR Japan Ltd 46,483
23,000 NGK Spark Plug Co 236,308
11,000 NHK Spring Co Ltd 39,191
3,000 Nichicon Corp 34,551
155,000 Nichiei Co Ltd 288,963
16,000 Nichii Co Ltd 205,485
17,000 Nihon Cement Co Ltd 80,993
8,000 Nippon Beet Sugar Manufacturing Co Ltd 26,978
121,000 Nippon Chemi-Con Corp 569,459
5,000 Nippon Comsys 55,100
6,000 Nippon Denko Co Ltd 15,411
8,000 Nippon Flour Mills Co Ltd 28,834
3,000 Nippon Hodo Co 24,261
13,000 Nippon Kayaku Co Ltd 74,430
12,000 Nippon Light Metal 42,655
8,000 Nippon Meat Packers Inc 80,205
12,000 Nippon Metal Industry Co Ltd 33,308
174,000 Nippon Oil Co Ltd 733,830
7,000 Nippon Paint Co 22,968
13,000 Nippon Piston Ring Co Ltd 39,208
23,000 Nippon Sheet Glass Co Ltd 73,370
7,000 Nippon Shokubai Corp 44,660
17,000 Nippon Suisan Kaisha Ltd * 45,215
9,000 Nippon Synthetic Chemical 30,201
14,000 Nippon Yakin Kogyo Co Ltd 31,552
15,000 Nishimatsu Construction 111,857
50,000 Nissan Fire & Marine Insurance Co Ltd 199,271
7,000 Nisshin Flour Milling Co Ltd 59,160
7,000 Nisshin Oil Mills Ltd 35,206
28,000 Nisshin Steel Co Ltd 66,816
8,000 Nisshinbo Industries Inc 57,668
66,000 Nissho Iwai Corp 248,819
4,000 Nissin Food Products Co Ltd 76,560
19,000 Nitto Boseki Co Ltd 58,406
11,000 Nitto Denko Corp 146,740
35,000 NSK Ltd 200,679
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
Japan - continued
<C> <S> <C>
13,000 NTN Corp 63,767
55,000 Odakyu Electric Railway Co Ltd 282,998
17,000 Okamoto Industries Inc 70,147
17,000 Oki Electric Industry 89,585
8,000 Okumura Corp 42,290
16,000 Olympus Optical Co Ltd 133,897
3,000 Ono Pharmaceutical Co Ltd 96,445
25,000 Onoda Cement Co Ltd 87,828
15,000 Onward Kashiyama Co Ltd 183,942
12,000 Pioneer Electronics Corp 231,668
3,000 Q.P. Corp 22,620
265,000 Renown Inc * 526,970
2,000 Rinnai Corp 36,126
56,000 Royal Co Ltd 946,557
10,000 Ryobi Ltd 33,640
2,000 Ryosan Co 40,103
25,000 Sanden Corp 200,928
10,000 Sankyo Aluminum Industry Co Ltd 33,060
35,000 Sanrio Co Ltd * 220,399
11,000 Sanwa Shutter Corp 79,567
145,000 Sanyo Securities Co Ltd * 325,586
13,000 Sapporo Breweries Ltd 96,189
5,000 Secom Co Ltd 281,713
16,000 Seino Transportation Co Ltd 159,085
11,000 Sekisui Chemical Co Ltd 113,928
6,000 Settsu Corp * 10,191
2,000 Shimachu Co 46,400
4,000 Shimano Inc 68,274
10,000 Shimadzu Corp 49,548
44,000 Shionogi and Co Ltd 273,792
14,000 Shiseido Co Ltd 163,560
13,000 Shokusan Jutaku Sogo Co Ltd * 21,866
134,000 Showa Denko 294,225
8,000 Showa Electric Wire & Cable 26,912
40,000 Showa Shell Sekiyu 298,616
5,000 Skylark Co Ltd 72,086
10,000 Snow Brand Milk Products Co Ltd 48,637
17,000 Stanley Electric Co Ltd 86,486
3,000 Sumitomo Bakelite Co Ltd 19,662
7,000 Sumitomo Coal Mining Co Ltd 23,896
3,000 Sumitomo Forestry Co Ltd 34,303
39,000 Sumitomo Osaka Cement Co Ltd 106,637
22,000 Sumitomo Trust & Banking Co Ltd 179,551
9,000 Sumitomo Warehouse Co Ltd 45,861
6,000 SXL Corp Ltd 37,832
34,000 Taisei Corp 146,491
11,000 Taisho Pharmaceutical Co Ltd 253,376
18,000 Taiyo Yuden Co Ltd 210,291
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
7,000 Takara Shuzo Co Ltd 42,224
6,000 Takara Standard Co 44,792
4,000 Tanabe Seiyaku Co Ltd 29,000
45,000 Teikoku Oil Co Ltd 211,782
10,000 Terumo Corp 145,828
16,000 The Japan Steel Works Ltd * 33,673
9,000 Toagosei Chemical Industry Co Ltd 31,767
64,000 Tobu Railway Co Ltd 286,353
18,000 Toda Corp 103,356
7,000 Toei Co Ltd 43,616
800 Toho Co Ltd 104,731
7,000 Toho Gas Co 17,052
13,000 Tokai Carbon Co Ltd 45,994
7,000 Tokuyama Corp 35,206
5,000 Tokyo Broadcasting System Inc 72,500
9,000 Tokyo Dome Corp 123,788
90,000 Tokyo Electric Co Ltd * 328,113
17,000 Tokyo Ink Manufacturing Co Ltd 64,372
43,000 Tokyo Rope Manufacturing Co Ltd 135,388
8,000 Tokyo Sowa Bank Ltd 28,702
8,000 Tokyo Steel Manufacturing Co 88,160
5,000 Tokyo Style Co Ltd 57,171
13,000 Tokyotokeiba Co Ltd 35,546
113,000 Tokyu Construction Co Ltd 249,051
84,000 Tokyu Corp 393,239
16,000 Tokyu Department Store Co Ltd 53,691
35,000 Toppan Printing Co Ltd 403,099
28,000 Toshiba Tungaloy Co Ltd 125,280
4,000 Tostem Corp 92,800
7,000 Toto Ltd 71,340
19,000 Toyo Engineering Corp 83,437
1,000 Toyo Exterior Co Ltd 13,671
5,000 Toyo Kanetsu (KK) 14,624
6,000 Toyo Suisan Kaisha 55,183
10,000 Toyo Trust & Banking Co Ltd 71,423
3,000 Tsubakimoto Chain 15,635
3,000 Tsugami Corp 7,159
4,000 Tsumura and Co 24,857
1,000 Unicharm Corp 25,686
4,000 Uniden Corp 43,086
4,000 UNY Co Ltd 70,594
193,000 Victor Co of Japan Ltd 1,839,009
10,000 Wacoal Corp 101,085
4,000 Yakult Honsha Co Ltd 40,434
3,000 Yamaguchi Bank Ltd 36,788
9,000 Yamaha Corp 171,514
10,000 Yamanouchi Pharmaceutical Co Ltd 208,799
5,000 Yamatake Honeywell 72,086
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
27,000 Yamato Transport Co Ltd 266,219
6,000 Yamazaki Baking Co Ltd 89,983
19,000 Yasuda Trust and Banking Co Ltd 51,636
8,000 Yodogawa Steel Works 45,737
3,000 Yokogawa Bridge Corp 25,354
19,000 Yokogawa Electric Corp 145,621
13,000 Yokohama Rubber Co 53,318
4,000 Yoshitomi Pharmaceutical Industries Ltd 27,243
---------------
38,068,620
---------------
Malaysia - 2.2%
18,000 Aluminum Co Malaysia 28,852
87,000 Amalgamated Steel Mills Berhad 77,084
42,000 Amcol Holdings Ltd (c) 39,762
28,000 Aokam Perdana Berhad * 60,330
8,000 Ayer Hitam Tin Dredging * 18,204
116,000 Berjaya Group 161,643
69,000 Berjaya Industrial Berhad 110,600
67,000 Berjaya Leisure Berhad 187,535
6,000 Boustead Holdings Berhad 15,820
14,000 Carlsberg Brew Malaysia 120,660
18,000 Cement Industries of Malaysia Berhad 54,732
23,000 DMIB Berhad 27,418
32,000 Ekran Berhad 114,700
37,000 Esso Malaysia Berhad 102,074
20,000 Golden Plus Holdings 51,551
41,000 Guinness Anchor Berhad 105,679
15,000 Hong Leong Industries Berhad 51,349
4,000 Hume Industries Berhad 25,292
42,000 IJM Corp Berhad Class A 112,485
31,000 Innovest Berhad 117,982
67,000 IOI Corporation Berhad 120,886
4,000 Jaya Tiasa Holdings Berhad 21,909
42,000 Johan Holdings Berhad 45,332
57,000 Kedah Cement Berhad 110,648
16,000 Kelanamas Industries 33,830
50,000 Kemayan Corporation Berhad 75,312
16,000 Kian Joo Can Factory 75,393
47,000 Kulim Berhad 114,039
45,000 Land & General Berhad 91,522
57,000 Landmark Berhad 102,384
35,000 Leader Universal Holdings 74,708
45,000 Malayan Cement Berhad 117,801
114,000 Malayan United Industries Berhad 104,221
18,000 Malayawata Steel 35,522
76,000 Malaysian Helicopter Berhad 107,741
38,000 Malaysian Mosaics 66,114
19,000 Malaysian Oxygen Berhad 102,537
29,000 Malaysian Pacific Industries 120,298
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
29,333 Malaysian Plantations Rights 4/9/97 * 12,759
44,000 Malaysian Plantations 103,665
4,000 Matsushita Electric 39,146
157,000 MBF Holdings Berhad 104,329
104,000 Mulpha International 113,089
23,000 Multi Purpose Holdings 54,652
24,000 New Straits Times 152,718
22,000 Oriental Holdings Berhad 198,470
3,000 OYL Industries Berhad 29,239
101,000 Pan Malaysia Cement 120,403
24,000 Perlis Plantations 74,426
92,000 Pernas International Hotel & Property 113,379
45,000 Petronas Dagangan Berhad 120,520
28,000 Pilecon Engineering Berhad 50,745
35,000 PJ Development Holdings 40,455
73,000 Promet Berhad * 82,614
36,000 RJ Reynolds Berhad 98,590
24,000 Sarawak Enterprises Corp 45,816
33,000 Shell Refinery Co 106,323
36,000 Sime Darby 41,606
23,000 Sistem Television Malaysia 47,241
24,000 Sungei Way Holdings 69,593
70,000 Tan Chong Motor Holdings Berhad 142,368
64,000 Time Engineering Berhad 144,342
16,000 Tractors Malaysia Holdings Berhad 33,508
28,000 UMW Holdings Berhad 147,725
19,000 Uniphone Telecommunications 26,476
32,000 Westmont Industries Berhad 65,083
---------------
5,483,229
---------------
New Zealand - 0.3%
25,000 Air New Zealand Ltd Class B 65,202
4,500 Ceramco Corp Ltd 3,767
658,000 DB Group Ltd 455,204
15,510 Fernz Corp Ltd 50,967
42,500 Fletcher Challenge Ltd 60,567
14,500 Independent Newspapers Ltd 68,512
25,300 Lion Nathan Ltd 62,309
2,500 Steel and Tube Holdings Ltd 14,614
---------------
781,142
---------------
Norway - 3.4%
11,100 Aker AS Class A 283,323
4,000 Aker AS Class B (Non Voting) 96,756
13,700 Bergesen D Y AS Class A 284,629
8,000 Bergesen D Y AS Class B 167,394
123,700 Den Norske Bank AS Class A 550,708
5,800 Dyno Industrier AS 137,714
30,233 Hafslund ASA A Shares 222,084
11,675 Hafslund ASA B Shares 77,099
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norway - continued
1,200 Kvaerner Industrier AS Class B (Non Voting) 53,424
11,900 Leif Hoegh and Co AS 229,573
64,600 Norsk Hydro AS 3,235,464
12,430 Norske Skogindustrier AS Class A 381,832
2,780 Norske Skogindustrier AS Class B 80,034
30,233 Nycomed ASA A Shares 471,087
11,675 Nycomed ASA B Shares 173,256
6,050 Orkla-Borregaard AS Class A 482,125
3,100 Orkla-Borregaard AS Class B (Non Voting) 228,868
32,126 SAS Norge ASA Class B 319,420
35,300 Unitor AS 455,747
18,571 Vard AS Class A * 38,583
---------------
7,969,120
---------------
Singapore - 4.2%
2,391,000 Chuan Hup Holdings Ltd 1,844,390
25,200 Fraser and Neave Ltd 226,199
494,000 Hai Sun Hup Group Ltd 367,209
16,500 Haw Paw Brothers International Ltd 38,415
1,650 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 1,597
145,000 Hotel Properties Ltd 256,241
122,000 Inchcape Berhad 426,059
146,483 Jardine Matheson Holdings Ltd 886,222
805,437 Jardine Strategic Holdings Ltd 2,641,833
24,000 Natsteel Ltd 58,906
170,000 Neptune Orient Lines Ltd 146,634
210,000 Parkway Holdings Ltd 883,590
97,000 Prima Ltd 337,391
223,000 Robinson and Co Ltd 914,832
34,000 Straits Trading Co Ltd 83,927
245,000 Times Publishing Ltd 546,353
46,000 Wearne Brothers Ltd 125,806
---------------
9,785,604
---------------
Spain - 3.6%
12,155 Acerinox SA 1,689,914
36,403 Asturiana del Zinc SA * 472,338
9,300 Azucarera de Espana SA 438,563
27,600 Banco Zaragozano SA 558,354
1,125 Bodegas Y Bebidas SA 30,882
15,650 Cristaleria Espanola SA 1,300,255
22,000 Empresa Nacional de Celulosa SA 300,802
40,400 Ercros SA * 26,210
138,100 Espanola de Tubos por Extrusion SA 265,892
3,500 Fabricacion de Automoviles Renault de Espana SA 67,143
3,783 Grupo Anaya SA 79,170
27,400 Grupo Duro Felguera SA * 278,110
1,010 Koipe SA 50,588
275,820 Sarrio SA 1,002,457
55,799 Tableros Defibras Class B 539,111
167,515 Uralita SA 1,314,645
---------------
8,414,434
---------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
Sweden - 5.9%
<S> <C> <C>
4,057 Assi Doman 105,238
8,400 Avesta Sheffield AB 85,142
37,400 Bilspedition AB Class B * 139,163
40,700 Celsius Industrier AB Class B 784,352
1,000 Custos AB Series Class B 23,139
11,742 Diligentia AB * 155,817
3,800 Electrolux AB Class B 237,687
40,700 Enator AB * 1,036,756
1,600 Esselte AB Class A 38,730
1,600 Esselte AB Class B 38,837
21,400 Euroc Industri AB Class A 796,282
593 Incentive AB Class A 41,283
897 Industrivarden AB Class A 45,101
952 Industrivarden AB Class C (Bearer) 45,708
2,100 Kinnevik Investment Class B 59,515
57,860 Marieberg Tidnings AB Class A 1,605,057
21,000 Mo Och Domsjo AB Class B 666,569
1,200 Perstorp AB Class B 21,605
2,200 PLM AB 38,877
117,420 Skandinaviska Enskilda Banken Class A 1,237,137
12,600 SKF AB Class B 300,796
6,200 Ssab Swedish Steel Class A 105,427
2,000 Ssab Swedish Steel Class B 34,009
295,400 Stena Line AB Class B 1,402,521
14,950 Stora Kopparberg Bergslags Class A 204,368
7,150 Stora Kopparberg Bergslags Class B 96,788
3,353 Svedala Industries 65,735
5,600 Svenska Cellulosa Class B 124,352
40,600 Svenska Handelsbanken Class B 1,088,356
4,400 Svenska Kullagerfabriken AB 103,866
64,300 Sydkraft AB Class A 1,457,836
55,600 Sydkraft AB Class C 1,082,621
31,900 Trelleborg AB Class B 499,893
2,650 Volvo AB Class A 65,913
------------------
13,834,476
------------------
Switzerland - 5.5%
900 Adia SA (Bearer) 291,661
500 Ascom Holding AG (Registered) 100,678
2,840 Bobst SA (Registered) 1,771,390
100 Danzas Holding AG (Registered) 107,119
350 Elektrowatt AG (Bearer) 126,000
500 Hero Lenzburg (Registered) 55,678
1,050 Hilti AG, Schaan (Participating Certificate) 662,034
550 Holderbank Financiere Glarus AG (Bearer) 409,424
2,400 Holderbank Financiere Glarus AG (Registered) 359,593
1,160 Kuoni Reisen Holdings AG (Registered) 3,051,390
830 Magazine zum Globus (Participating Certificate) 357,885
300 Magazine zum Globus (Registered) 146,441
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
Switzerland - continued
<S> <C> <C>
586 Novartis AG (Bearer) 670,622
586 Novartis Rights 3/12/97 * 37,087
4,260 Saurer Group Holdings (Registered) 2,021,695
190 Schindler Holding AG (Participating Certificate) 212,542
270 Schindler Holding AG (Registered) 287,390
1,216 Sika Finanz AG (Bearer) 301,733
3,300 SMH AG (Registered) 434,593
250 Societe Generale de Surveillance Holdings Ltd (Bearer) 567,797
750 Societe Generale de Surveillance Holdings Ltd (Registered) 312,712
175 Sulzer Gebrueder AG (Registered) 109,153
950 Swiss Bank Corp (Registered) 180,339
2,150 Swissair AG (Participating Certificate) * 348,373
90 Union Bank of Switzerland (Registered) 16,414
------------------
12,939,743
------------------
United Kingdom - 24.4%
119,600 Allied Colloids 250,739
96,926 Amstrad Plc 302,037
63,280 Argos Plc 708,235
1,187,000 ASDA Group 2,168,981
66,900 Ashley (Laura) Holdings 171,907
5,400 Associated British Foods 42,817
80,900 Astec (BSR) 190,063
43,990 Barratt Development 199,161
22,060 Bass 307,722
131,592 BAT Industries 1,152,898
63,500 Beazer Holmes Plc 207,201
121,863 Berisford International 272,383
165,000 Blue Circle Industries 1,072,752
28,620 Boots Co 317,049
276,232 British Aerospace 5,747,201
102,135 Bunzl Co 350,763
595,125 Burton Group 1,519,531
26,375 Carlton Communications 224,621
27,760 Charter Plc (Registered) 334,243
55,848 Cobham Group Plc 534,395
72,500 Compass Group 870,568
89,502 Costain Group (c) 65,710
41,081 Dawson International 46,246
140,902 Dixons Group 1,229,867
136,959 English China Clays Plc 478,180
6,200 First Leisure Plc 37,932
36,683 Glaxo Wellcome Plc 621,824
77,177 Grand Metropolitan 572,910
96,020 Greenalls Group Plc 874,144
35,302 Greycoat Plc 92,152
40,448 Hammerson 289,040
109,620 Hazlewood Foods 212,826
327,176 Hillsdown Holdings 1,019,534
</TABLE>
See accompanying notes to the financial statements
19
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
United Kingdom - continued
<S> <C> <C>
11,683 Hyder Plc 158,205
12,618 Hyder Plc Cumulative Redem Preferred Shares 22,182
207,644 Inchcape 901,131
1,575,267 Ladbroke Group 5,911,111
39,334 Laing (John) 194,445
9,309 Laing (John) A (Non Voting) 46,019
1,195,200 Lasmo 4,699,425
88,060 Lex Service 501,408
210,687 London International 574,039
965,481 Lonrho 2,268,262
90,660 Marks & Spencer 735,122
52,634 Marley 106,482
23,500 Mcalpine Alfred 59,811
42,448 Meyer International 278,401
175,023 National Grid Holdings Plc 591,089
200,497 Norcros Plc 300,942
114,085 Northern Foods Plc 396,456
44,480 Ocean Group 340,712
127,000 Racal Electronics 600,881
24,400 Rank Group Plc * 166,002
92,634 Reckitt & Colman 1,204,525
221,800 Rexam Plc 1,176,067
666,902 Rolls-Royce 2,524,277
61,150 Safeway Plc 361,154
59,526 Sainsbury (J) 300,091
5,074 Scottish & Newcastle Plc 56,044
85,597 Securicor Plc 437,109
64,900 Siebe Plc 1,024,961
412,040 Signet Group Plc * 215,118
110,825 Simon Engineering 75,941
18,316 Southwest Water 204,994
18,542 Storehouse Plc 82,888
166,106 T & N 441,733
800,564 Tarmac 1,319,181
672,580 Taylor Woodrow Plc 2,095,870
251,500 Tomkins Plc 1,169,418
117,600 Transport Development Group 393,322
27,855 Unilever 716,447
153,263 United Biscuits 600,117
900 Vendome Luxury Group Plc Units 7,724
84,800 Waste Management International * 326,509
12,040 Whitbread Plc Class A 154,396
128,180 Wilson (Connolly) Holdings 328,327
352,235 Wimpey (George) 810,287
5,368 Wolseley 41,250
------------------
57,405,507
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $201,272,965) 218,887,211
------------------
</TABLE>
See accompanying notes to the financial statements
20
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 14.6%
<S> <C> <C>
Cash Equivalents - 13.4%
$12,400,000 First National Bank of Chicago Time Deposit, 5.44% due 3/3/97 12,400,000
19,211,824 The Boston Global Investment Trust (d) 19,211,824
------------------
31,611,824
------------------
U.S. Government - 1.2%
$ 3,000,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 2,862,901
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $34,474,499) 34,474,725
------------------
TOTAL INVESTMENTS - 107.5%
(Cost $235,747,464) * * 253,361,936
Other Assets and Liabilities (net) - (7.5%) (17,709,132)
------------------
TOTAL NET ASSETS - 100.0% 235,652,804
==================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures
contracts (Note 5).
(b) Bankrupt security.
(c) Valued by management (Note 1).
(d) Represents investment of security lending collateral
(Note 1).
* Non-income producing security. A dividend has not been
declared for the year ended February 28, 1997.
** The aggregate identified cost for federal income tax
purposes is $235,982,118, resulting in gross unrealized
appreciation and depreciation of $42,755,023 and
$25,375,205, respectively, and net unrealized appreciation
of $17,379,818.
See accompanying notes to the financial statements. 21
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, industry sector diversification of the Fund's equity
investments was as follows:
<TABLE>
<CAPTION>
Industry Sector (Unaudited)
<S> <C>
Services 10.0%
Construction 8.7
Conglomerates 8.7
Machinery 8.2
Consumer Goods 6.7
Oil and Gas 6.4
Retail Trade 6.2
Aerospace 4.6
Metals and Mining 3.8
Real Estate 3.7
Transportation 3.3
Paper and Allied Products 3.1
Health Care 2.9
Communications 2.8
Banking 2.8
Utilities 2.5
Chemicals 2.5
Electronic Equipment 2.1
Food and Beverage 2.0
Automotive 1.4
Textiles 1.2
Telecommunications 0.7
Financial Services 0.5
Computers 0.4
Insurance 0.2
Miscellaneous 4.6
-----------
100.0%
===========
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $235,747,464)(Note 1) $ 253,361,936
Foreign currency, at value (cost $1,358,260)(Note 1) 1,334,881
Cash 71,971
Receivable for Fund shares sold 350,000
Dividends and interest receivable 182,001
Receivable for open forward foreign currency contracts (Note 5) 3,673,097
Foreign withholding taxes receivable 62,379
Receivable for expenses waived or borne by Manager (Note 2) 169,949
--------------
Total assets 259,206,214
--------------
Liabilities:
Payable for open forward foreign currency contracts (Note 5) 3,869,428
Payable upon return of securities loaned (Note 1) 19,211,824
Payable for variation margin on open futures contracts (Notes 1 and 6) 90,361
Payable to affiliate for (Note 2):
Management fee 225,161
Shareholder service fee 27,013
Accrued expenses 129,623
--------------
Total liabilities 23,553,410
--------------
Net assets $ 235,652,804
==============
Net assets consist of:
Paid-in capital $ 219,016,578
Distributions in excess of net investment income (655,418)
Accumulated net realized loss (2,135,553)
Net unrealized appreciation 19,427,197
--------------
$ 235,652,804
==============
Net assets attributable to Class III Shares $ 235,652,804
==============
Shares outstanding - Class III 17,508,892
==============
Net asset value per share - Class III $ 13.46
==============
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Year Ended February 28, 1997
- ---------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $623,394) $ 4,644,071
Interest (including securities lending income of $51,390) 1,164,591
-------------
Total income 5,808,662
-------------
Expenses:
Management fee (Note 2) 2,889,159
Custodian fees 301,405
Audit fees 66,342
Transfer agent fees 29,076
Stamp duties and transfer taxes 20,502
Legal fees 11,731
Registration fees 5,006
Trustees fee (Note 2) 1,142
Miscellaneous 3,448
Fees waived or borne by Manager (Note 2) (1,833,495)
-------------
1,494,316
Shareholder service fee - Class III (Note 2) 259,782
-------------
Net expenses 1,754,098
-------------
Net investment income 4,054,564
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (2,513,028)
Closed futures contracts 167,229
Closed swap contracts 216,355
Foreign currency, forward contracts and foreign
currency related transactions (4,599,838)
-------------
Net realized loss (6,729,282)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 13,008,849
Open futures contracts 1,724,730
Foreign currency, forward contracts and foreign
currency related transactions 922,147
-------------
Net unrealized gain 15,655,726
-------------
Net realized and unrealized gain 8,926,444
-------------
Net increase in net assets resulting from operations $ 12,981,008
=============
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
------------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,054,564 $ 3,624,469
Net realized gain (loss) (6,729,282) 4,417,938
Change in net unrealized appreciation (depreciation) 15,655,726 13,287,476
----------------- -----------------
Net increase in net assets
resulting from operations 12,981,008 21,329,883
----------------- -----------------
Distributions to shareholders from:
Net investment income - Class III (1,160,606) (2,798,026)
In excess of net investment income - Class III - (319,106)
Net realized gains - Class III (3,372,778) (2,401,896)
In excess of net realized gains - Class III (30,591) -
----------------- -----------------
(4,563,975) (5,519,028)
----------------- -----------------
Net share transactions - Class III (Note 4) 8,272,041 16,967,675
----------------- -----------------
Total increase in net assets 16,689,074 32,778,530
Net assets:
Beginning of period 218,963,730 186,185,200
----------------- -----------------
End of period (including distributions in excess of net
investment income of $655,418 and accumulated
undistributed net investment income of
$476,295, respectively) $ 235,652,804 $ 218,963,730
================= =================
</TABLE>
See accompanying notes to the financial statements. 25
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.95 $ 11.95 $ 14.45 $ 8.91 $ 9.62
-------- -------- -------- -------- ---------
Income (loss) from investment operations:
Net investment income 0.23 0.18 0.18 0.15 0.35
Net realized and unrealized gain (loss) 0.55 1.16 (1.52) 5.59 (0.68)
-------- -------- -------- -------- ---------
Total from investment operations 0.78 1.34 (1.34) 5.74 (0.33)
-------- -------- -------- -------- ---------
Less distributions to shareholders from:
Net investment income (0.07) (0.17) (0.20) (0.12) (0.38)
In excess of net investment income - (0.02) - - -
Net realized gains (0.20) (0.15) (0.96) (0.08) -
In excess of net realized gains (0.00) - - - -
-------- -------- -------- -------- ---------
Total distributions (0.27) (0.34) (1.16) (0.20) (0.38)
-------- -------- -------- -------- ---------
Net asset value, end of period $ 13.46 $ 12.95 $ 11.95 $ 14.45 $ 8.91
======== ======== ======== ======== =========
Total Return (a) 5.99% 11.43% (9.66%) 64.67% (3.30%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 235,653 $ 218,964 $ 186,185 $ 132,645 $ 35,802
Net expenses to average
daily net assets 0.76% (c) 0.76% (c) 0.76% (c) 0.75% 0.75%
Net investment income to average
daily net assets 1.75% 1.84% 1.45% 1.50% 4.02%
Portfolio turnover rate 13% 13% 58% 38% 20%
Average broker commission rate per equity share (b) $ 0.0015 N/A N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.10 $ 0.07 $ 0.08 $ 0.09 $ 0.09
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived
during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission
rate will vary depending on the markets in which trades are executed.
(c) Includes stamp duties and taxes not waived or borne by the Manager,
which approximate .01% of average daily net assets.
26 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees
to create an unlimited number of series ("Funds"), each of which issues a
separate series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment primarily in equity
securities of small capitalization foreign companies traded on a major stock
exchange of a foreign country.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.
27
<PAGE>
GMO International Small Companies 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.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with planned
purchases or sales of securities or to hedge the currency exposure associated
with some or all of the Fund's portfolio securities. A forward currency
contract is an agreement between two parties to buy and sell a currency at a
set price on a future date. The market value of a forward currency contract
fluctuates with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded by
the Fund as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt of
the currency or, if a forward currency contract is offset by entering into
another forward currency contract with the same broker, upon settlement of
the net gain or loss. These contracts may involve market risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. In addition, the Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value
of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value
of the currencies the Fund has committed to buy and sell is shown under Note
5, and represents the currency exposure the Fund has acquired or hedged
through currency contracts as of February 28, 1997.
28
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
The Fund may purchase or sell index futures contracts. Stock index futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a specified price at a
given date. The Fund may use futures contracts to manage its exposure to the
stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease the
Fund's exposure to the underlying instrument or hedge other Fund instruments.
Upon purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the initial
margin requirements of the broker or exchange. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or receivable
is liquidated on the following business day. Gains or losses are recognized
but not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities. Losses
may arise from changes in the value of the underlying instrument, if there is
an illiquid secondary market for the contracts, or if counterparties do not
perform under the contract terms. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they are traded. See Note 5 for all open futures contracts held as of
February 28, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure to
the equity markets. The Fund enters into equity swap agreements which involve
a commitment by one party in the agreement to pay interest in exchange for a
market linked return based on a notional amount. To the extent that the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Equity
swaps are marked to market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gain or loss in the Statement
of Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform or that there may be
unfavorable changes in the price of the security or index underlying these
transactions. There were no open swap agreements as of February 28, 1997.
29
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
February 28, 1997, the Fund loaned securities having a market value of
$17,874,621 collateralized by cash in the amount of $19,211,824, 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 taxable net
investment income and net realized short-term and long-term capital gains, if
any, after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise tax
is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions. Gains associated with
such in-kind redemptions amounted to $19,339.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of net
investment income per share in the financial highlights table excludes these
adjustments.
30
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in-Capital
-------------------------- ------------------------ -------------------
<S> <C> <C>
(4,025,671) 4,244,743 (219,072)
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis,
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds. Investment income, common expenses and
realized and unrealized gains and losses are allocated pro-rata among the
classes based on the relative net assets of each class. Shareholder service
fees, which are directly attributable to a class of shares, are charged to
that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.00% of the amount invested.
In the case of cash redemptions, the fee is .60% of the amount redeemed.
Prior to June 1, 1996, the premium on cash purchases and fee on cash
redemptions was 1.25% and .75% of the amount invested or redeemed,
respectively. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the year ended February 28,
1997, the Fund received $144,373 in purchase premiums and $41,255 in
redemption fees. There is no premium for reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments 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.
31
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of 1.25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder service
fee for client and shareholder service, reporting and other support. Pursuant
to the Shareholder Services Plan, the shareholder service fee is calculated
based on the average daily net assets of each class at the annual rate of
.28% for Class I shares, .22% for Class II shares and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other transaction
costs (including stamp duties and transfer taxes), shareholder service fees,
and extraordinary expenses) exceed .60% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .75%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $1,142. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended February 28, 1997, aggregated $43,953,796 and
$26,113,398, respectively.
32
<PAGE>
GMO International Small Companies 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>
Class III: Year Ended Year Ended
February 28, 1997 February 29, 1996
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 1,509,544 $ 20,156,083 3,283,845 $ 41,404,225
Shares issued to
shareholders in
reinvestment of
distributions 302,311 4,040,065 348,837 4,310,448
Shares
repurchased (1,205,784) (15,924,107) (2,315,294) ( 28,746,998)
------------- --------------- ------------- ---------------
Net increase 606,071 $ 8,272,041 1,317,388 $ 16,967,675
============= =============== ============== ===============
</TABLE>
5. Financial instruments
A summary of outstanding financial instruments at February 28, l997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
-------------- ----------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Buys
3/07/97 ATS 21,091,044 $ 1,775,480 $ (46,200)
3/07/97 AUD 5,553,581 4,310,162 (28,431)
5/09/97 AUD 467,951 362,690 (1,310)
7/11/97 AUD 1,521,909 1,178,997 690
3/07/97 BEF 259,901,740 7,463,990 (831,620)
5/12/97 BEF 41,159,580 1,185,554 (53,446)
7/11/97 BEF 259,901,740 7,513,804 (33,169)
3/03/97 CHF 680,280 461,207 (16,250)
</TABLE>
33
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
-------------- ----------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Buys - continued
3/07/97 CHF 485,520 329,264 (60,900)
3/07/97 DEM 5,165,555 3,060,458 (277,542)
5/09/97 DEM 22,762,636 13,539,895 (574,105)
6/13/97 ESP 1,332,560,658 9,276,283 (161,717)
3/07/97 FRF 60,925,421 10,695,708 (599,983)
5/09/97 FRF 23,502,270 4,141,501 (177,499)
7/11/97 FRF 29,304,328 5,184,787 (2,334)
3/07/97 GBP 4,926,172 8,036,628 (124,223)
3/07/97 HKD 134,784,236 17,404,748 2,424
3/07/97 JPY 1,722,540,763 14,278,372 (423,089)
3/03/97 NOK 13,300,000 1,973,718 (130,712)
3/07/97 NOK 14,841,173 2,202,800 (8,176)
6/13/97 NOK 31,811,836 4,744,869 (162,131)
7/11/97 NOK 13,300,000 1,986,941 (16,976)
3/07/97 NZD 2,614,906 1,808,487 (3,854)
5/09/97 NZD 308,296 212,388 (3,612)
3/07/97 SEK 70,740,712 9,435,465 (38,552)
6/13/97 SEK 44,332,113 5,931,438 (85,562)
3/07/97 SGD 224,651 157,537 (1,677)
-------------------
$ (3,859,956)
===================
Sales
3/07/97 ATS 21,091,044 $ 1,775,480 $ 158,520
3/07/97 AUD 5,553,581 4,310,162 51,984
7/11/97 AUD 4,031,672 3,126,669 (1,317)
3/07/97 BEF 259,901,740 7,463,990 28,124
3/03/97 CHF 680,280 461,207 79,987
3/07/97 CHF 485,520 329,264 11,981
</TABLE>
34
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
-------------- ----------------------- -------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
3/07/97 DEM 5,165,555 3,060,458 62,655
5/09/97 DEM 22,762,636 13,539,895 345,687
3/07/97 FRF 60,925,421 10,695,708 499,437
7/11/97 FRF 31,621,093 5,597,089 1,942
3/07/97 GBP 4,926,172 8,036,628 146,703
3/07/97 HKD 134,784,236 17,404,748 10,300
7/11/97 HKD 134,784,236 17,397,703 (4,560)
3/07/97 JPY 1,722,540,763 14,278,372 986,628
3/03/97 NOK 13,300,000 1,973,718 15,215
3/07/97 NOK 14,841,173 2,202,800 95,200
7/11/97 NOK 14,841,173 2,220,251 5,647
3/07/97 NZD 2,614,906 1,808,487 8,010
5/09/97 NZD 308,296 212,388 (481)
3/07/97 SEK 70,740,712 9,435,465 936,622
5/09/97 SEK 24,605,750 3,290,920 193,080
7/11/97 SEK 70,740,712 9,485,895 30,470
3/07/97 SGD 224,651 157,537 1,791
-------------------
$ 3,663,625
===================
</TABLE>
Currency Abbreviations
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar JPY Japanese Yen
BEF Belgian Franc NOK Norwegian Kroner
DEM German Mark NZD New Zealand Dollar
ESP Spanish Peseta SEK Swedish Krona
CHF Swiss Franc SGD Singapore Dollar
FRF French Franc
GBP British Pound
35
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures Contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------------- --------------- ---------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Buys
81 CAC- 40 March 1997 $ 7,461,218 $ 1,095,722
5 GXH 7 March 1997 965,822 77,995
93 MIB 30 March 1997 9,544,331 780,411
59 OMX INDEX March 1997 1,615,829 (38,833)
76 TXH7 March 1997 9,067,847 524,873
---------------------
$ 2,440,168
=====================
Sells
111 All-Ords March 1997 $ 5,227,652 $ (184,440)
42 FTSE 100 March 1997 7,340,537 (479,355)
61 Hang Seng March 1997 5,226,433 83,667
40 IBEX March 1997 1,473,596 68,518
16 TOPIX March 1997 69,613,440 112,430
---------------------
$ (399,180)
=====================
</TABLE>
At February 28, 1997 the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
36
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
55.60% of distributions as net capital gain dividends.
At February 28, 1997, the Fund had a capital loss carryforward available to
offset future capital gains, if any, of the following amounts:
Year of Expiration Amount
------------------ ------
2005 $975,979
The Fund has also elected to defer to March 1, 1997 post-October losses of
$1,679,626.
37
<PAGE>
GMO International Small Companies 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. LLC for more than
fifteen years.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the GMO International Small Companies Fund returned 6.0%
for the fiscal year ended February 28, 1997 as compared to 3.2% for EAFE and
7.7% for the GMO 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.
With the exception of Japan and Singapore, the majority of the EAFE ex-Japan
countries experienced strong performance during the year. The Japanese market
declined by -8.8% in local terms, while EAFE ex-Japan rose by 25.6%. These
returns were depressed somewhat for U.S. investors as a result of the dollar's
rally during the period, 7.6% versus an EAFE-Lite basket of currencies.
Country selection (in local terms) detracted from the Fund's relative
performance for the year. The Fund's underweighting of strong performing
countries such as the Netherlands, France and Germany overshadowed the positive
contribution of underweighting Japan and overweighting Finland and Canada.
Effect of currency weights
The effect of the Fund's currency weights added value to the account's relative
performance, primarily from underweighting the yen, Swiss franc and Dutch
guilder. The Fund also benefited from an overweight position in the pound
sterling, which was the strongest performing currency for the year. The Fund was
modestly hedged back to the U.S. dollar during the year, which added value as
well.
Effect of stock selection
Stock selection negatively impacted the Fund's performance for the year.
International small capitalization stocks had mixed results, outperforming the
average stock by 0.2% within the EAFE ex-Japan countries during the year, while
underperforming the average stock in Japan by -1.4%. Small value stocks also
underperformed.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO International Small Companies Fund Class III shares and the
MSCI EAFE Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10/14/91
<S> <C> <C> <C>
Class III 4.3% 10.8% 9.2%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO International Small Companies Fund MSCI EAFE Index
<S> <C> <C>
10/14/91 9,900 10,000
02/29/92 9,541 9,591
02/28/93 9,205 9,195
02/28/94 15,175 12,798
02/28/95 13,711 12,230
02/29/96 15,278 14,291
02/28/97 16,096 14,754
</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 100 bp on purchase and 60 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Class III shares are a
redesignation of the single class of shares that has been offered by the Fund
since inception. Class I shares and Class II shares have not commenced
operations. Past performance is not indicative of future performance.
Information is unaudited.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
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 28, 1997,
the results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 82.7%
Aerospace - 0.3%
1,470 Boeing Co 149,573
12,500 Sundstrand Corp 545,313
----------------
694,886
----------------
Automotive - 1.8%
10,000 Chrysler Corp 338,750
15,000 General Motors Corp 868,125
135,000 Mascotech Industries Inc 2,565,000
----------------
3,771,875
----------------
Banking and Financial Services - 11.0%
45,000 American Express Co 2,941,875
112,500 Block (HR) Inc 3,304,688
40,000 Chase Manhattan Corp 4,005,000
50,000 Citicorp 5,837,500
25,000 First Chicago NBD Corp 1,462,500
7,500 Great Western Financial 329,063
10,000 Nationsbank Corp 598,750
10,000 PNC Bank Corp 423,750
42,500 Travelers Group Inc (The) 2,279,063
5,000 Wells Fargo Co 1,521,250
----------------
22,703,439
----------------
Chemicals - 0.8%
25,000 Albemarle Corp 490,625
10,000 Bayer A G 373,125
25,000 Borden Chemical and Plastics LP 287,500
10,000 Georgia Gulf Corp 270,000
10,000 Millennium Chemicals Inc 191,250
----------------
1,612,500
----------------
Computer and Office Equipment - 0.4%
100,000 Intergraph Corp * 825,000
----------------
Conglomerate - 0.2%
18,750 Hanson Plc ADR 417,188
----------------
Construction - 0.1%
12,500 McDermott International Inc 278,125
----------------
Consumer Goods - 4.4%
25,000 Black & Decker Corp 790,625
10,000 Burlington Industries Inc 128,750
60,000 Eastman Kodak 5,377,500
30,000 Maytag Corp 660,000
100,000 Safety Kleen 1,800,000
15,000 Scotts Company Class A 318,750
----------------
9,075,625
----------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Equipment - 0.2%
25,000 International Rectifier Corp * 337,500
5,000 National Semiconductor Corp * 130,625
----------------
468,125
----------------
Environmental Control - 2.6%
50,000 Wheelabrator Technologies Inc 712,500
150,000 WMX Technologies 4,743,735
----------------
5,456,235
----------------
Food and Beverage - 2.4%
15,000 Anheuser-Busch Cos Inc 667,500
12,500 Archer Daniels Midland 231,250
20,000 Coors (Adolph) Co 427,500
15,000 Darden Restaurants Inc 108,750
15,000 IBP Inc 348,750
42,500 Nestle SA ADR 2,313,692
15,000 Riviana Foods Inc 270,000
15,000 Sara Lee Corp 581,250
5,000 Wendys International Inc 103,750
----------------
5,052,442
----------------
Health Care - 1.5%
37,500 Baxter International Inc 1,725,000
50,000 Beverly Enterprises Inc * 718,750
5,000 Haemonetics Corp * 86,250
50,000 Owens and Minor Holdings Co 512,500
5,000 Quest Diagnostics Inc 84,375
----------------
3,126,875
----------------
Insurance - 6.8%
7,500 Aetna Inc 621,563
25,000 Allstate Corp 1,584,375
10,000 Chartwell Re Corp 275,000
7,500 Cigna Corp 1,146,563
10,000 Gallagher (Arthur J) and Co 307,500
7,500 Liberty Corp 308,438
10,000 Magellan Health Services Inc 246,250
175,000 Reliance Group Holdings Inc 1,903,125
50,000 Sedgwick Group ADR 517,995
110,000 TIG Holdings Inc 3,932,500
10,000 Transamerica Corp 876,250
50,000 USF & G Corp 1,125,000
20,000 Washington National Corp 570,000
60,000 Willis Corroon Group Plc ADR 727,500
----------------
14,142,059
----------------
Machinery - 1.5%
35,000 Cincinnati Milacron Inc 752,500
25,000 Coltec Industries Inc 456,250
7,500 Cummins Engine Inc 379,688
12,500 FMC Corp * 859,375
50,000 Giddings and Lewis Inc 690,625
----------------
3,138,438
----------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing - 8.8%
35,000 American Greetings Corp 1,085,000
37,500 Corning Inc 1,410,938
17,500 General Electric Co 1,800,313
50,000 Griffon Corp * 700,000
27,500 International Business Machines Corp 3,953,125
82,500 Owens Corning 3,495,938
35,000 Rockwell International Corp 2,266,250
12,500 Tenneco Inc 492,188
40,000 United Technologies Corp 3,010,000
----------------
18,213,752
----------------
Metals and Mining - 1.9%
5,000 Alcan Aluminum Ltd 179,375
95,000 Allegheny Teledyne Inc 2,422,500
25,000 Amcol International Corp 471,875
5,000 Asarco Inc 156,250
30,000 Echo Bay Mines Ltd 232,500
15,000 Pittston Minerals Group 217,500
15,000 Placer Dome Inc 322,500
1,666 Westaim Corp * 5,485
----------------
4,007,985
----------------
Oil and Gas - 8.7%
7,500 Amerada Hess Corp 400,313
15,000 Cabot Oil & Gas Corp, Class A 238,125
15,000 Coflexip SA ADR * 417,188
5,000 Dresser Industries Inc 151,875
37,500 Enron Oil & Gas Co 759,375
35,000 Enserch Corp 735,000
5,000 Halliburton Co 323,125
50,000 Lasmo Plc ADR 593,750
20,000 Mitchell Energy Class A 420,000
40,000 Mitchell Energy Class B 860,000
5,000 Mobil Corp 613,750
50,000 Noram Energy Corp 750,000
25,000 Occidental Petroleum Corp 637,500
75,000 Panenergy Corp 3,196,875
72,500 Santa Fe Energy Resources Inc * 933,438
2,500 Texaco Inc 247,188
35,000 Union Texas Petroleum Holdings Inc 647,500
45,000 Unocal Corp 1,738,125
115,000 USX - Marathon Group 3,061,875
50,000 Westcoast Energy Inc 906,250
15,000 YPF Sociedad Anonima ADR 401,250
----------------
18,032,502
----------------
Paper and Allied Products - 0.6%
25,000 James River Corp 818,750
10,000 Weyerhaeuser Co 462,500
----------------
1,281,250
----------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals - 1.9%
10,000 Allergan Inc 340,000
10,000 Covance Inc * 190,000
15,000 Glaxo Wellcome Plc ADR 508,125
10,000 Immulogic Pharmaceutical Corp 55,000
17,500 Lilly (Eli) and Co 1,529,063
25,000 Medpartners Inc 550,000
10,000 Smithkline Beecham PLC 742,500
----------------
3,914,688
----------------
Primary Processing - 0.7%
7,500 Du Pont (E I) De Nemours & Co Inc 804,375
25,000 Intermet Corp 378,125
10,000 LTV Corp 125,000
10,000 Northwestern Steel and Wire 42,500
----------------
1,350,000
----------------
Printing and Publishing - 0.6%
5,000 Dun & Bradstreet Corp 122,500
50,000 News Corp Ltd 1,062,500
----------------
1,185,000
----------------
Real Estate - 1.9%
10,000 Evans Withycombe Residential 205,000
65,000 JP Realty Inc 1,673,750
50,000 Summit Properties Inc 1,012,500
37,500 Walden Residential Properties Inc 965,625
----------------
3,856,875
----------------
Refining - 0.4%
10,000 Imperial Oil Ltd 438,750
25,000 Quaker State Corp 365,625
----------------
804,375
----------------
Retail Trade - 2.9%
7,500 American Stores Co 335,625
60,000 Costco Co Inc 1,537,500
30,000 Federated Department Stores 1,042,500
5,000 Sears Roebuck & Co 271,250
25,000 Toys R Us Inc * 650,000
75,000 Wal-Mart Stores Inc 1,978,125
5,000 Williams-Sonoma Inc * 125,938
----------------
5,940,938
----------------
Services - 1.8%
1,666 AC Nielson Corp * 24,574
37,500 Cordiant Plc ADR * 182,813
10,000 Kellwood Co 236,250
12,500 Manpower Inc 471,875
50,000 Morningstar Group Inc * 1,150,000
50,000 Ogden Corp 1,018,750
10,000 Pinkertons Inc 263,750
50,000 Waste Management International Plc 375,000
----------------
3,723,012
----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology - 7.9%
32,500 Avnet Inc 2,031,250
25,000 Bay Networks Inc * 475,000
25,000 Data General Corp * 484,375
70,000 Digital Equipment Corp * 2,292,500
25,000 Information Resources Inc 371,875
15,000 Intel Corp 2,128,125
100,000 Storage Technology Corp * 4,175,000
287,500 Tandem Computers Inc * 3,593,750
12,500 Xerox Corp 781,250
----------------
16,333,125
----------------
Telecommunications - 4.3%
5,000 Airtouch Communications Inc 136,250
10,000 AT&T Corp 398,750
25,000 Cox Communications Inc 503,125
75,000 GTE Corp 3,506,250
2,500 Lucent Technologies Inc 134,688
45,000 MCI Communications Corp 1,608,750
5,200 Pacific Telesis Group 211,900
70,000 Tele-Communications Class A 831,250
15,000 US West Inc 540,000
60,000 US West Media Group 1,102,500
----------------
8,973,463
----------------
Tobacco - 0.7%
10,000 American Brands Inc 526,250
10,000 BAT Industries Plc ADR 176,250
47,500 Imperial Tobacco Group Plc 653,125
----------------
1,355,625
----------------
Transportation - 1.8%
10,000 AMR Corp * 786,250
60,000 Canadian Pacific Ltd 1,485,000
7,500 Delta Air Lines Inc 603,750
5,000 Hunt (JB) Transportation Services Inc 69,375
10,000 Overseas Shipholding Group Inc 173,750
17,500 Ryder System Inc 551,250
----------------
3,669,375
----------------
Utilities - 3.8%
10,000 CMS Energy Corp 327,500
18,750 Energy Group Plc 637,500
115,000 Niagara Mohawk Power Corp * 1,178,750
5,000 Pacific Corp 103,125
75,000 Texas Utilities 3,028,125
25,000 TransCanada Pipeline Ltd 459,375
95,000 Unicom Corp 2,113,750
----------------
7,848,125
----------------
TOTAL COMMON STOCKS (Cost $113,540,452) 171,252,902
----------------
</TABLE>
See accompanying notest to the financial statements. 5
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS - 4.0%
Food and Beverage - 0.5%
160,000 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 1,140,000
----------------
Insurance - 0.4%
15,000 Alexander & Alexander Services Inc Convertible Preferred $3.63 144A 795,000
----------------
Manufacturing - 1.1%
137,500 Westinghouse Electric Corp Convertible Preferred $1.30 144A 2,148,438
----------------
Metals and Mining - 0.4%
25,000 Freeport-McMoran Corp Preferred 0.00% 828,125
----------------
Oil and Gas - 0.2%
22,500 Atlantic Richfield Co Convertible Preferred 9.00% 514,688
----------------
Paper and Allied Products - 0.4%
28,500 James River Corp Convertible Preferred 9.00% 872,813
----------------
Primary Processing - 0.0%
500 Armco Inc Convertible Preferred $3.625 20,750
----------------
Refining - 0.3%
10,000 Ashland Inc Convertible Preferred $3.125 650,000
----------------
Transportation - 0.7%
16,500 Navistar International Corp Preferred $6.00 957,000
7,500 USAir Group Inc Convertible Preferred Series B $4.38 * 440,625
----------------
1,397,625
----------------
TOTAL PREFERRED STOCKS (Cost $7,342,074) 8,367,439
----------------
Par Value DEBT OBLIGATIONS - 12.7%
Banking and Financial Services - 1.0%
$ 194,101 Citicorp, Variable Rate Note, 6.50% due 5/1/04 194,485
1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 945,940
1,000,000 Standard Credit Card Master Trust I, Variable Rate Note, 5.84% due 9/15/97 1,001,250
----------------
2,141,675
----------------
Food and Beverage - 0.5%
250,000 Anheuser-Busch Cos Inc, 8.50% due 3/1/17 259,413
750,000 General Foods Corp, 7.00% due 6/15/11 705,158
----------------
964,571
----------------
Paper and Allied Products - 0.3%
500,000 Georgia Pacific Corp, 9.75% due 1/15/18 521,825
----------------
Real Estate - 0.9%
1,750,000 HMH Properties Inc, 9.50% due 5/15/05 1,841,875
----------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade - 0.5%
$ 1,000,000 Kmart Corp, 8.13% due 12/01/06 970,000
----------------
Technology - 0.5%
1,000,000 VLSI Technology Inc, 8.25% due 10/01/05 957,500
----------------
Transportation - 1.0%
1,000,000 AMR Corp, 9.00% due 8/1/12 1,115,810
1,100,000 United Air Lines Inc, 9.13% due 1/15/12 1,205,402
----------------
2,321,212
----------------
U.S. Government - 7.9%
7,500,000 U.S. Treasury Note, 4.75% due 8/31/98 7,372,275
1,250,000 U.S. Treasury Note, 7.75% due 2/15/01 1,310,550
3,500,000 U.S. Treasury Bond, 11.13% due 8/15/03 4,345,460
750,000 U.S. Treasury Bond, 10.75% due 8/15/05 949,808
2,500,000 U.S. Treasury Bond, 7.25% due 5/15/16 2,590,225
----------------
16,568,318
----------------
U.S. Government Agency - 0.1%
373,486 Federal Home Loan Mortgage Corp, 7.50% due 1/1/23, 124,300
Series 146, Interest Only Strip ----------------
TOTAL DEBT OBLIGATIONS (Cost $25,279,048) 26,411,276
----------------
SHORT-TERM INVESTMENT - 0.6%
1,260,000 State Street Bank and Trust Co Repurchase Agreement, dated
2/28/97, due 3/3/97, with a maturity value of $1,260,420
and an effective yield of 4.00%, collateralized by a U.S.
Treasury Note, with a rate of 5.88% due 7/31/97
with an aggregate market value of $1,287,817 (Cost $1,260,000). 1,260,000
----------------
TOTAL INVESTMENTS - 100.0%
(Cost $147,421,574) * * 207,291,617
Other Assets and Liabilities (net) - 0.0% 77,251
----------------
TOTAL NET ASSETS - 100.0% $ 207,368,868
================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
144A - Securities exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may
be resold in transactions exempt from registration,
normally to qualified institutional investors.
Variable Rate Notes - The rates shown on variable rate
notes are the current interest rates at February
28, 1997, 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 $148,775,237, resulting in gross
unrealized appreciation and depreciation of
$62,437,538 and $3,921,158, respectively, and net
unrealized appreciation of $58,516,380.
8 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $147,421,574) (Note 1) $ 207,291,617
Cash 965
Dividends and interest receivable 615,424
Receivable for investments sold 149,115
Receivable for Fund shares sold 250
-----------------
Total assets 208,057,371
-----------------
Liabilities:
Payable for investments purchased 369,625
Payable for Fund shares repurchased 91,592
Payable to affiliate for management fee (Note 2) 144,888
Accrued expenses and other liabilities 82,398
-----------------
Total liabilities 688,503
-----------------
Net Assets (equivalent to $16.31 per share based
on 12,714,161 shares outstanding, unlimited shares authorized) $ 207,368,868
=================
Net Assets consist of:
Paid-in capital $ 141,348,438
Accumulated undistributed net investment income 1,473,363
Accumulated undistributed net realized gain 4,677,024
Net unrealized appreciation 59,870,043
-----------------
Net assets $ 207,368,868
=================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment income:
<S> <C>
Dividends (net of withholding taxes of $73,088) $ 3,665,356
Interest 2,141,973
-----------------
Total income 5,807,329
-----------------
Expenses:
Management fee (Note 2) 1,716,394
Custodian and transfer agent fees 179,101
Audit fees 54,749
Registration fees 9,079
Legal fees 8,648
Trustees fee (Note 2) 958
Miscellaneous 4,912
-----------------
Total expenses 1,973,841
Less: expenses waived or borne by Manager (Note 2) (162,010)
-----------------
Net expenses 1,811,831
-----------------
Net investment income 3,995,498
-----------------
Realized and unrealized gain (loss):
Net realized gain on investments 9,036,632
Change in net unrealized appreciation (depreciation)
on investments 19,894,742
-----------------
Net realized and unrealized gain 28,931,374
-----------------
Net increase in net assets resulting from operations $ 32,926,872
=================
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
------------------ -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,995,498 $ 3,735,370
Net realized gain 9,036,632 9,082,971
Change in net unrealized appreciation (depreciation) 19,894,742 25,308,348
----------------- ------------------
Net increase in net assets resulting from operations 32,926,872 38,126,689
----------------- ------------------
Distributions to shareholders from:
Net investment income (3,383,491) (3,369,047)
Net realized gains (6,758,143) (6,173,331)
----------------- ------------------
(10,141,634) (9,542,378)
----------------- ------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 22,372,007 37,226,671
Net asset value of shares issued to shareholders
in payment of distributions declared 9,313,111 8,801,280
Cost of shares repurchased (24,339,781) (15,293,740)
----------------- ------------------
Net increase in net assets resulting
from Fund share transactions 7,345,337 30,734,211
----------------- ------------------
Total increase in net assets 30,130,575 59,318,522
Net assets:
Beginning of period 177,238,293 117,919,771
----------------- ------------------
End of period (including accumulated undistributed
net investment income of $1,473,363 and
$646,595, respectively) $ 207,368,868 $ 177,238,293
================= ==================
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Financial Highlights
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28/29
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.52 $ 11.99 $ 12.08 $ 11.37 $ 10.70
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.33 0.31 0.37 0.29 0.36
Net realized and unrealized gain 2.27 3.04 0.46 1.40 1.06
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.60 3.35 0.83 1.69 1.42
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.27) (0.29) (0.37) (0.37) (0.38)
From net realized gains (0.54) (0.53) (0.55) (0.61) (0.37)
---------- ---------- ---------- ---------- ----------
Total distributions (0.81) (0.82) (0.92) (0.98) (0.75)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.31 $ 14.52 $ 11.99 $ 12.08 $ 11.37
========== ========== ========== ========== ==========
Total Return (a) 18.40% 28.54% 7.38% 15.14% 13.93%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 207,369 $ 177,238 $ 117,920 $ 101,165 $ 85,401
Net expenses to average
daily net assets 0.95% 1.05% 1.10% 1.10% 1.10%
Net investment income to average
daily net assets 2.10% 2.42% 2.51% 2.42% 3.40%
Portfolio turnover rate 27% 32% 40% 49% 39%
Average broker commission rate (b) $ 0.0556 N/A N/A N/A N/A
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ - $ - $ 0.01 $ 0.01
</TABLE>
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
12 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
The Pelican Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC ("the Manager"or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which will issue a separate series of shares.
The Fund seeks long-term capital growth primarily through investment in
equity securities.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-term
debt obligations with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
13
<PAGE>
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 taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for amortization of discount on bonds.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
<TABLE>
<CAPTION>
Accumulated Net
Undistributed Net Realized Paid-in
Investment Income Gain/(Loss) Capital
------------------- ----------------- -----------------
<S> <C> <C>
$214,761 ($214,761) -
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
14
<PAGE>
Pelican 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. Interest income is recorded on the accrual
basis. In determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. Management fee and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .90% of
average daily net assets. GMO has agreed to waive a portion of its fee and
bear other expenses until further notice to the extent that the Fund's
annual expenses (including the management fee but excluding brokerage
commissions and transfer taxes) exceed .95% of average daily net assets.
Prior to March 1, 1996, the expense limitation was 1.10% of average daily
net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $958. 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 28, 1997, 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 $ 6,995,188 $ 626,313
Investments (non-U.S. Government securities) 53,479,746 48,638,997
</TABLE>
4. Principal shareholder
At February 28, 1997, 37% of the outstanding shares of the Fund were held by
one shareholder.
15
<PAGE>
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 28, 1997 February 29, 1996
------------------- -------------------
<S> <C> <C>
Shares sold 1,487,108 2,841,802
Shares issued to shareholders in reinvestment
of distributions 632,940 647,025
Shares repurchased (1,610,011) (1,115,726)
------------ ------------
Net increase 510,037 2,373,101
Fund shares:
Beginning of period 12,204,124 9,831,023
------------ ------------
End of period 12,714,161 12,204,124
============ ============
</TABLE>
16
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Federal Tax Information - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has
designated 55.74% distributions as net capital gain dividends.
17
<PAGE>
GMO Pelican Fund
(A Series of the GMO Trust)
Portfolio Manager:
- -----------------
Mr. Richard Mayo is responsible for the management of the GMO Pelican Fund. Mr.
Mayo has been a portfolio manager with GMO since its founding in 1977 and began
his career in the late 1960's.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Investing Environment
The last year in general and the last six months in particular have
witnessed very favorable conditions for supporting improved stock prices.
Inflation has remained at very low levels, helping to keep interest rates near
twenty year lows, and most importantly corporate profitability which has been
improving steadily from the recession of 1990 has reached levels (see chart)
more like the 1960's.
- ---------------------------------- -----------------------------------
S&P 500 Operating vs. S&P Industrials' After-
Reported Earnings -----------------------
4-Quarter Trailing EPS Tax Profit Margin
-----------------
[LINE GRAPH APPEARS HERE] [LINE GRAPH APPEARS HERE]
- ---------------------------------- -----------------------------------
This is worth mentioning because the stock market was valued more
frequently then at 16-18 times earnings than the 14-16 area we experienced in
the last 10-15 years. The chart below shows the valuation differences in the
periods of low inflation and good profitability. The important point here is to
develop one's expectations of the future stock returns not so much on the level
of the market but on the ability of corporations to maintain their very high
profit ratios - return on sales or return on assets - relative to the past.
<PAGE>
Low Inflation is Very Positive for Valuations
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1960s 1970s 1980s 1990s Latest
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inflation - GDP Deflator (y/y)
High 4.7 9.4 9.3 4.3
Average 2.2 6.7 5.0 2.7 1.8
Low 1.2 4.2 2.6 1.8
S&P 500 P/E Ratio
High 22.0 18.4 16.3 24.3
Average 17.6 12.1 12.2 20.1 20.8
Low 15.9 7.2 8.0 16.2
Return on Capital in U.S. (in %)
High 14.2 14.9 17.3 18.5
Average 12.2 14.0 15.1 17.8 18.4
Low 9.2 12.8 12.6 16.6
- --------------------------------------------------------------------------------
</TABLE>
Source: JP Morgan dated March 3, 1997
Today's robust profitability is a result of very significant attitude
shifts on the part of today's corporate leaders. They have become exceedingly
cost conscious, whether by downsizing, restructuring (consolidating
manufacturing plants, administrative offices, etc. ) or selling low return
assets, and they have greatly improved returns as shown in the charts above. A
lot of this should be thought of as a permanent improvement. Other elements
such as the steadily declining wage costs and the lower dollar of the late
1980's and early 1990's have shifted direction and may negatively impact profit
margins in the near future.
- ---------------------------------- -----------------------------------
Real Average Weekly Earnings Trade-Weighted U.S. Dollar
3 Mo. Avg. Feb $258.7
[LINE GRAPH APPEARS HERE] [LINE GRAPH APPEARS HERE]
- ---------------------------------- -----------------------------------
As a consequence we are less optimistic about the future growth in profits
and worry that consensus opinions that were bolstered by the strong fourth
quarter (year over year up more than 10%) are much too high. At the moment the
market seems to be projecting earnings growth rates of 7-8%, a rate of growth
that would be very unusual considering the six year improvement that has already
occurred.
Also important to understanding the market advance and to forecasting
future returns are the money flows. The mutual fund investor has invested huge
<PAGE>
amounts in equity funds - about $240 billion last year. The inflows get
invested immediately and are creating unusual volatility day-to-day or even
intraday.
- --------------------------------------------------------------------------------
Net New Cash Into Equity Mutual Funds in Millions
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
We don't know what level of inflows is sustainable, but we know any
significant contraction of funds from this source will be a problem for the
market.
Another important flow of money into stocks has resulted from the greatly
improved profitability of corporations. Their cash flow has improved
dramatically and their reluctance to significantly increase their investments
has taken their free cash flow to record levels.
- --------------------------------------------------------------------------------
Cash Flow and Free Cash Flow for the S&P Industrials Are at Record Levels
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
These flows have been used to repurchase their own stock as corporate
executives believe their own company is one of their best investments if their
own returns are rising. Furthermore, buying in stock produces "immediate"
returns versus waiting for the payoff of a long term project. Reinforcing this
is the fact that many executives' compensation is tied directly to stock prices
through stock options.
Corporations bought about $150 billion of their own stock in 1996 and seem
to be running at an equivalent rate this year. These stock investments and the
<PAGE>
mutual fund inflows have given the market a tremendous boost but they must
continue and even accelerate to keep the market advancing. Any slowdown and the
long awaited correction may become a reality.
Our concern about the sustainability of money flows as well as the
possibility of an interruption of rising profit margins has encouraged us to try
to reduce risk in the portfolio. We have done this by selling stocks that
looked overpriced and letting the percentage invested in stocks decline.
Unfortunately in the short term this has had an unfavorable impact on relative
performance. This has happened for two main reasons. One, being underinvested
in a rising market leaves something on the table, so to speak. But we are
simply reacting to the risk-reward equation, and we want to have the reserves to
re-employ assuming the market declines or to be able to quickly move into an
individual stock that gets oversold due to short term concerns. Investors today
have a long term horizon for what is working, yet a short term focus when faced
with disappointments.
The second point is about size and momentum. Two years ago the largest
companies were undervalued. We increased our exposure to that sector by adding
stock like Eli Lilly, Johnson & Johnson, GTE, General Electric, and DuPont; in
hindsight we did not get enough into the large companies because they become the
major investment theme of the last eighteen months.
More recently we concluded that the large stock category was overvalued.
In the last twelve months the fifty largest (market capitalization) stocks
outperformed the remaining 450 in the S&P 500 by more than 20%. This is
enormous in historical terms. In addition our analysis suggests investors
expect the 15 largest companies to grow at an average of 13% for the next ten
years. This is almost twice the growth rate for the average corporation. We
are skeptical that this is achievable. Our skepticism has encouraged us to take
profits in most of these companies. However money managers today prefer to
stick with companies that are meeting expectations and valuation is secondary.
This is a problem for a long term, value oriented manager.
Our valuation emphasis has encouraged us to shift money to a sector that we
define as low expectation stocks. Most investors believe that Eli Lilly will
grow earnings 17% for the next 10 years. They must deliver. We prefer
situations where there is short term frustration and we can buy a good business
or very good assets where improvements will produce very good rewards and
disappointments will lead to only minor penalties. A short capsule of four
situations I hope will give you an understanding of what we are doing in the
portfolio.
WMX Technology - This waste hauling company was a growth company in the 1980s.
It tried to continue to grow in the 1990s by investing in lower return assets.
As a consequence its return on assets declined from a peak of 17% to 5% in 1993.
Growth investors liquidated their positions over the past five years in
frustration. Finally provoked by investor criticism, management reassessed its
businesses and today is making ROA its main priority. This has encouraged
management to put up for sale $1.5 billion of assets and use a large part of the
proceeds to repurchase stock. In addition a program has been instituted to cut
costs which
<PAGE>
we think will boost profits by 10-15%. Investors remain skeptical in the short
term due to some management turmoil (cultural changes are difficult), but the
company is the biggest in its industry and with the right leadership could be
the best. That should be worth a market multiple, a potential 25-30% return
which we think has limited risk due to the low valuation and the 4% stock
buyback this year which will likely be followed with more in 1998.
H&R Block - This is a simple story. The company has a very good business in tax
preparation (it owns its sector). With price increases and modest growth in
customers, it can grow 10-12%/yr for the next five years. The company has
almost on debt. Comparable companies sill at market multiples. H&R Block's
valuation has been restrained by it investment in CompuServe, a computer on-line
service. CompuServe has had profit difficulties due top the high cost of adding
new subscribers. Since CompuServe became a public company a year ago, the
problems have discouraged investors in H&R Block due to the uncertainty of how
the CompuService problem will be solved. We don't think this is the right
focus. We think it is highly probable the CompuServe situation will be
resolved in some way sold, spun out to shareholders, or downsized -- and if our
residual value of CompuService is correct, the remaining H&R Block is 20-25%
undervalued. Added to this, we think a major stock repurchase will help us
realize this potential.
Owens-Corning -- UNDERVALUED. The stock (March 24, 1997)is selling at $40. The
company is forecasting earnings of $4.85/sh. Wall Street analysts are more
pessimistic, predicting only $4.75/sh. European operations are sluggish and the
higher dollar is hurting the translation of foreign profits. But, even if the
company's expectation are too high, or Wall Street analysts miss the forecast,
this company sells at the lowest multiple of any firm in the industrial products
category. In the past, this has been justified because of the large costs, of
asbestos litigation and settlements. However, the number of new asbestos
claimants is plummeting and the cost per case is stable. The uncertainty that
has penalized valuation should be lifting. Prior to the asbestos turmoil. this
stock sold at close to a market multiple. A significant valuation change is
possible.
Digital Equipment
This company has: ------------------------------
Digital Equipment
1. $14 per share in cash. Corporation
2. The world's fastest
microprocessor.
3. Over 10% of all Windows NT [LINE GRAPH APPEARS HERE]
certified engineers.
4. #5 in the rapidly growing (Plot Points to Come)
networking business.
5. The largest multi-vendor -------------------------------
computer service organization.
<PAGE>
Could these assets be undervalued?
I have highlighted some of the stocks that we are currently enthusiastic
about and will add to at today's prices and buy more enthusiastically at lower
prices. We think stocks such as these will produce good returns and will have
less risk in a market decline. To outperform in the future will also require
limiting mistakes. You can see each day stocks of companies that failed to meet
earnings expectations experience dramatic declines. We are trying to avoid
these problems by getting more money into our highest confidence situations and
reducing the number of stocks in the portfolio. We are also sticking with some
of the stocks -- such as money center banks -- that have done well. Our
investment thesis is that these companies are undergoing a valuation change.
They are delivering 10% earnings growth -- growth that is above average -- so
the stocks should sell closer to market multiples.
In summary, our investment view is this: The market is overvalued because
growth expectations are too high. We are preparing for a market correction,
probably precipitated by the recent increase in interest rates (the long bond is
yielding close to 7%, up .7%) or Federal Reserve actions in March or May. The
place to be in the decline will not be the very large companies that I think are
also overvalued, but more eclectic choices profiled above. We have about 20% of
the portfolio in medium term bonds and defensive convertible preferred that we
expect to use opportunistically as irresistible values appear. This has worked
in the past and we think taking advantage of volatility will produce good
relative returns over the next year.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo
& Co LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Pelican Fund and the
S&P 500 Index
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
Since
Inception
1 Year 5 Year 5/31/89
<S> <C> <C>
18.6% 16.5% 13.4%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Pelican Fund S & P 500 Index
---- ---------------- ---------------
<S> <C> <C>
05/31/89 10,000 10,000
02/28/90 9,928 10,617
02/28/91 10,739 12,174
02/29/92 12,376 14,120
02/28/93 14,094 15,625
02/28/94 16,227 16,927
02/28/95 17,425 18,173
02/29/96 22,405 24,478
02/28/97 26,572 30,882
</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. Each performance figure assumes purchase at the beginning and redemption
at the end of the stated period. 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.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO International Bond Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Bond Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS - 89.4%
Austria - 2.4%
CAD 7,000,000 Autobahn Schnell, 8.50% due 3/3/03 5,704,880
--------------
Brazil - 0.4%
USD 1,116,040 Brazil Capitalization Bond, PIK, 8.00% due 4/15/14 883,764
--------------
Bulgaria - 0.3%
USD 1,000,000 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31% (7.06%), due 7/28/24 628,750
--------------
Canada - 5.0%
CAD 5,000,000 Government of Canada Real Return, 4.25% due 12/1/21 4,022,167
CAD 3,000,000 Government of Canada Real Return, 4.25% due 12/1/26 2,283,942
CAD 2,000,000 Province of British Columbia, 7.88% due 11/30/23 1,538,518
CAD 5,000,000 Societe Quebec D'Ass D'Eaux, 8.13% due 8/11/03 3,952,371
--------------
11,796,998
--------------
Cayman Islands - 0.6%
CAD 2,000,000 Government of Canada (Cayman), 7.25% due 6/01/08 1,501,939
--------------
Denmark - 6.2%
DKK 52,500,000 Kingdom of Denmark Bullet, 7.00% due 12/15/04 8,652,314
DKK 34,500,000 Kingdom of Denmark, 8.00% due 11/15/01 5,992,757
--------------
14,645,071
--------------
Ecuador - 0.4%
USD 2,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step up (3.25%), due 2/28/25 900,000
--------------
France - 8.6%
FRF 14,000,000 Auxiliare Credit Foncier, 10.00% due 4/20/01 2,938,936
SEK 10,000,000 Credit Foncier, 6.50% due 2/22/99 1,367,013
ECU 2,000,000 Credit Foncier, 8.375% due 3/17/04 2,593,272
ECU 7,000,000 Government of France, 8.25% due 4/25/22 9,482,800
ECU 3,000,000 Societe Nationale des Chemins de Fer, 9.38% due 3/12/01 3,979,569
--------------
20,361,590
--------------
Germany - 3.1%
ESP 250,000,000 Deutsche Ausgleichsbank, 8.60% due 5/22/03 1,896,582
GBP 2,000,000 Deutsche Pfandbriefe Bank, 6.50% due 12/31/98 3,235,265
ESP 280,000,000 KFW International Finance, 8.60% due 5/20/03 2,124,172
--------------
7,256,019
--------------
Greece - 1.3%
GRD 750,000,000 Hellenic Republic,
Variable Rate, 12 mo. GTB + 1.50% (14.20%), due 9/30/03 2,949,343
--------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - 7.9%
GBP 2,000,000 Export Import Bank of Japan, 10.75% due 5/15/01 3,659,455
JPY 400,000,000 Japan Development Bank, 6.50% due 9/20/01 4,035,131
GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.125% due 2/16/05 3,558,302
GBP 4,000,000 Kobe City, 9.50% due 10/20/04 7,263,438
--------------
18,516,326
--------------
Jordan - 0.3%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up (4.00%), due 12/23/23 144A 665,000
--------------
Mexico - 0.9%
FRF 15,000,000 Mexico Par Bond, 6.63% due 12/31/19 2,145,753
--------------
New Zealand - 0.3%
NZD 1,000,000 New Zealand Index Linked Bond, 4.50% due 2/15/16 655,411
--------------
Spain - 3.8%
ESP 950,000,000 Government of Spain, 10.25% due 11/30/98 7,079,107
ESP 220,000,000 Government of Spain, 10.90% due 8/30/03 1,866,202
--------------
8,945,309
--------------
Supranational - 3.0%
JPY 175,000,000 Asian Development Bank, 5.00% due 2/5/03 1,694,320
SEK 10,000,000 International Finance Corp, 10.63% due 9/20/99 1,507,182
GBP 2,000,000 International Bank Recon and Development, 11.50% due 11/09/03 3,964,545
--------------
7,166,047
--------------
Sweden - 6.0%
SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00% due 12/1/20 2,731,625
SEK 50,200,000 Kingdom of Sweden, 13.00% due 6/15/01 8,568,299
SEK 12,500,000 Kingdom of Sweden, 10.25% due 5/5/03 2,020,012
SEK 7,000,000 Kingdom of Sweden, 6.00% due 2/9/05 905,749
--------------
14,225,685
--------------
United Kingdom - 1.7%
GBP 2,000,000 Guaranteed Export Financial Corp, 12.88% due 9/29/02 4,067,330
--------------
United States - 36.5%
Asset Backed Securities - 31.3%
USD 5,000,000 Augusta Funding Series 1996-F2,
Variable Rate, LIBOR + .30% (5.89%), due 4/15/06 144A 4,951,465
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25% (5.88%), due 4/15/03 144A 5,006,250
USD 6,000,000 Circuit City Credit Card Master Trust 1996-1 Class A,
Variable Rate, LIBOR + .17% (5.59%), due 10/15/06 6,003,750
USD 10,000,000 Discover Card Master Trust I 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35% (5.77%), due 10/16/04 10,088,000
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
Asset Backed Securities - continued
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25% (6.00%), due 10/03/01 3,015,000
USD 5,000,000 European Sovereign Investments,
Variable Rate, 3 mo. LIBOR + .10% (5.60%), due 7/28/99 5,012,500
USD 4,000,000 First Chicago Master Trust II 95-0,
Variable Rate, 1 mo. LIBOR + .23% (5.65%), due 2/15/04 4,015,000
USD 1,500,000 First International Funding Co,
Variable Rate, 3 mo. LIBOR + .55% (6.05%), due 6/03/98 1,506,750
USD 5,000,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + .37% (5.81%), due 8/15/03 5,044,150
USD 9,000,000 National Premier Finance 95-2, 6.21% due 6/01/99 144A 8,982,000
USD 5,000,000 National Premier Finance IX 96-1A, 7.20% due 7/01/00 5,080,000
USD 4,000,000 PARMA Food Corp BV,
Variable Rate, 3 mo. LIBOR + .25% (5.87%), due 12/20/00 3,996,400
USD 5,966,000 SMS Student Loan 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70% (6.51%), due 7/26/21 5,986,881
USD 5,000,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75% (6.56%), due 7/25/03 5,007,813
-------------
73,695,959
-------------
Structured Notes - 0.5%
USD 1,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (b) 1,135,500
-------------
U.S. Government Agency - 4.7%
USD 3,000,000 Agency for International Development Floater (Support of Honduras),
Variable Rate, 3 mo. U.S. Treasury Bill * 1.17% (5.82%),
due 10/01/11 3,001,875
USD 1,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10% (5.47%), due 2/01/27 1,004,063
USD 2,017,441 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. U.S. Treasury Bill + .45% (5.73%), due
11/15/14 2,011,136
USD 333,333 Agency for International Development Floater (Support of Peru),
Variable Rate, 6 mo. U.S. Treasury Bill + .35% (5.59%), due
2/01/02 331,667
USD 3,822,504 Agency for International Development Floater (Support of Peru),
Variable Rate, 6 mo. U.S. Treasury Bill + .35% (5.58%), due
5/01/14 3,803,392
USD 996,547 National Oceanic & Atmospheric Administration Floater,
Variable Rate, 6 mo. LIBOR + .50% (6.06%), due 6/15/08 997,792
--------------
11,149,925
--------------
Total United States 85,981,384
--------------
Venezuela - 0.7%
USD 2,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 3/31/20 1,725,000
--------------
TOTAL DEBT OBLIGATIONS (Cost $208,869,222) 210,721,599
--------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
LOAN PARTICIPATIONS - 2.5%
Ivory Coast - 0.5%
FRF 15,000,000 Ivory Coast Credit Agreement (Participation with Banque Paribas,
J.P. Morgan, Bank of America, Chase Manhattan and Salomon)* 1,132,115
-----------------
Russia - 2.0%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 1,004,376
FRF 25,000,000 Russia Vnesheconombank Loan Agreement (Participation with Banque
Paribas, Chase Manhattan, Bank of America, Lehman Brothers
and J.P. Morgan)* 3,834,053
-----------------
4,838,429
-----------------
TOTAL LOAN PARTICIPATIONS (Cost $2,513,026) 5,970,544
-----------------
Principal Amount CALL OPTIONS PURCHASED - 3.1%
(000's omitted) Cross Currency Options - 2.5%
DEM 140,700 DEM Call/BEF Put, Expires 4/11/97, Knock Out 20.5, Strike 20.5 550,065
ECU 89,700 ECU Call/DEM Put, Expires 5/14/97 Knock Out 1.894, Strike 1.894 2,258,112
ECU 137,800 ECU Call/DEM Put, Expires 6/13/97 Knock Out 1.9075, Strike 1.9075 2,431,457
ECU 64,500 ECU Call/DEM Put, Expires 7/24/97 Knock Out 1.915, Strike 1.92 674,699
-----------------
5,914,333
-----------------
Options on Bonds - 0.5%
USD 5,500 Brazil Discount Z, Expires 4/25/97, Knock Out 73.00, Strike 73.00 488,125
SEK 150,000 Sweden Government Bond 1033, Expires 4/11/97 Strike 117.725 583,548
-----------------
1,071,673
-----------------
Options on Currency - 0.1%
USD 13,000 German Mark, Expires 2/09/98 , Strike 1.61 331,500
-----------------
TOTAL CALL OPTIONS PURCHASED (Cost $5,264,164) 7,317,506
-----------------
PUT OPTIONS PURCHASED - 2.7%
Cross Currency Options - 0.6%
DEM 55,800 DEM Put/ITL Call, Expires 1/21/98 Strike 950 132,212
DEM 88,900 DEM Put/ITL Call, Expires 3/18/97 Strike 1025 1,184,841
-----------------
1,317,053
-----------------
Options on Bonds - 0.0%
USD 1,000 Venezuela Discount Bond, Expires 7/10/97 Strike 88.25 less DCB offer 3,290
-----------------
Options on Currency - 2.1%
USD 53,700 French Franc, Expires 6/30/97 Strike 5.195 4,349,700
USD 13,000 German Mark, Expires 2/9/98 Strike 1.61 618,800
-----------------
4,968,500
-----------------
TOTAL PUT OPTIONS PURCHASED (Cost $2,585,452) 6,288,843
-----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
RIGHTS AND WARRANTS - 0.0%
Shares Venezuela - 0.0%
19,280 Republic of Venezuela Recovery Warrants,
Expires 4/15/20 -
-----------------
TOTAL RIGHTS AND WARRANTS (Cost $0) -
-----------------
SHORT-TERM INVESTMENTS - 1.4%
Par Value ($) Repurchase Agreement - 0.2%
451,365 Salomon Brothers Repurchase Agreement, dated 2/28/97, due 3/3/97,
with a maturity value of $451,547 and an effective yield of 4.85%,
collateralized by U.S. Treasury Obligations with rates ranging
from 7.25% to 11.88%, with maturity dates ranging from 11/15/03
to 5/15/20 and with an aggregate market value of $460,881. 451,365
-----------------
U.S. Government - 1.2%
3,000,000 U.S. Treasury Bill, 5.56% due 1/08/98 (a) 2,862,639
-----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,291,053) 3,314,004
-----------------
TOTAL INVESTMENTS - 99.1%
(Cost $222,522,917) * * 233,612,496
Other Assets and Liabilities (net) - 0.9% 2,170,627
-----------------
TOTAL NET ASSETS - 100.0% $ 235,783,123
=================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
DCB - Debt Conversion Bond
GTB - Greek Treasury Bill
PIK - Payment In Kind
Knock Out - Option will expire if underlying security
reaches knock out price.
(a) All or a portion of this security is held as
collateral for open futures.
(b) Principal is linked to the value of the Brazilian
Capitalization Bond and the Brazilian IDU Bond.
Restricted as to public resale. At the date of
aquisition, this security was valued at cost.
There were no outstanding unrestricted securities
of the same class as those held.
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 28, 1997, which are subject to
change based on the terms of the security.
* Non-performing. Borrower not currently paying
interest.
** The aggregate identified cost for federal income
tax purposes is $222,629,914, resulting in
gross unrealized appreciation and depreciation of
$15,743,877 and $4,761,295, respectively, and net
unrealized appreciation of $10,982,582.
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc GRD - Greek Drachma
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone NZD - New Zealand Dollar
ECU - European Currency Unit SEK - Swedish Krona
ESP - Spanish Peseta USD - United States Dollar
FRF - French Franc
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
--------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $222,522,917) (Note 1) $ 233,612,496
Foreign currency, at value (cost $3,113,622) (Note 1) 3,586,173
Interest receivable 5,753,216
Receivable for open forward foreign currency contracts (Note 6) 12,292,835
Receivable for expenses waived or borne by Manager (Note 2) 50,565
------------------
Total assets 255,295,285
------------------
Liabilities:
Written options outstanding, at value (premiums $1,200,550) (Note 6) 1,073,800
Payable to brokers for open futures contracts (Notes 1 and 6) 456,331
Payable for open forward foreign currency contracts (Note 6) 17,799,859
Payable to affiliate for (Note 2):
Management fee 72,413
Shareholder service fee 27,155
Accrued expenses 82,604
------------------
Total liabilities 19,512,162
------------------
Net assets $ 235,783,123
==================
Net assets consist of:
Paid-in capital $ 224,754,636
Accumulated undistributed net investment income 5,273,327
Accumulated undistributed net realized gain 786,358
Net unrealized appreciation 4,968,802
-----------------
$ 235,783,123
==================
Net assets attributable to:
Class III shares $ 235,783,123
==================
Shares outstanding:
Class III 21,873,511
==================
Net asset value per share:
Class III $ 10.78
==================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Interest (including securities lending income of $5,992) $ 15,566,242
-----------------
Expenses:
Management fee (Note 2) 849,645
Custodian and transfer agent fees 158,671
Audit fees 66,140
Registration fees 11,105
Legal fees 10,222
Trustees fee (Note 2) 1,032
Miscellaneous 2,043
Fees waived or borne by Manager (Note 2) (493,567)
-----------------
605,291
Shareholder service fee (Note 2)
Class III 244,354
-----------------
Net expenses 849,645
-----------------
Net investment income 14,716,597
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 8,015,644
Closed futures contracts 7,722,273
Written options 819,216
Foreign currency, forward contracts and foreign
currency related transactions (891,450)
-----------------
Net realized gain 15,665,683
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (1,832,538)
Open futures contracts (1,263,963)
Written options (673,475)
Foreign currency, forward contracts and foreign
currency related transactions (4,030,210)
-----------------
Net unrealized loss (7,800,186)
-----------------
Net realized and unrealized gain 7,865,497
-----------------
Net increase in net assets resulting from operations $ 22,582,094
=================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 14,716,597 $ 15,920,549
Net realized gain 15,665,683 6,632,580
Change in net unrealized appreciation (depreciation) (7,800,186) 14,322,520
----------------- -----------------
Net increase in net assets resulting from operations 22,582,094 36,875,649
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (15,718,077) (10,442,087)
Net realized gains
Class III (10,685,120) (5,446,434)
In excess of net realized gains
Class III (2,935,300) -
----------------- -----------------
(29,338,497) (15,888,521)
----------------- -----------------
Net share transactions: (Note 5)
Class III 48,619,210 21,743,817
----------------- -----------------
Total increase in net assets 41,862,807 42,730,945
Net assets:
Beginning of period 193,920,316 151,189,371
----------------- -----------------
End of period (including accumulated undistributed
net investment income of $5,273,327 and
$4,884,754, respectively) $ 235,783,123 $ 193,920,316
================= =================
</TABLE>
9
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
--------------------------------------------------------------
1997 1996 1995 1994 *
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.92 $ 9.64 $ 9.96 $ 10.00
------------ ---------- ---------- ----------
Income from investment operations:
Net investment income 0.71 0.62 0.98 0.08
Net realized and unrealized gain (loss) 0.65 1.55 (0.21) (0.12)
------------ ---------- ---------- ----------
Total from investment operations 1.36 2.17 0.77 (0.04)
------------ ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.81) (0.59) (0.75) -
From net realized gains (0.54) (0.30) (0.34) -
In excess of net realized gains (0.15) - - -
------------ ---------- ---------- ----------
Total distributions (1.50) (0.89) (1.09) -
------------ ---------- ---------- ----------
Net asset value, end of period $ 10.78 $ 10.92 $ 9.64 $ 9.96
============ ========== ========== ==========
Total Return (a) 12.39% 22.72% 8.23% (0.40%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 235,783 $ 193,920 $ 151,189 $ 39,450
Net expenses to average
daily net assets 0.40% 0.40% 0.40% 0.40%**
Net investment income to average
daily net assets 6.93% 8.17% 7.51% 5.34%**
Portfolio turnover rate 95% 99% 141% 14%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.02 $ 0.01 $ 0.02 $ 0.01
</TABLE>
* For the period from December 22, 1993 (commencement of operations) to
February 28, 1994.
** Annualized.
(a) Calculation excludes purchase premiums. The total return would have
been lower had certain expenses not been waived during the periods
shown.
10
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate series
of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the international fixed income securities
market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Securities
which are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates market value.
Other assets and securities for which no quotations are readily available
are valued at fair value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
11
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
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 28, 1997.
12
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales of
securities or to hedge the currency exposure associated with some or all of
the Fund's portfolio securities. A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of a forward currency contract fluctuates with
changes in forward currency exchange rates. Forward currency contracts are
marked to market daily and the change in value is recorded by the Fund as an
unrealized gain or loss. Realized gains or losses equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed are recorded upon delivery or receipt of the currency
or, if a forward currency contract is offset by entering into another
forward currency contract with the same broker, upon settlement of the net
gain or loss. These contracts may involve market risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. In addition, the Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value
of the currency changes unfavorably to the U.S. dollar. The U.S. dollar
value of the currencies the Fund has committed to buy or sell is shown under
Note 6 and represents the currency exposure the Fund has acquired or hedged
through currency contracts as of February 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. The Fund as a writer of an option has no control over
whether the underlying securities may be sold (call) or purchased (put) and
as a result bears the market risk of an unfavorable change in the price of
the security underlying the written option. There is the risk the Fund may
not be able to enter into a closing transaction because of an illiquid
market. See Note 6 for a summary of open written option contracts as of
February 28, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
13
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Loan agreements
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the borrower
and the lender that is selling the loan agreement. When the Fund purchases
assignments from lenders it acquires direct rights against the borrower on
the loan. Direct indebtedness of emerging countries involves a risk that the
governmental entities responsible for the repayment of the debt may be
unable or unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices, or
other financial indicators. The Fund uses indexed securities to increase or
decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 28, 1997, there were no securities on
loan.
14
<PAGE>
GMO International 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 taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions and redemptions in-
kind. Gains resulting from such in-kind transactions amounted to $1,877,485.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain/(Loss) Paid-in Capital
------------------------------------ ----------------------------- --------------------
<S> <C> <C>
$1,390,053 ($3,225,379) $1,835,326
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
15
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount invested.
Effective June 1, 1996, the Manager will reduce such premium only when any
portion of a purchase is offset by a corresponding redemption occurring on
the same day. All purchase premiums are paid to and recorded as paid-in
capital by the Fund. For the year ended February 28, 1997, the Fund received
$150,377 in purchase premiums. There is no premium for cash redemptions,
reinvested distributions or in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other support.
Pursuant to the Shareholder Services Plan, the shareholder service fee is
calculated based on the average daily net assets of each class at the annual
rate of .28% for Class I shares, .22% for Class II shares and .15% for Class
III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
16
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $1,032. 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 28, 1997, 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 $ 10,155,546 $ -
Investments (non-U.S. Government securities) 207,780,621 183,295,275
</TABLE>
4. Principal shareholders
At February 28, 1997, 33% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Class III: Year Ended Year Ended
February 28, 1997 February 29, 1996
----------------------------- --------------------------------
Shares Amount Shares Amount
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold 9,398,594 $108,940,870 11,762,649 $ 129,800,791
Shares issued to shareholders in
reinvestment of distributions
2,130,615 23,653,871 1,091,175 11,864,446
Shares repurchased
(7,421,298) (83,975,531) (10,775,703) (119,921,420)
----------- ------------ ------------ ---------------
Net increase 4,107,911 $ 48,619,210 2,078,121 $ 21,743,817
=========== ============ ============ ===============
</TABLE>
17
<PAGE>
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 28, l997 is as
follows:
<TABLE>
<CAPTION>
Forward currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
----------------- --------------- ----------------- ------------- -------------------
<S> <C> <C> <C> <C>
Buys
04/24/97 CAD 11,300,000 $ 8,297,993 $ (102,994)
04/25/97 FRF 7,089,180 1,248,637 (2,386)
03/07/97 DEM 311,500,000 184,594,637 (12,765,948)
03/20/97 DEM 15,400,000 9,133,251 (712,478)
04/18/97 GBP 7,200,000 11,735,949 80,720
03/20/97 ITL 34,498,134,000 20,389,932 (1,988,454)
04/10/97 JPY 7,120,000,000 59,344,864 (1,401,913)
-------------------
$ (16,893,453)
-------------------
Sales
05/23/97 AUD 5,700,000 $ 4,419,769 $ (60,979)
04/24/97 CAD 34,600,000 25,408,015 437,098
03/07/97 DEM 142,600,000 84,504,640 7,448,217
03/20/97 DEM 33,300,000 19,749,172 2,629,214
04/25/97 DEM 2,100,000 1,248,288 2,658
04/18/97 GBP 13,100,000 21,352,908 520,867
03/20/97 ITL 15,206,345,000 8,987,626 858,103
04/10/97 JPY 970,000,000 8,084,904 93,596
03/21/97 NZD 950,000 656,378 10,806
-------------------
$ 11,939,580
===================
</TABLE>
18
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward cross currency contracts
<TABLE>
<CAPTION>
Net
Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange for (Depreciation)
------------ -------------------------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
03/14/97 DEM 86,800,000 NLG 97,542,560 $ (41,375)
03/20/97 DEM 14,700,000 ITL 14,756,112,000 3,415
04/25/97 DEM 19,500,000 FRF 65,821,633 2,100
04/28/97 DEM 133,812,539 ECU 69,100,000 38,799
05/05/97 DEM 20,000,000 CHF 17,305,000 (81,645)
05/07/97 DEM 20,300,000 SEK 89,912,680 (55,508)
07/23/97 DEM 21,600,000 ESP 1,828,054,500 (188,917)
04/28/97 ECU 49,500,000 DEM 95,893,875 (5,887)
04/25/97 FRF 675,434 DEM 200,000 (81)
03/20/97 ITL 44,412,547,000 DEM 44,400,000 82,439
03/14/97 NLG 63,720,179 DEM 56,800,000 84,803
05/06/97 SEK 98,553,420 DEM 25,800,000 (9,376)
05/07/97 SEK 268,500,750 DEM 59,700,000 (381,918)
--------------
$ (553,151)
==============
</TABLE>
19
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
- --------- --------------------------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
Buys
75 Australian Government Bond 3 Year March 1997 $ 6,834,195 $ (28,047)
129 Australian Government Bond 10 Year March 1997 13,351,797 (308,990)
63 Canadian Government Bond 10 Year June 1997 5,377,287 (51,516)
36 German Government Bond June 1997 5,451,799 (8,282)
100 Italian Government Bond 10 Year June 1997 15,164,077 (293,758)
4 Japanese Government Bond 10 Year June 1997 4,118,210 2,113
77 MATIF ECU Bond March 1997 9,301,604 139,578
56 MATIF ECU Bond June 1997 6,192,116 (29,077)
150 U.K. Gilt March 1997 14,062,427 186,546
213 U.K. Gilt June 1997 19,394,528 (154,292)
13 U.S. Treasury Bond June 1997 1,435,688 (910)
------------------
$ (546,635)
==================
Sales
78 French Government Bond 10 Year March 1997 $ 9,969,652 $ (306,028)
127 French Government Bond 10 Year June 1997 14,615,354 (23,251)
132 Spanish Government Bond 10 Year June 1997 10,365,268 195,130
68 Swiss Government Bond March 1997 6,340,242 (312,273)
14 Swiss Government Bond June 1997 1,143,613 (2,863)
30 U.S. Treasury Note 5 Year June 1997 3,172,969 18,962
10 U.S. Treasury Note 10 Year March 1997 1,083,438 23,988
27 U.S. Treasury Note 10 Year June 1997 2,907,563 2,985
100 U.S. Treasury Bill June 1997 23,692,500 30,450
------------------
$ (372,900)
==================
</TABLE>
At February 28, 1997, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
20
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Principal
Amount Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
------------------ ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 8,000 $ 404,000 2,018,000 $ 759,925
Options written 13,000 646,750 2,113,000 613,090
Options exercised (8,000) (404,000) - -
Options expired - - (4,118,000) (819,215)
------------------ ---------- ----------------- -----------
Outstanding, end of period 13,000 $ 646,750 13,000 $ 553,800
================== ========== ================= ===========
<CAPTION>
Summary of written options outstanding
Principal
Amount
of Contracts
(000's omitted) Exercise Price Expiration Date Value
------------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Calls
Japanese Yen Call 13,000 JPY 117.00 JPY 02/09/98 $ 429,000
Puts
Japanese Yen Put 13,000 JPY 117.00 JPY 02/09/98 644,800
----------
$ 1,073,800
==========
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
21
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
14.52% of distributions as net capital gain dividends.
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily responsible for
day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the International Bond Fund returned 12.4% for the
fiscal year ended February 28, 1997, compared to 1.7% for the J.P. Morgan
Non-U.S. Government Bond Index. Consistent with the Fund's investment objectives
and policies, the Fund was substantially invested in investment-grade, foreign
and domestic, fixed income instruments throughout the period.
The past year was an exceptional period for the Fund. It outperformed its
benchmark by 10.7% by following a variety of successful strategies. During the
year, bond market selection, currency selection and the decision to include
emerging country debt added value above the benchmark return in each quarter.
Although foreign interest rates generally declined during the year, the strength
of the U.S. dollar meant that many foreign bond markets performed poorly. This
was especially true in Japan, the second largest bond market in he world, where
the bond market produced a total return (in U.S. dollars) of -5.1% for the
twelve months ended February 28, 1997. The Fund was significantly underweight in
the Japanese market throughout the year and overweighted many of the high
yielding bond markets. The bond markets in Italy, Spain and Sweden rose strongly
on increased confidence in the European Monetary Union (EMU). The Fund was
overweight in the U.K. pound, one of the few currencies which outperformed the
U.S. dollar.
During the year the Fund held a position in emerging country sovereign debt,
emphasizing undervalued issues. The strong bull market resulting from improved
country fundamentals and renewed investor confidence produced index returns of
more than 40% and helped the Fund exceed its benchmark's return.
Outlook
- -------
The Fund is structured to benefit from outperformance in the Australian,
Canadian, Danish, U.K., Swedish and emerging bond markets. We expect
underperformance from the French, Japanese, Spanish and Swiss bond markets.
Our strategy maintains a market duration in each country. Strong relative
performance is expected from the U.K. pound, Dutch guilder, Italian lira,
Spanish peseta, Swiss franc and U.S. dollar. The Australian dollar, Belgian
franc, Canadian dollar, French franc, Deutschemark and Swedish krona are
expected to underperform.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO International Bond Fund Class III Shares and the
JP Morgan Non-U.S. Government Bond Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 12/22/93
<S> <C> <C> <C>
Class III 12.3% n/a 13.2%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO International Bond Fund J.P. Morgan Non-U.S. Government Bond Index
<S> <C> <C>
12/22/93 9,985 10,000
02/28/94 9,945 9,934
02/28/95 10,764 10,930
02/29/96 13,198 12,339
02/28/97 14,848 12,550
</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 the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Class I shares and
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Emerging Markets Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Markets Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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, 1997
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK AND EQUIVALENTS - 96.3%
Argentina - 4.5%
3,738,978 Acindar Industria Argentina de Aceros SA Class A * 7,013,389
5,686,520 Alpargatas SA * 5,518,132
36,000 Astra Cia Argentina 65,186
821,616 Atanor SA D Shares 1,397,306
200,940 Capex SA Class A (Voting) 1,889,592
1,013,454 Central Costanera Class B (Voting) 3,396,429
1,459,500 Central Puerto B Shares 4,453,256
9,909,657 Cia Celulosa Argentina SA Class B * 2,230,565
322,013 Ciadea SA (Bearer) * 1,659,028
199,607 Corcemar Class B * 1,228,074
156,122 Fiplasto Class B 687,212
1,494,939 Garovaglio Y Zorraquin 5,159,603
873,823 Indupa SA Industrial y Comercial * 1,075,232
269,229 Juan Minetti SA 1,171,615
1,502,459 Ledesma SA 1,818,703
328,998 Nobelza Piccardo 1,701,600
67,983 Pirelli Cables Industria * 180,227
904,358 Polledo * 1,040,428
337,950 Quimica Estrella Class B 439,511
45,970 Quimica Estrella Preferred 10% * 45,988
468,308 Rigolleau Christalerias Preferred * 557,510
630,553 Sevel Argentina Class 1 1,577,013
3,099,418 Siderca 6,294,336
53,200 Telecom Argentina SA ADR 2,560,250
62,200 Telefonica de Argentina ADR 1,967,075
1,284,000 Transportadora De Gas Del Sur Class B 3,288,355
741,503 YPF SA ADR 19,835,205
------------------
78,250,820
------------------
Brazil - 9.7%
6,531,000 Acos Villares SA Preferred 1,553,520
35,870,000 Alpargatas de Sao Paulo Preferred 2,218,411
2,300,000 Alpargatas de Sao Paulo 146,622
1,557,000 Aracruz Cellulose Class B Preferred 2,844,377
354,319,000 Banco Estado Sao Paulo Preferred 1,415,928
148,940,000 Banco Nacional Preferred (b) 1,417
33,740,000 Belgo Mineira Preferred (Registered) 3,049,762
4,400,000 Belgo Mineira (Registered) 401,903
119,000,000 Bombril SA Preferred 1,912,379
2,319,000 Brasinca Industrial SA Preferred 88,259
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Brazil - continued
30,402,000 Caemi Mineracao e Metalurgica SA Preferred 1,706,677
518,600,000 Cemig Preferred 20,896,965
2,321,557 Centrais Electric Preferred Class B * 3,224,998
143,400,000 Ceva Ceval Alimentos SA Preferred 1,678,230
162,100,000 Cia Energetica de Sao Paulo SA Preferred (Registered) * 8,868,459
246,500,000 Cia Hering Preferred (Registered) 1,620,661
16,000,000 Copel PNA 190,295
12,689,000 Copene-Petroquimica do Nordeste SA Class A Preferred 4,666,316
3,937,000 Cosipa PN Class B * 3,408,820
9,800,000 Electrobras 4,307,897
60,023,771 Electrobras Class B Preferred (Registered) 27,241,997
69,600,000 Ericsson Telecom Perferred 1,874,101
493,500 Estrela SA Preferred * 225,385
543,000,000 Fertilizantes Fosfatados Preferred 2,195,766
1,300,000 Iochpe Maxion Preferred 118,126
262,400,000 Iparanga Brasil De Petroleo Preferred 3,919,772
7,230,000 Light Particpacoes * 2,140,108
42,420,000 Mesbla Preferred (Registered) * 201,808
335,746,000 Olvebra Preferred * 25,556
205,500,000 Petrobras Distrib Preferred 4,106,089
63,210,000 Petroleo Brasileiro SA Preferred 12,930,685
770,000 Sadia Concordia Preferred (Registered) 534,824
30,200,000 Siderurgica de Nacional 1,112,027
583,800,000 Siderurgica de Tubarao Preferred Class B 9,831,836
476,803,993 Siderurgica Riograndense Preferred (Registered) 9,118,706
172,850,000 Telecomunicacoes Brasileiras SA 16,362,366
5,830,152 Unipar Preferred 2,662,676
6,007,400,000 Usiminas Preferred 6,916,226
673,000 Varig Preferred (Registered) * 1,280,685
------------------
167,000,635
------------------
Chile - 1.8%
38,800 Banco de Santiago Sponsored ADR 1,081,550
22,000 Chile Fund Inc 530,750
25,400 Chilectra SA Sponsored ADR 1,682,496
100,000 Chilgener ADR 2,525,000
47,000 Chilquinta Sponsored ADR 716,750
94,200 Chilquinta Sponsored ADR 144A 1,436,550
153,000 Compania de Telefones de Chile ADR 4,475,250
63,000 Conchatoro (Vina De Concha) ADR 1,771,875
14,200 Cristalerias de Chile SA ADR 317,725
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Chile - continued
46,900 Embotelladora Andina Sponsored ADR 1,711,850
192,700 Empresa Natl de Electricidad ADR 3,709,475
77,500 Enersis SA ADR 2,567,188
1,330,000 Five Arrows Chile Investment Trust Ltd 4,116,350
110,800 Maderas Y Sinteticos Soc ADR 1,842,050
45,500 Soc Quinica Y Min de Chile ADR 2,650,375
------------------
31,135,234
------------------
China - 1.5%
3,150,000 Chengdu Telecom Cable Class H * 447,443
110,000 China Estn Airlns Ltd Spon ADR * 2,406,250
953,315 China First Pencil Class B 486,191
3,826,000 Dongfang Electrical Machinery Class H 1,284,556
930,000 Guangdong Kelon Elec Holding H 828,642
25,000 Guangshen Railway Sponsored ADR * 603,125
7,034,000 Harbin Power Equipment Class H 1,289,809
59,650 Huaneng Power International ADR * 1,312,300
10,616,000 Maanshan Iron & Steel Class H 2,481,271
4,140,000 Northeast Electrical Transmission & Transformation Machinery
Manufacturing Company Ltd Class H 657,567
5,004,000 Qingling Motor Co Ltd 3,037,035
1,172,900 Shanghai Chlor-Alkali Chemical Co Class B 372,982
3,893,989 Shanghai Erfangji Textile Machinery Co Ltd Class B * 708,706
520,992 Shanghai Haixing Shipping Co Ltd Class B 255,286
2,408,000 Shanghai Haixing Shipping Co Ltd Class H 254,979
1,311,115 Shanghai Hero Co Ltd Class B 545,424
12,244,000 Shanghai Petrochemical Co Class H 3,478,409
481,580 Shanghai Phoenix Bicycle Class B * 79,942
735,000 Shenzhen China Bicycle Co Class B * 336,938
1,001,000 Shenzhen Konka Electronic Class B 1,169,815
9,210,000 Tianjin Bohai Chemical Industry (Group) Co Ltd Class H 987,126
8,860,000 Yizheng Chemical Fibre Co 2,070,842
------------------
25,094,638
------------------
Colombia - 0.0%
26,200 Banco Ganadero SA Sponsored ADR 802,375
------------------
Czech Republic - 2.8%
18,000 Alpha Effect 500,703
9,300 Bohatstvi * 263,481
52,000 Cez Ii 1,640,885
47,200 CEZ 1,950,815
15,000 Chemopetrol Group AS 732,636
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Czech Republic - continued
19,000 CKD Praha Holding AS * 651,689
60,934 Czech Republic Fund Inc 929,244
38,397 IF Zivnobanka 644,011
403,249 IPS Praha * 4,356,832
58,456 Izohorskie Zavody * 1,958,276
18,200 Kaucuk Group AS 936,999
197,800 Komercni Bank AS GDR 144A 6,923,000
98,600 Komercni Bank AS GDR (Registered) 3,451,000
9,800 Komercni Banka 238,992
2,870 Leciva AS * 243,637
5,272 Metrostav AS 510,835
1,820 Metrostav AS Rights 1/30/97 * 93,637
64,000 PF IKS KB Plus 419,276
31,000 PIF (Privat Inv Fond) 485,920
62,300 RIF 2,247,971
16,624 Sepap AS * 691,645
111,231 Skoda Koncern 4,387,434
367,188 SP Vseobecny * 1,171,274
27,366 Spif Cesky 345,419
182,980 Spif Vynosovy 1,311,707
17,000 Sporitelni Preferred * 447,230
74,470 SPT Telecom AS * 9,655,174
1,926 Stavby Silnic A Zeleznic SA 89,909
28,350 Synthesia * 264,490
74,433 Zivnobanka Preferred 1,217,786
------------------
48,761,907
------------------
Egypt - 0.6%
84,000 Al Ahram Beverages Co GDR * 1,465,800
23,000 Alexandria Cement 464,407
23,990 Eastern Company Tobacco 707,148
14,800 Egyptian International Pharm Investment 911,776
117,800 Helwan Cement Co 2,656,360
17,810 Middle Egypt Flour Mills 308,427
37,881 Suez Cement Co GDR 144A * 723,527
85,000 Suez Cement Co GDR (Registered) * 1,623,500
24,623 Suez Cement Co 528,242
60,250 Torrah Portland Cement 1,487,380
12,000 Upper Egypt Flour Mills 306,464
------------------
11,183,031
------------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Greece - 2.3%
94,170 Aegek 572,377
53,600 Alpha Credit Bank (Registered) 4,662,463
97,280 Alpha Leasing (Registered) 2,293,092
31,400 Aluminum of Greece Preferred 10.41% 1,700,952
8,430 Aluminum of Greece (Registered) 477,675
673,470 Balkan Export * 610,580
236,900 Boutaris Wine Co * 241,625
227,346 Commercial Bank of Greece (Registered) 9,189,340
75,740 Delta Dairy SA Common 987,092
530 Delta Dairy SA Preferred 5,095
8,940 Econ Viomihanies (a) * 7,700
68,807 Ergo Bank SA (Registered) 4,053,510
80,880 Etba Leasing (Registered) 947,144
87,500 Etma Rayon Manufacturing 231,377
245,820 Hellenic Sugar Industry 1,996,498
33,000 Hellenic Technodom SA 550,000
29,050 Ionian Bank (Registered) 641,971
25,800 Michaniki SA (Registered) 283,808
103,000 Naoussa Spinning Mills SA 400,763
87,575 National Bank of Greece (Registered) 8,998,338
6,250 National Investment Bank for Industrial Development (Registered) 242,001
13,500 National Mortgage Bank of Greece 856,754
26,750 Petzetakis SA Preferred * 68,714
14,500 Petzetakis SA * 67,647
42,190 Shelman 245,439
41,000 Strintzis Lines SA 154,106
------------------
40,486,061
------------------
Hungary - 1.4%
3,280 Cofinec Sponsored GDR 144A * 107,830
89,972 Danubus Hotel (Registered) * 2,872,728
38,614 Egis Gyogysergyar 2,287,650
2,493,951 Fotex (Registered) * 1,960,553
46,046 Graboplast (Registered) 2,152,197
8,293 Matav (Registered) * 2,692,763
140,000 Mol Magyar Olay GDR 144A 2,467,500
62,800 OTP Bank GDR 1,334,500
24,982 OTP Bank (Registered) 533,667
67,912 Pannonplast Muanyagipari 3,094,910
37,826 Pick Szeged (Bearer) 2,531,861
7,316 Richter Gedeon Vegyeszeti Gyar 500,945
</TABLE>
See accompaying notes to the financial statements.
5
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Hungary - continued
68,000 Tiszai Vegyi Kombinat GDR 144A * 875,500
15,000 Tiszai Vegyi Kombinat GDR (Registered) * 193,125
22,751 Zalakeramia AG 1,077,641
------------------
24,683,370
------------------
India - 7.4%
481,000 Arvind Mills Ltd GDR 2,405,000
492,800 Arvind Mills Ltd 1,991,527
25,000 Ashok Leyland GDR 144A * 228,125
414,600 Ashok Leyland Ltd GDR 3,783,225
227,800 Ballarpur Industries 412,681
460,300 Bombay Dyeing & Manufacturing Co Ltd GDR * 1,829,693
155,000 BSES Ltd 1,041,109
40,000 BSES Ltd GDR 844,000
104,000 BSES Ltd Sponsored GDR 144A 2,194,400
2,500 Century Textiles & Industrial GDR * 157,500
697,000 Cesc Ltd GDR 1,045,500
591,804 Core Parentals Ltd GDR 295,902
45,000 DCW Ltd GDR 90,000
975,700 Escorts 2,338,634
20,600 Excel Industries 131,936
254,000 Finolex Cables Ltd GDR 1,111,250
255,520 Garden Silk Mills Ltd GDR 255,520
337,500 Glaxo India Ltd 2,727,372
76,500 Grasim Industries 884,824
45,000 Great Eastern Shipping Co GDR 144A 343,125
261,000 Great Eastern Shipping Co Ltd GDR 1,990,125
1,902,800 Great Eastern Shipping Co 2,386,455
114,300 Hindalco Industry GDR 3,046,095
4,480 Hindustan Ciba Geigy 443,255
100,000 Hindustan Development Corp GDR 18,000
494,000 Hindustan Development Corp GDR 144A 88,920
404,000 Hindustan Petroleum 4,380,045
469,770 India Cements GDR 1,127,448
600,000 India Fund Class B 939,744
186,300 India Fund Inc 1,583,550
60,000 Indian Aluminum 144A 232,500
270,100 Indian Petrochemical Co Ltd GDR 3,416,765
135,000 Indian Rayon & Industries GDR 1,299,375
250,000 Indo Gulf Fertilizer 232,720
1,265,000 Indo Gulf Fertilizers GDR 948,750
</TABLE>
See accompanying notes to the financial statements. 6
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
India - continued
90,000 Indo Gulf Fertilizers GDR 144A 67,500
273,130 Industrial Credit & Investment GDR 144A * 2,697,159
803,600 Industrial Development Bank of India 2,082,910
593,000 Industrial Finance Corp of India 506,562
1,711,000 Industry Credit & Investment Corp 3,111,559
550,000 ITC Ltd 6,568,423
100,000 Jain Irrigation Systems Ltd EDR 50,000
2,630,900 Jaiprakash Industries Ltd 1,587,486
201,000 JCT Ltd GDR Class S 402,000
325,000 JK Corp GDR (Registered) 243,750
241,000 Larsen & Toubro 1,699,359
264,200 Larsen & Toubro GDR 3,725,220
75,833 Mahindra & Mahindra GDR 936,538
160,000 Mahindra & Mahindra 1,658,863
1,212,000 National Aluminum 1,314,013
100,000 NEPC Micon Ltd GDR 144A 35,000
210,500 NIIT 2,040,759
1,016,300 Oriental Bank of Commerce 2,181,023
14,000 Parke Davis & Co Ltd 66,332
27,600 Raymond Woolens GDR 148,350
1,125,800 Reliance Industries Ltd GDR 19,194,890
1,068,000 Reliance Industries 8,853,863
83,000 Sanghi Polyesters GDR 144A (Registered) * 62,250
50,000 Sanghi Polyesters GDS 144A 37,500
664,000 Scici Ltd 481,159
120,000 Siemens India 1,103,344
572,500 Siv Industries GDR 143,125
55,000 Smithkline Beecham Plc 433,501
225,000 Southern Petrochem GDR 144A 871,875
346,000 Southern Petrochem Industry Corp 280,137
146,432 State Bank of India GDR 144A * 2,928,640
530,500 State Bank of India 4,670,707
245,000 Steel Industry of India GDR 144A 2,205,000
111,000 Sterlite Industries Ltd 848,278
46,000 Sterlite Industries Ltd GDR 253,000
791,000 Tata Iron & Steel 4,510,552
33,333 Tube Investment of India GDR 41,666
57,333 Tube Investment of India GDR 144A 71,666
78,000 Usha Beltron GDR 144A 117,000
212,000 Usha Beltron Ltd GDR 318,000
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
India - continued
1,359,500 Uti Masterplus 1991 Unit * 538,041
736,600 Videocon International 872,506
545,000 Videocon International Ltd GDR 490,500
69,150 Zuari Argochemicals Ltd 539,632
------------------
127,234,708
------------------
Indonesia - 1.5%
831,500 Astra International (Foreign Registered) 2,843,921
5,126,000 Bakrie & Brothers (Foreign Registered) 2,351,867
104,500 Bank Bali (Foreign Registered) Warrants Exp 8/29/2000 * 74,098
622,000 Barito Pacific Timber (Foreign Registered) 564,275
50,000 Cipendawa Farm Enterprise (Foreign Registered) 21,376
171,000 Ciputra Development New (Foreign Registered) 164,046
1,562,000 Dharmala Intiland (Foreign Registered) 2,329,155
1,473,000 Duta Anggada Realty (Foreign Registered) 1,367,018
3,506,000 Gadjah Tunggal (Foreign Registered) 1,681,710
218,000 GT Petrochem Industries (Foreign Registered) 93,201
860,874 Indah Kiat Pulp & Paper (Foreign Registered) 637,352
177,318 Indah Kiat Pulp & Paper (Foreign Registered) Warrants Exp 4/13/01 65,084
236,000 Indorayon (Foreign Registered) 164,880
2,713,000 Jakarta International Hotel and Development (Foreign Registered) 2,489,510
2,039,500 JAPFA Comfeed (Foreign Registered) 1,573,754
368,000 Jaya Real Property (Foreign Registered) 529,552
387,000 London Sumatra (Foreign Registered) * 1,041,147
153,500 Modernland Realty (Foreign Registered) 89,635
295,000 Pabrik Kertas Tjiwi (Foreign Registered) 332,221
2,031,500 Pakuwon Jati (Foreign Registered) 889,708
4,976,200 Panasia Indosyntec (Foreign Registered) 1,401,016
682,000 Rig Tenders Indonesia (Foreign Registered) 426,694
798,000 Semen Cibinong (Foreign Registered) 2,421,373
932,000 Sinar Mas Agro (Foreign Registered) 777,477
921,550 Ungul Indah Corp (Foreign Registered) 1,230,015
------------------
25,560,085
------------------
Korea - 7.1%
89,570 ANAM Industrial Co Preferred 5.15 588,601
21,496 ANAM Industrial Co 288,487
88,100 Asia Motor * 530,017
101,480 Bank of Pusan 773,706
47,431 Cheil Food & Chemical 2,123,653
286,730 Cheil Industries 3,449,982
82,215 Cho Hung Bank Co Ltd 469,929
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Korea - continued
50,000 Cho Hung Bank GDR 144A 298,750
84,300 Choongnam Spinning * 908,004
19,520 Chosun Brewery Co Ltd Preferred 176,151
70,280 Chosun Brewery Co Ltd 2,025,220
82,300 Coryo Securities Preferred * 285,648
154,758 Daegu Bank 1,561,071
188,260 Daelim Industrial Co Ltd 1,779,469
548,970 Daewoo Corp 3,778,992
190,400 Daewoo Heavy Ind Ltd Preferred 649,829
159,250 Daewoo Securities Ltd Preferred 15.98% 902,788
24,600 Daihan Investment and Finance Preferred 23.40% 145,150
140,900 Daishin Securities Preferred 18.00% * 544,462
55,900 Dongbu Construction Co Preferred 242,523
102,340 Dongbu Steel Preferred 686,726
210,600 Dongsuh Securities Preferred 782,121
33,500 Dongwon Securities Co Preferred 170,533
12,000 Dongwon Securities Co 107,595
24,800 Doosan Beverage Co Ltd 803,378
66,120 Haitai Confectionery Co Ltd 1,002,108
41,770 Haitai Confectionery Preferred 216,497
30,000 Han Dok Preferred * 168,335
140,603 Hana Bank 1,816,200
150,457 Hanil Bank 800,720
175,000 Hanil Synthetic Fiber Industry Co Preferred * 421,126
203,690 Hanil Synthetic Fiber Industry Co * 1,142,936
61,500 Hanshin Construction Preferred * 160,091
5,445 Hansol Paper Manufacturing Ltd 122,211
32,800 Hansol Paper Manufacturing Ltd Preferred 326,349
33,535 Hanwha Chemical Corp 314,263
75,700 Hanwha Chemical Corp Preferred 350,321
232,406 Hanwha Corp 2,957,675
10,840 Hanwha Corp Preferred 66,845
335,319 Hyundai Engineering & Construction GDR 144A * 1,341,276
110 Hyundai Engineering & Construction * 2,405
45,000 Hyundai Fire & Marine Insurance 1,634,754
363,325 Hyundai Motor Service Co GDR 144A * 2,670,439
53,123 Hyundai Motor Service Co Ltd 1,266,077
63,700 Hyundai Motor Service Co Preferred 619,055
14,200 Inchon Iron & Steel 225,071
70,000 Jindo Corp Preferred 332,041
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Korea - continued
1,400 Jindo Corp 18,303
60,920 Jinro Ltd 1,113,595
27,670 Jinro Ltd Preferred 192,075
19,000 Kang Won Industrial Co 312,142
71,930 Kang Won Industrial Preferred (Non Voting) 467,689
6,400 Keum Kang Ltd 288,772
11,710 Kia Steel Co Ltd * 46,062
61,746 Kolon Construction 571,491
39,500 Kolon Construction Co Ltd Preferred 2.03% 155,377
824 Kolon Industries 15,730
59,400 Kolon Industries Preferred 357,355
7,861 Kolon International Corp 56,842
21,200 Kolon International Corp Preferred 84,619
9,670 Korea Container Terminal 783,132
20,000 Korea Electric Power Sponsored ADR 360,000
73,460 Korea Exchange Bank 492,085
14,400 Korea Express Co Ltd 314,872
615,314 Korea First Bank 2,491,582
112,980 Korea Housing Bank 1,866,291
81,800 Korea Kumho Petrochemical 548,898
150,491 Korea Long Term Credit Bank 2,241,652
121,660 Korean Air Lines * 2,201,028
120,360 Kumho Construction & Engineering Co Ltd 717,133
168,700 Kumho Construction & Engineering Co Ltd Preferred 472,325
177,500 Kumho Petrochemical Preferred 821,427
69,600 Kumho & Co Inc Preferred 2.02% * 239,153
600 Kun Sul Chemical Industry 44,496
117,930 Kun Young Construction * 341,094
194,506 Kwanju Bank 1,170,164
8,008 Kyungbang Co Ltd 481,768
86,770 Kyungnam Bank 753,911
11,910 Kyungnam Wool Textile Preferred 49,605
73,100 LG Chemicals Ltd 794,979
122,400 LG Chemicals Ltd Preferred 647,155
8,966 LG Merchant Banking Corp New * 114,104
19,200 LG Merchant Banking Corp 264,337
91,000 LG Metals Corp 1,358,130
65,000 LG Securities Co Preferred * 315,844
12,130 Lotte Chilsung Beverage 1,445,468
25,000 Mando Machinery Preferred 309,481
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Korea - continued
6,440 Miwon Petrochemical Preferred 28,313
16,500 Monami Co Ltd * 500,145
82,656 NyoSung T-C Co Ltd 1,969,935
37,400 Oriental Brewing Co Ltd Preferred * 462,984
67,728 Oriental Chemical Preferred 1.66% 509,321
34,520 Ottogi Foods 1,385,832
26,840 Pang Rim Spinning 1,204,827
132,140 Pohang Iron & Steel 8,743,086
23,800 Pohang Iron & Steel Co ADR 464,100
7,440 Sam Whan Corp 109,317
31,000 Sam Whan Corp Preferred 164,979
7,170 Sam Yang Preferred 64,703
82,250 Samho International * 342,570
65,800 Sammi Corp Preferred * 86,023
51,800 Samsung Corp 588,507
778 Samsung Display Devices 41,469
49,310 Samsung Display Devices Preferred 1,112,449
24,700 Samsung Electro Mechanics Co Preferred 271,190
196,658 Samsung Electronics GDS (Non Voting) 3,834,831
35,077 Samsung Electronics Ltd 2,859,809
460,000 Samsung Electronics Preferred (Non Voting) 16,987,563
55,407 Seah Steel Corp 1,410,255
162,800 Seoul Bank * 695,010
41,922 Shin Sung Corp 376,369
13,380 Shin Wha Engineering & Construction Co Preferred 1.52% 65,170
1,338 Shin Wha Engineering & Construction Co 14,861
79,211 Shinhan Bank 1,178,749
54,552 Shinsegae Department Store 2,196,344
49,340 Shinwon Preferred 285,988
101,300 Shinyoung Securities Preferred 627,009
177,000 Ssangyong Cement 2,375,427
56,600 Ssangyong Investment Securities Co Preferred * 258,657
40,670 Ssangyong Oil Refining 894,001
27,100 STC Corp Preferred (Non Voting) 153,630
15,140 Sung Chang Enterprise Co * 858,287
26,460 Sungwon Constuction Preferred 132,553
45,240 Sunkyong Industries 821,737
39,000 Sunkyong Industries Ltd Preferred 216,579
8,327 Sunkyong Ltd 112,716
70,700 Sunkyong Securities Preferred 13.11% (Non Voting) * 269,925
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Korea - continued
1,100 Taihan Textile Co Ltd * 138,717
58,810 Tong Kook Spinning Co Ltd * 306,178
59,060 Tong Yang Cement Corp Preferred 375,125
22,700 Tong Yang Investment & Financial Preferred 126,060
42,000 Tong Yang Securities Co Preferred * 160,352
------------------
123,131,398
------------------
Malaysia - 7.7%
4,924,000 Amalgamated Steel Mills Berhad 4,362,787
243,666 Amsteel Corp Warrants Expires 5/19/00 * 159,958
60,000 Arab Malaysian Finance (Foreign Registered) 418,043
4,886,000 Berjaya Group 6,808,522
2,239,000 Berjaya Industrial Berhad 3,588,892
3,308,000 Berjaya Leisure Berhad 9,259,203
254,000 Berjaya Sports Toto 1,473,057
830,000 Cement Industries of Malaysia Berhad 2,523,762
788,000 Cold Storage 1,339,251
154,000 Edaran Otomobil Berhad 1,581,555
536,000 Esso Malaysia Berhad 1,478,695
3,445,000 Golden Hope Plantations Berhad 6,215,707
1,277,000 Highlands and Lowlands Berhad 2,283,480
463,000 Hong Leong Industries Berhad 1,584,978
3,185,000 IGB Corp Berhad 3,899,476
1,845,000 Kuala Lumpur Kepong Berhad 5,572,896
1,076,000 Kumpulan Emas Berhad * 1,131,035
2,444,000 Kumpulan Guthrie Berhad 4,252,147
1,952,000 Land & General Berhad 3,970,036
2,237,000 Landmark Berhad 4,018,131
614,000 Larut Consolidated Berhad 1,003,963
1,206,000 Lion Land Berhad 1,525,107
984,000 Malayan Cement Berhad 2,575,916
5,979,000 Malayan United Industries Berhad 5,466,101
1,416,600 Malaysia Mining Corp Berhad 1,962,587
1,215,000 Malaysian International Ship (Alien Market) 3,205,095
897,000 Malaysian Tobacco Co Berhad 1,401,675
879,000 MBF Capital Berhad 1,805,437
465,000 Metroplex Berhad 632,984
2,154,000 Metroplex Berhad Warrants 11/04/98 * 1,578,848
448,000 Nestle Malaysia 3,410,068
433,800 Nylex Berhad 1,048,248
2,333,000 Olympia Industries 2,621,454
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
46,200 Oriental Holdings Berhad 416,786
873,000 Perlis Plantations 2,707,249
6,000 Perusahaan Otomobil 39,629
799,000 Public Bank Berhad (Alien Market) 1,866,371
661,000 Rothmans of Pall Mall Malaysia Berhad 6,854,913
362,000 Shell Refinery Co 1,166,331
3,374,200 Sime Darby Berhad 12,773,854
1,258,100 Sime UEP Properties Berhad 3,394,793
3,222,000 TA Enterprise Berhad 5,112,638
108,000 Tanjong 452,356
277,000 Tenaga Nasional 1,327,547
926,000 Tractors Malaysia Holdings Berhad 1,939,267
133,600 UMW Holding Berhad Warrants 1/26/00 * 390,093
------------------
132,600,921
------------------
Mexico - 12.5%
1,134,175 Alfa SA Class A 6,432,210
2,330,000 Altos Hornos De Mexico * 5,145,295
3,000,000 Camesa Class B * 1,550,816
167,000 Cementos Mexicanos (Cemex) Class A (Registered) 668,419
3,475,000 Cemex SA Class B 15,042,346
5,847,000 Cemex SA CPO 23,476,035
923,000 Ceramic International 1,632,911
430,273 Cintracpo (Cintra SA De) Class A * 349,833
3,028,480 Cydsa SA Class A 7,523,702
1,062,000 Dina (Consorcio Grupo Dina) 866,123
646,100 Empresas ICA Soc Controladora ADR 10,660,650
46,000 Empresas ICA Soc Controladora 757,817
83,000 Grupo Celanese Mexicana Class B 178,080
3,156,600 Grupo Financiero Banamex Class B 7,390,484
103,529 Grupo Financiero Banamex Class L 218,229
46,396,000 Grupo Financiero Bancomer SA Class B 18,046,123
328,963 Grupo Financiero Bancomer SA Class L 104,013
992,000 Grupo Financiero Invermexico Class B 84,637
60,400 Grupo Financiero Invermexico Class L * 4,774
700 Grupo Financiero Serfin SA de CV Class B * 281
14,233,320 Grupo Gigante SA Class B * 4,196,776
38,886 Grupo Mexico Class B Warrants 8/9/01 * 107,827
2,827,000 Grupo Mexico Class B * 9,293,275
280,200 Grupo Mexico Desarollo Class B ADR * 595,425
584,800 Grupo Mexico Desarollo Class L ADR * 1,608,200
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Mexico - continued
10,000 Grupo Posadas SA 144A * 90,339
924,000 Grupo Posadas SA Class L * 405,772
660,000 Grupo Simec SA Class B * 154,856
6,310,000 Grupo Situr SA de CV 308,770
1,438,200 Grupo Tribasa SA ADR * 9,887,625
74,000 Grupo Tribasa SA * 249,762
6,275,000 Herdez Class A 2,810,759
904,000 Hylsamex SA 3,913,174
1,832,000 Sears Roebuck de Mexico SA * 3,195,082
881,500 Telefonos de Mexico ADR Class L 34,268,313
39,000 Tolmex SA de Con Class B 168,821
333,000 Transportation Maritima Mexicana SA Class A 1,608,595
25,000 Transportation Maritima Mexicana SA Class L 150,565
1,383,600 Tubos de Acero de Mexico SA * 22,654,931
2,283,280 Vitro SA 6,331,303
1,615,400 Vitro SA ADR 13,327,050
------------------
215,459,998
------------------
Pakistan - 0.7%
1,452,000 Fauji Fertilizer 2,861,983
349,910 Hub Power Co GDR * 8,529,056
910,000 Japan Power Generation Ltd * 249,751
436,000 Karachi Electric Supply * 190,370
53,700 Pakistan State Oil 417,355
627,000 Southern Electric Power Co * 233,092
------------------
12,481,607
------------------
Peru - 0.3%
219,430 Banco Wiese 324,252
1,048,410 CNC Trabajo T Shares * 542,828
595,000 CPT Telefonica Del Peru B Shares 1,322,222
73,446 Credicorp Ltd 1,689,258
223,277 Enrique Ferreyos 206,738
77,813 Milpo Minera T Shares 529,340
217,732 Minsur Trabajo 777,614
------------------
5,392,252
------------------
Philippines - 0.1%
1,470,000 JG Summit Holdings Inc Class B 413,117
7,000 Philippine Long Distance Telephone Sponsored ADR 406,000
28,500 Philippine National Bank 332,824
159,000 Sime Darby Pilipinas Inc 241,536
------------------
1,393,477
------------------
</TABLE>
14 See accompaying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Poland - 4.0%
106,490 Agros Holdings Class C * 2,872,180
2,308,000 Bank Inicjatyw Gospodarczych 3,470,904
17,540 Bank Przemyslowo Handlowy 1,186,995
116,685 Bank Rozwoju Eksportu SA 4,081,762
77,400 Bank Slaski SA 8,907,022
93,213 Budimex SA * 966,017
45,186 Debica Class A 1,344,294
96,000 Drosed * 2,479,404
759,640 Elektrim SA (Bearer) 7,698,718
91,800 Elektrobudowa SA 1,890,741
290,935 Exbud SA * 3,661,893
91,308 Gorazde Cement 2,716,434
13,290 Huta Szkla Irena 67,345
100,890 Jelfa * 2,275,863
84,060 Jutrzenka (Prezedsib Cukiernicze) 1,868,733
1,095,600 Mostostal Export (Bearer) 2,865,437
12,500 Mostostal Zabrze-Holding SA 76,010
47,150 Polfa Kunto Class A * 1,849,745
415,809 Polifarb Cieszyn (Bearer) 2,582,833
372,170 Polifarb Wroclaw 2,226,596
109,479 Rafako SA (Raciborska Fabryka) * 637,088
16,500 Relpol SA 474,696
166,150 Rolimpex SA 1,118,965
886,300 Sokolow * 1,564,672
181,779 Stomil-Olsztyn SA 2,436,556
513 Universal SA * 1,711
108,900 Vistula 395,184
670,724 Wielkopolski 5,547,704
14,145 Wolczanka SA 93,412
27,000 Zaklady Piwowarski (Bearer) 1,677,128
------------------
69,036,042
------------------
Portugal - 2.5%
109,053 Banco Commercial Portugues (Registered) 1,565,517
338,940 Banco Espirito Santo e Commercial de Lisboa (Registered) 6,428,999
275,000 Banco Totta & Acores (Registered) 4,085,474
291,000 BPI Sgps SA (Registered) 4,328,316
15,400 Cel-Cat Fabrica Nacional de Condutores Electricos SA 239,128
97,900 Cimpor Cimentos De Portugal SA (Registered) 2,133,777
1,100 CIN (Corp Ind Norte) /Bearer/ 58,972
12,666 Cristais Alcobaca Preferred 285,015
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Portugal - continued
348,400 Empresa Fabril de Maquinas Electricas * 2,772,670
106,000 Engil Sociedade Gestora 1,193,249
15,900 Est Jeronimo Martins Filho Admin 857,472
44,500 Fisipe Fibra Sint * 262,135
177,000 Lisnave Navais De Lisboa * 443,126
71,900 Modelo Continente 2,520,058
364,600 Portucel Industrial Empresa 2,179,954
95,400 Portugal Telecom SA 3,346,530
35,400 Salvador Caetano Industrias 813,266
117,000 Semapa Society Investment 2,357,092
107,450 Soares Da Costa 1,009,559
16,200 Soja De Portugal Sociedada Gest 147,724
86,600 Somague * 849,370
29,000 Sonae Industria Sociedade * 257,952
155,000 Sonae Investimentos 4,925,012
155,000 Sonae Investimentos Rights 3/3/97 * 595,311
18,000 Uniao Cervjeira SA (Registered) 306,433
------------------
43,962,111
------------------
Russia - 11.2%
35 Chernogorneft RDC 144A * 4,683,000
378,250 Gazprom ADR 144A * 6,581,550
672,700 Irkutskelectrosvyaz 975,415
580 Irkutskenergo 144A (Participating Certificates) 30,160,000
3,000,000 Irkutskenergo (Registered) 810,000
135,000 JSC Chernogorneft Sponsored ADR 1,806,300
10 Lenenergo RDC 144A * 850,000
2,500,000 Lenenergo * 2,200,000
160 Lukoil Holding RDC 144A * 11,904,000
501,900 Lukoil Holding RDC Preferred * 6,022,800
197,500 Lukoil Holding Sponsored ADR 11,751,250
1,050 Moscow City Telephone Network Preferred 945,000
146,800 Mosenergo AO Sponsored ADR 144A 6,092,200
415 Mosenergo RDC 144A * 5,768,500
10,000,000 New Century Holdings 12,833,000
999,745 Norilsk Nickel * 6,878,246
75,000 Norlisk Nickel Preferred * 356,250
250,000 Novgorodtelekom * 750,000
381 Rostelecom RDC 144A * 15,240,000
190,441 Rostelekom Preferred 2.5 * 571,323
3,546,965 Rostelekom * 13,939,572
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Russia - continued
1,500 Samara Svyazinform Preferred * 70,500
19,700 Seversky Tube Works ADR * 365,248
334,100 St Petersburg Telephone Preferred * 377,533
440,000 St Petersburg Telephone * 695,200
233,000 Surgutneftegaz ADR 9,553,000
39,111 Tatneft Sponsored ADR 144A * 2,894,214
49,350 Templeton Russia Fund Inc 1,647,056
24,500 Torgoviy Dom Gum Sp ADR * 1,372,000
140,500,000 Unified Energy System 32,034,000
17,200,000 Unified Energy Systems Preferred 3,259,400
------------------
193,386,557
------------------
South Africa - 4.8%
247,681 AECI Ltd 1,237,990
212,457 Amalgamated Bank of South Africa 1,351,116
36,308 Anglo American Industrial Ltd 1,450,214
1,069,420 Avgold Ltd * 2,376,754
22,625,000 Consolidated Mining Corp * 5,755,327
368,000 De Beers Centenary Link Units 12,768,939
39,000 De Beers Consolidated Mines Ltd ADR 1,356,469
335,300 Del Monte Royal Foods Ltd 231,938
561,475 Driefontein Consolidated Ltd 6,420,974
215,992 Engen Ltd 1,296,482
71,617 Impala Platinum Holdings Ltd 998,787
626,072 JCI Ltd 6,810,445
1,973,100 Joel HJ Mining Co Ltd * 1,937,217
1,561,400 Oryx Gold Holdings Ltd * 2,188,016
78,637 Polifin Ltd 152,659
3,285 Randfontein Estates Goldmine 17,153
323,500 Randgold & Exploration Co * 2,725,008
571,628 Sappi Ltd 4,655,678
770,000 Sasol Ltd 8,333,147
9,097,896 South African Iron & Steel Industrial Corp Ltd 6,902,342
75,000 St Helena Gold Mines 485,329
466,000 Sun International Ltd 311,949
38,020 Vaal Reefs Exploration & Mining 2,892,964
449,151 Western Areas Gold Mining Co Ltd 6,213,848
110,437 Western Deep Levels 3,844,287
------------------
82,715,032
------------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Sri Lanka - 0.2%
121,000 Aitken Spence & Co 210,435
3,672,576 Blue Diamonds Jewelry Ltd 654,677
46,500 Development Finance Corp 218,348
105,966 Hayleys Ltd 360,284
228,244 John Keells Holdings Ltd 754,198
291,900 Lanka Walltile Ltd 133,259
96,000 National Development Bank 334,748
------------------
2,665,949
------------------
Taiwan - 6.8%
2,818,000 Ambassador Hotel 5,027,754
70 Asia Cement Corp GDR 144A 1,348
2,403,000 Cheng Loong Co * 1,842,416
3,445,000 Chia Hsin Flour * 2,416,007
3,750,000 Chia Hsin Livestock * 2,330,124
90,000 China General Plastics Corp 134,738
1,116,000 China Man-Made Fiber Co * 1,159,797
17,780,675 China Steel Corp 16,863,213
109,675 China Steel Corp GDR 144A 2,070,116
2,955,000 Chung Hwa Pulp Corp 2,931,377
5,314,000 Chung Shing Textile * 3,147,464
162,000 Dong Ho Textile Co Ltd * 164,826
601,407 Far East Department Store 917,845
2,189,000 Far East Textile Ltd 3,412,358
4,805,257 Feng An Metal Industrial Co Ltd 4,208,092
3,603,085 Formosa Chemicals and Fiber Co 5,813,117
3,194,000 Formosan Rubber Group * 5,779,840
427,000 Hegon 799,073
4,110,000 International Commercial Bank of China 12,694,404
1,748,000 Kao Hsing Chang Iron & Steel * 1,842,006
1,840,779 Laelae Enterprise Co Ltd * 1,719,041
660 Li Peng * 772
1,669,000 Macronix International Co * 2,880,723
18,471 President Enterprise GDR 144A * 369,420
613,330 Prince Housing Develop Corp * 624,028
310,300 R O C Taiwan Fund * 3,723,600
669,750 Shin Yih Ceramic Co Ltd * 975,908
369,000 Shin Yih Fiber * 406,275
1,370,000 Taipei Business Bank 3,634,084
2,029,000 Taiwan Pulp and Paper Co * 1,953,797
1,512,000 Taiwan Semiconductor * 3,433,866
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Taiwan - continued
1,702,000 Taiwan Styrene Monomer Corp 2,418,176
921,000 Taiwan Synthetic Rubber 1,452,449
669,000 Tay Feng Tire Co Ltd * 1,701,672
9,246 Tuntex Distinct Corp GDR 144A * 68,420
73,750 Tuntex Distinct Corp GDS * 545,750
4,617,600 Tuntex Distinct 3,490,047
1,220,000 Universal Cement 1,130,451
5,656,000 Wan Yu Paper * 2,867,049
5,610,000 Yieh Loong Co * 4,056,650
4,315,000 Yue Loong Motor 6,162,046
724,500 Yuen Foong Yu Manufacturing 723,973
------------------
117,894,112
------------------
Thailand - 2.1%
273,950 Asia Credit (Foreign Registered) 1,123,412
1,921,000 Bangchak Petro (Foreign Registered) 1,112,763
822,000 Bangkok Expressway Plc (Foreign Registered) * 888,820
74,800 Bangkok Insurance (Foreign Registered) 1,068,778
5,633,400 Bangkok Rubber Public Co Ltd (Foreign Registered) 1,696,873
746,200 Bank of Ayudhya Plc (Foreign Registered) 1,700,166
393,700 CP Feedmill Public Co Ltd (Foreign Registered) 1,064,260
1,568,400 First Bangkok City (Foreign Registered) 1,439,088
225,000 General Finance & Securities (Foreign Registered) 256,324
227,600 GFPT Public Co Ltd (Foreign Registered) * 36,915
1,324,850 International Broadcasting Plc (Foreign Registered) * 1,624,406
23,000 International Cosmetics Public Co Ltd (Foreign Registered) 91,485
1,100 Karat Sanitaryware Plc (Foreign Registered) 956
1,559,100 Krisda Mahanakorn Public Co Ltd (Foreign Registered) 1,189,119
172,000 Krung Thai Bank Public Co Ltd (Foreign Registered) 257,386
756,800 MDX Public Co Ltd (Foreign Registered) * 208,964
2,675,400 National Petrochemical (Foreign Registered) 2,737,907
350,000 Nava Finance & Securities (Foreign Registered) 398,185
1,862,500 NEP Realty and Industry Co Ltd (Foreign Registered) * 366,818
512,700 NTS Steel Group Pcl (Foreign Registered) * 142,554
5,985,750 Padaeng Industry Plc ( Foreign Registered) * 1,826,122
75,000 Pranda Jewelry (Foreign Registered) * 74,580
87,200 Prasit Development Public Co Ltd (Foreign Registered) 68,191
32,400 Saha Pathana International Holdings Plc (Foreign Registered) 76,924
70,000 Saha Pathanapibul (Foreign Registered) 171,736
2,511,300 Saha Union Public Co Ltd (Foreign Registered) 2,060,827
1,811,250 Siam City Bank (Foreign Registered) 1,486,351
</TABLE>
See accompanying notes to the financial statements.
19
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Thailand - continued
513,000 Siam Pulp & Paper (Foreign Registered) 916,050
201,512 Singer Thailand Plc (Foreign Registered) 809,316
3,108,050 Star Block Co Ltd (Foreign Registered) 168,035
24,000 Swedish Motor (Foreign Registered) 29,352
21,000 Tanayong (Foreign Registered) 14,597
1,581,150 Thai German Ceramics Industry (Foreign Registered) * 1,618,091
703,000 Thai Military Bank (Foreign Registered) 1,099,498
6,947,400 Thai Petrochemical (Foreign Registered) 6,975,571
112,700 Thai Plastic & Chemical (Foreign Registered) 398,226
378,600 Thai Telephone & Telecommunications (Foreign Registered) * 399,873
303,900 Union Asia Finance (Foreign Registered) 395,850
793,000 Univest Land Public (Foreign Registered) * 88,809
------------------
36,083,178
------------------
Turkey - 2.1%
10,000,000 Akal Tekstil 1,159,149
63,700,000 Aksigorta SA 3,316,224
12,912,000 Alcatel Teletas Telekomunikasyon 1,654,240
26,713,000 Eczacibasi Ilac * 1,803,538
47,323,000 Eregli Demir ve Celik Fabrikalari 8,180,044
43,000,000 Global Menkul Degerler 856,957
2,519,000 Goodyear Lastikleri 1,680,221
46,100,000 Izmir Demir Celik * 787,489
17,519,000 Mardin Cimento 969,042
7,784,000 Netas Telekomunik 2,279,448
4,015,000 Petkim 1,959,572
4,257,000 Petrol Ofisi 1,904,543
5,124,000 Raks Elektronik SA 1,563,021
29,000,000 Tofas Otomobil Fab 2,005,125
8,800,000 Tupras Turkiye Petrol * 4,509,700
288,000 Usas Ucak Servisi A.S. 796,518
------------------
35,424,831
------------------
United Kingdom - 0.0%
6,975 Lonrho 16,387
------------------
Venezuela - 0.7%
522,874 Banco Provincial 948,450
564,370 Ceramica Carabobo Class A ADR 406,346
1,987,332 Ceramica Carabobo Class B ADR 1,391,132
1,079,166 Electricidad De Caracas 1,185,761
301,560 Mantex SAICA ADR 1,206,240
</TABLE>
See accompanying notes to the financial statements.
20
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Venezuela - continued
1,203,000 Siderurgica Venezolana ADR 3,909,750
349,950 Siderurgica Venezolana Sivensa Class A 116,741
109,363 Siderurgica Venezolana Sivensa Registered ADR B 328,089
3,182 Siderurgica Venezolana Sivensa Registered ADR B 9,546
130,796 Venezolana de Cementos 376,334
2,333 Venezolana de Prerreducidos Caroni GDS 10,848
1,159,454 Venezolano de Pulpa y Papel GDS 144A 2,179,774
------------------
12,069,011
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $1,524,597,126) 1,663,905,727
------------------
CONVERTIBLE BONDS - 1.2%
India - 0.1%
$ 2,292,000 Mahindra & Mahindra CV 144A, 5.00% due 7/9/01 2,486,820
------------------
Korea - 0.0%
$ 108,350 Hanbo Steel & General Construction Convertible, 3.375% due 01/31/99 * 391,105
------------------
Malaysia - 0.2%
$ 3,648,500 Berjaya Group Berhad Convertible, 6.00% due 09/30/01 * 2,674,293
------------------
Portugal - 0.1%
$ 38,000 Banco Commercial Portugues Class A Convertible, 8.00% due 07/02/98 2,156,500
------------------
South Africa - 0.1%
$ 1,100,000 Rangold Finance Convertible, 7.00% due 10/03/01 1,215,500
------------------
Thailand - 0.6%
$ 3,030,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 2,590,650
CHF 2,000,000 Bangkok Land Ltd Convertible, 3.125% due 3/31/01 542,373
$ 2,726,000 Bangkok Land Ltd Convertible, 4.50% due 10/13/03 1,553,820
$ 2,690,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 * 941,500
$ 2,800,000 NTS Steel Group Convertible, 3.50% due 7/26/05 683,390
$ 534,000 NTS Steel Group Convertible, 4.00% due 12/16/08 149,520
$ 2,724,000 Sahaviriya Steel Convertible, 3.50% due 7/26/05 1,716,120
$ 630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 * 63,000
$ 2,445,000 Tanayong Public Co Convertible, 3.50% due 3/1/04 * 2,078,250
------------------
10,318,623
------------------
Venezuela - 0.1%
$ 1,460,000 Global Investment Financial Corp, 11.00% due 3/19/01 1,489,200
------------------
TOTAL CONVERTIBLE BONDS (Cost $21,740,749) 20,732,041
------------------
SHORT-TERM INVESTMENTS - 2.0%
Cash Equivalents - 0.8%
$ 14,300,000 First National Bank of Chicago Time Deposit, 5.44% due 3/3/97 14,300,000
------------------
</TABLE>
See accompanying notes to the financial statements.
21
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. Government - 1.2%
$ 21,300,000 U.S. Treasury Bill, 5.56% due 1/8/98 20,326,596
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $34,637,711) 34,626,596
------------------
TOTAL INVESTMENTS - 99.5%
(Cost $1,580,975,586) * * 1,719,264,364
Other Assets and Liabilities (net) - 0.5% 8,134,627
------------------
TOTAL NET ASSETS - 100.0% $ 1,727,398,991
==================
Notes to the Schedule of Investments:
ADR American Depositary Receipt
CHF Swiss Francs
GDR Global Depository Receipt
GDS Global Depository Shares
RDC Russian Depository Certificate
(a) Valued by management (Note 1).
(b) Bankrupt security.
144A Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional
buyers.
* Non-income producing security. A dividend has not been declared for the year ended
February 28, 1997.
** The aggregate identified cost for federal income tax purposes is $1,582,450,991, resulting in
gross unrealized appreciation and depreciation of $322,943,850 and $186,130,477, respectively,
and net unrealized appreciation of $136,813,373.
</TABLE>
See accompanying notes to the financial statements.
22
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector (Unaudited)
<TABLE>
<S> <C>
Metals and Mining 12.7%
Oil and Gas 10.2
Banking 9.7
Construction 9.0
Utilities 8.2
Conglomerates 7.0
Telecommunications 6.6
Textiles 4.9
Consumer Goods 3.3
Chemicals 3.2
Electronic Equipment 2.8
Machinery 2.5
Real Estate 2.3
Automotive 2.1
Financial Services 2.0
Food and Beverage 1.7
Paper and Allied Products 1.6
Services 1.5
Transportation 1.2
Health Care 0.5
Retail Trade 0.4
Insurance 0.2
Communications 0.1
Miscellaneous 6.3
=========
100.0%
=========
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $1,580,975,586) (Note 1) $ 1,719,264,364
Foreign currency, at value (cost $9,277,761) (Note 1) 9,282,242
Cash 524,465
Receivable for investments sold 10,650,268
Receivable for Fund shares sold 500,000
Dividends and interest receivable 4,133,696
Receivable for open forward foreign currency contracts (Note 5) 5,843,045
Foreign withholding taxes receivable 7,868
Receivable for open swap contracts (Notes 1 and 5) 2,385,940
Receivable for expenses waived or borne by Manager (Note 2) 292,844
---------------------
Total assets 1,752,884,732
---------------------
Liabilities:
Payable for investments purchased 21,138,838
Payable for Fund shares repurchased 2,000,000
Payable to affiliate for (Note 2):
Management fee 1,287,665
Shareholder service fee 193,289
Accrued expenses 865,949
---------------------
Total liabilities 25,485,741
---------------------
Net assets $ 1,727,398,991
=====================
Net assets consist of:
Paid-in capital $ 1,552,555,011
Accumulated undistributed net investment income 11,553,963
Accumulated net realized gain 16,823,333
Net unrealized appreciation 146,466,684
---------------------
$ 1,727,398,991
=====================
Net assets attributable to:
Class I Shares $ 1,747,646
=====================
Class III Shares $ 1,725,651,345
=====================
Shares outstanding:
Class I 140,068
=====================
Class III 138,115,145
=====================
Net asset value per share:
Class I $ 12.48
=====================
Class III $ 12.49
=====================
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $3,098,161) $ 27,560,550
Interest 5,508,128
----------------
Total income 33,068,678
----------------
Expenses:
Management fee (Note 2) 12,541,622
Custodian fees 2,511,925
Stamp duties and transfer taxes 806,086
Registration fees 121,535
Audit fees 74,811
Legal fees 67,221
Transfer agent fees 39,627
Trustees fee (Note 2) 5,960
Miscellaneous 80,956
Fees waived or borne by Manager (Note 2) (2,222,584)
----------------
14,027,159
Shareholder service fee (Note 2)
Class I 675
Class II 12,187
Class III 1,478,774
----------------
Net expenses 15,518,795
----------------
Net investment income 17,549,883
----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 37,264,275
Closed swap contracts 8,933,765
Foreign currency, forward contracts and foreign
currency related transactions 1,052,655
----------------
Net realized gain 47,250,695
----------------
Change in net unrealized appreciation (depreciation) on:
Investments 166,939,087
Open swap contracts 751,406
Foreign currency, forward contracts and foreign
currency related transactions 6,086,084
----------------
Net unrealized gain 173,776,577
----------------
Net realized and unrealized gain 221,027,272
----------------
Net increase in net assets resulting from operations $ 238,577,155
================
</TABLE>
See accompanying notes to the financial statements. 25
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
February 28, 1997 February 29, 1996
----------------------------- ------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 17,549,883 $ 7,811,918
Net realized gain (loss) 47,250,695 (25,051,517)
Change in net unrealized appreciation (depreciation) 173,776,577 66,409,381
----------------- ----------------
Net increase in net assets
resulting from operations 238,577,155 49,169,782
----------------- ----------------
Distributions to shareholders from:
Net investment income
Class I - -
Class II (178,659) -
Class III (15,814,130) (615,855)
----------------- ----------------
Total distributions from net investment income (15,992,789) (615,855)
----------------- ----------------
Net realized gains
Class III - (7,081,456)
----------------- ----------------
Total distributions from net realized gains - (7,081,456)
----------------- ----------------
(15,992,789) (7,697,311)
----------------- ----------------
Net share transactions: (Note 5)
Class I 1,542,386 -
Class II (2,994,394) -
Class III 599,087,113 481,448,287
----------------- ----------------
Increase in net assets resulting from net share transactions 597,635,105 481,448,287
----------------- ----------------
Total increase in net assets 820,219,471 522,920,758
Net assets:
Beginning of period 907,179,520 384,258,762
----------------- ----------------
End of period (including accumulated undistributed
net investment income of $11,553,963 and
$7,846,974, respectively) $ 1,727,398,991 $ 907,179,520
================= ================
</TABLE>
26 See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
- ----------------------------------------------------------------------------------------------------------------------------------
Period from January 2, 1997
(commencement of operations)
to February 28, 1997
--------------------
<S> <C>
Net asset value, beginning of period $ 10.86
--------------------
Income (loss) from investment operations:
Net investment income 0.01
Net realized and unrealized gain (loss) 1.61
--------------------
Total from investment operations 1.62
--------------------
Net asset value, end of period $ 12.48
====================
Total Return (a) 14.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,748
Net expenses to average
daily net assets 1.45% *(C)
Net investment income to average
daily net assets 0.77% *
Portfolio turnover rate 41%
Average broker commission rate per equity share (d) $ 0.0004
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: (b)
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums and redemption fees. The
total return would have been lower had certain expenses not been
waived during the period shown.
(b) Fees and expenses voluntarily waived or borne by the manager were
less than $0.01 per share.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .20% of average daily net assets.
(d) The average broker commission rate will vary depending on the
markets in which trades are executed.
See accompanying notes to the financial statements. 27
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from November 29, 1996
(commencement of operations)
to February 4, 1997(e)
---------------
<S> <C>
Net asset value, beginning of period $ 10.77
--------------
Income (loss) from investment operations:
Net investment income 0.05
Net realized and unrealized gain (loss)
on investments 1.07
--------------
Total from investment operations 1.12
--------------
Less distributions to shareholders:
From net investment income (0.07)
--------------
Net asset value, end of period $ 11.82
==============
Total Return (a) 10.42%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ -
Net expenses to average
daily net assets 1.33%*(b)
Net investment income to average
daily net assets 6.14%*
Portfolio turnover rate 41%
Average broker commission rate (d) $ 0.0004
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: (c)
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums and redemption fees. The
total returns would have been lower had certain expenses not been
waived during the period shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .07% of average daily net assets.
(c) Fees and expenses voluntarily waived or borne by the Manager were
less than $.01 per share.
(d) The average broker commission rate will vary depending on the
markets in which trades are executed.
(e) All Class II shares of the Fund were exchanged for Class III shares
on February 4, 1997.
28 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29
-------------------------------------------------------------------
1997 1996 1995 1994*
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.54 $ 9.52 $ 12.13 $ 10.00
--------------- ------------- -------------- -------------
Income (loss) from investment operations:
Net investment income 0.13 0.10 0.05 0.02
Net realized and unrealized gain (loss) 1.96 1.06 (2.37) 2.11
--------------- ------------- -------------- -------------
Total from investment operations 2.09 1.16 (2.32) 2.13
--------------- ------------- -------------- -------------
Less distributions to shareholders from:
Net investment income (0.14) (0.01) (0.07) (0.00)(c)
Net realized gains - (0.13) (0.22) -
--------------- ------------- -------------- -------------
Total distributions (0.14) (0.14) (0.29) (0.00)
--------------- ------------- -------------- -------------
Net asset value, end of period $ 12.49 $ 10.54 $ 9.52 $ 12.13
=============== ============= ============== =============
Total Return (a) 19.98% 12.24% (19.51%) 21.35%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,725,651 $ 907,180 $ 384,259 $ 114,409
Net expenses to average
daily net assets 1.24% (e) 1.35% 1.58% 1.64%**
Net investment income to average
daily net assets 1.40% 1.31% 0.85% 0.87%**
Portfolio turnover rate 41% 35% 50% 2%
Average broker commission rate per equity share (b) $ 0.0004 N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 (d) - (d)
</TABLE>
* Period from December 9, 1993 (commencement of operations) to
February 28, 1994.
** Annualized.
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived
during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for
security trades on which commissions are charged. The average broker
commission rate will vary depending on the markets in which trades are
executed.
(c) The per share income distribution was $ 0.004.
(d) Fees and expenses voluntarily waived or borne by the Manager were less
than $.01 per share.
(e) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .06% of average daily net assets.
See accompanying notes to the financial statements. 29
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate series
of shares, and to subdivide a series into classes.
The Fund seeks long-term capital appreciation consistent with a prudent
level of risk through investment in equity and equity-related securities
traded in the securities markets of newly industrializing countries in Asia,
Latin America, the Middle East, Southern Europe, Eastern Europe and Africa.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. Class II shares are not currently active.
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.
30
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - Continued
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished through delivery or offset
by entering into another forward currency contract, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the time
it was extinguished or offset. These contracts may involve market risk in
excess of the unrealized gain or loss reflected in the Fund's Statement of
Assets and Liabilities. In addition, the Fund could be exposed to risk if
the counterparties are unable to meet the terms of the contracts or if the
value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown under
Note 5, and represents the currency exposure the Fund has acquired or hedged
through currency contracts as of February 28, 1997.
31
<PAGE>
GMO Emerging Markets 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 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 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. If a written put option is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The Fund as
a writer of an option has no control over whether the underlying securities
may be sold (call) or purchased (put) and as a result bears the market risk
of an unfavorable change in the price of the security underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. As of February 28, 1997, there
were no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
32
<PAGE>
GMO Emerging Markets 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 taxable net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency, swap, and passive foreign
investment company transactions.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------- -------------------------- -------------------
$2,149,895 ($2,149,895) -
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
33
<PAGE>
GMO Emerging Markets 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, if later. Interest income is recorded on the accrual basis
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.60% of the amount
invested. In the case of cash redemptions, the fee is .40% of the amount
redeemed. Effective June 1, 1996, the Manager will reduce such premium or
fee only when any portion of a purchase is offset by a corresponding
redemption occurring on the same day. All purchase premiums and redemption
fees are paid to and recorded as paid-in capital by the Fund. For the year
ended February 28, 1997, the Fund received $9,898,522 in purchase premiums
and $21,110 in redemption fees. There is no premium for reinvested
distributions.
Investment risk
Investments in emerging countries present certain risks that are not
inherent in many other securities. Many emerging countries present elements
of political and/or economic instability. Further, countries may impose
various types of foreign currency regulations or controls which may impede
the fund's ability to repatriate amounts it receives. The fund may acquire
interests in securities in anticipation of improving conditions in the
related countries. These factors may result in significant volatility in the
values of its holdings. The markets for emerging countries are relatively
illiquid. Accordingly, the fund may not be able to realize in an actual sale
amounts approximating those used to value its holdings.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of 1.00% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other support.
Pursuant to the Shareholder Services Plan, the shareholder service fee is
calculated based on the average daily net assets of each class at the annual
rate of .28% for Class I shares, .22% for Class II shares and .15% for Class
III shares.
34
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),
shareholder service fees and extraordinary expenses) exceed .81% of average
daily net assets. Prior to June 1, 1996, a similar waiver existed for annual
expenses exceeding 1.20%.
The Manager has entered into a Consulting Agreement with Dancing Elephant,
Ltd. (the "Consultant") with respect to the management of the portfolio.
Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $5,960. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended February 28, 1997, aggregated
$1,111,588,722 and $481,971,648, 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>
Period from January 2, 1997
(commencement of operations)
to February 28, 1997
-------------------------------
Class I: Shares Amount
---------- ----------
<S> <C> <C>
Shares sold 140,068 $1,542,386
Shares issued to shareholders in
reinvestment of distributions - -
Shares repurchased - -
---------- ----------
Net increase 140,068 $1,542,386
========== ==========
</TABLE>
35
<PAGE>
GMO Emerging Markets Funds
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from November 29, 1996
(commencement of operations)
to February 28, 1997
----------------------------------
Class II: Shares Amount
-------------- --------------
<S> <C> <C>
Shares sold 5,586,262 $ 63,054,064
Shares issued to shareholders in reinvestment
of distributions 16,729 178,659
Shares repurchased (5,602,991) (66,227,117)
-------------- --------------
Net decrease - $ (2,994,394)
============== ==============
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
----------------------------- -----------------------------
Class III: Shares Amount Shares Amount
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 54,549,584 $ 626,535,006 47,019,289 $ 494,501,573
Shares issued to shareholders in
reinvestment of distributions 759,519 8,422,271 684,670 7,137,961
Shares repurchased (3,248,382) (35,870,164) (2,004,988) (20,191,247)
------------ ------------- ------------ -------------
Net increase 52,060,721 $ 599,087,113 45,698,971 $ 481,448,287
============ ============= ============ =============
</TABLE>
36
<PAGE>
GMO Emerging Markets Funds
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
Forward currency contract
<TABLE>
<CAPTION>
Settlement Units of Net Unrealized
Date Deliver/Receive Currency Value Appreciation
---------- --------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Sales
04/07/97 DEM 82,105,000 $ 48,748,045 $ 5,843,045
=============
</TABLE>
Swap agreements
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
---------- ---------- ----------------------------------------------- --------------
<S> <C> <C> <C>
$ 3,029,260 03/06/97 Agreement with Barclays Bank PLC dated $ 665,495
March 7, 1996 to pay the notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread and to receive (pay) the
notional amount multiplied by the return on
the Taiwan Weighted Index.
3,352,444 03/11/97 Agreement with Barclays Bank PLC dated 724,102
March 12, 1996 to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread and to receive (pay) the
notional amount multiplied by the return on
the Taiwan Weighted Index.
</TABLE>
37
<PAGE>
GMO Emerging Markets Funds
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------ ---------- ------------------------------------------- --------------
<S> <C> <C> <C>
$ 6,567,991 03/18/97 Agreement with Barclays Bank PLC dated $ 1,133,728
March 19, 1996 to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread and to receive (pay) the
notional amount multiplied by the return on
the Taiwan Weighted Index.
5,936,852 04/28/97 Agreement with Robert Fleming & Co. Limited (710,483)
dated April 26, 1996 to pay the notional
amount multiplied by a fixed rate and to
receive (pay) the notional amount
multiplied by the return on a basket of
selected Indian securities (including
dividends).
10,000,002 01/09/98 Agreement with Union Bank of Switzerland 585,765
dated January 14, 1997 to receive (pay) the
notional amount multiplied by the change in
market value (including dividends) of
Telecomunicacoes Brasileiras ("Telebras")
Ordinary Shares and to pay (receive) the
notional amount multiplied by the change in
market value (including dividends) of
Telecomunicacoes Brasileiras ("Telebras")
ADR adjusted by a specified amount.
1,600,053 01/16/98 Agreement with Robert Fleming & Co. Limited (12,667)
dated January 24, 1997 to receive (pay) the
notional amount multiplied by the change in
market value of State Bank of India common
stock and to pay the notional amount
multiplied by a fixed rate.
--------------
Net unrealized appreciation $ 2,385,940
==============
</TABLE>
38
<PAGE>
GMO Emerging Markets Funds
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income.
39
<PAGE>
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. Mr. Divecha is the principal of Dancing Elephant
Ltd. which serves as the sub-custodian of the Fund. GMO has an exclusive
consulting agreement with Dancing Elephant Ltd.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the GMO Emerging Markets Fund returned 20% for the
fiscal year ended February 28, 1997. The Fund's benchmark, the IFC Investable
Index, returned 15% during the same period. Consistent with the Fund's
investment objectives and policies, the Fund was invested substantially in
equity securities throughout the period.
Most of the outperformance during the year resulted from the positive impact of
the Fund's country bets. During the year, the Fund held overweight positions in
Eastern Europe, Russia and Taiwan, which all outperformed the benchmark and was
underweight in South Africa, which underperformed the benchmark.
Eastern Europe was the best performing region in the world, as improving
fundamentals and cheap valuations resulted in strong liquidity inflows into the
region. Falling interest rates and the re-election of Mr. Yelstin resulted
in very strong performance by the Russian market. Taiwan also had a very strong
year, following resolution of tensions with the mainland after the Presidential
election.
Overweight positions in Korea and India negatively impacted relative
performance. The Korean market declined by 40% in dollar terms, plagued by
rising trade deficits, falling petrochemical and DRAM (dynamic random access
memory) prices and labor unrest.
Stock selection was largely neutral for the year. The Fund's holdings of South
African gold stocks, neglected Taiwanese stocks and Indonesian stocks added
value.
Outlook
We are bluish on the emerging equity markets as an asset class. The emerging
markets have strongly underperformed the developed markets during the last three
years and valuations relative to developed markets are at levels not seen since
1992. We believe that buoyancy of the U.S. market has resulted in the neglect of
emerging markets as an asset class. A sideways-to-slowly-declining U.S. market
(coupled with a benign interest rate environment) would represent the best case
scenario for emerging equities. A rapid decline in the U.S. market would likely
cause a similar decline emerging markets in the short term.
<PAGE>
The Fund is overweight Russia, even following the market's tremendous rally last
year. For the first time since the collapse of the Soviet Union, economic
growth has been positive thus far in 1997. We believe that the risk of
investing in Russia has been reduced with the recent appointment of a pro-reform
economic team and the improved health of Mr. Yelstin. Assets are still
substantially undervalued, and we believe valuations will converge to emerging
market levels in the coming years. We have been gradually increasing our
weights in the regional telecom and engineering sectors, which are more geared
towards improvements in the domestic economy. We continue to be positive on the
economic prospects in Eastern Europe but have been reducing our bets following
the region's strong performance during the past 12 months.
In Asia, we are underweight in three expensive markets: Malaysia, Indonesia and
the Philippines. Although India has had a strong bounce from its lows in
December, it is still extremely attractive. The recent budget has
de-policticized economic reform and should spur the economy from a cyclical
downturn. Following the poor performance of the Korean market over the last two
years, we believe the attractive valuation favors a continued overweighting in
the portfolio.
In Latin America, the Fund is overweight in Argentina and Mexico and slightly
underweight in Brazil, Structural reform in Brazil has made it one of the best
performing markets during the last three years. Although the Fund is
underweight in Brazil, we continue to hold utility stocks, which we expect will
benefit from the upcoming privatization of the power sector.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advise.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Emerging Markets Fund Class III shares and the
IFC Investable Index
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C>
Since
1 Year 5 Year Inception
12/9/93
Class III 17.6% n/a 8.2%
1/2/97
Class I n/a n/a 12.6%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Emerging Markets Fund IFC Investable Index
<S> <C> <C>
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
02/28/97 12,893 11,006
</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 a
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower has 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 the purchase and 40 bp on the redemption.
Transaction fees are paid to the Fund to cover trading costs. Class III shares
are a redesignation of the single class of shares that has been offered by the
Fund since the inception. Performance for Class I shares may be different due
to higher shareholder service fees. Class II shares are not currently active.
Past performance is not indicative of future performance. Information is
unaudited.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Emerging Country Debt Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Country Debt Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Mexico - 9.3%
FRF 360,250,000 Mexico Par Bond, 6.63% due 12/31/19 51,533,841
--------------
Nigeria - 1.8%
USD 14,500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up (6.25%), due 11/15/20 9,823,750
--------------
Panama - 2.0%
USD 8,118,000 Panama Interest Reduction Bond,
Variable Rate, Step up (3.50%), due 7/17/14 6,047,910
USD 6,134,515 Panama PDI Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR - .81% (6.56%), due 7/17/16 5,183,665
--------------
11,231,575
--------------
Poland - 1.4%
USD 8,000,000 Poland Discount Bond (Registered),
Variable Rate, 6 mo. LIBOR - .81% (6.50%), due 10/27/24 7,775,000
--------------
United States - 0.4%
Structured Notes - 0.4%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (b) 2,271,000
--------------
Venezuela - 6.4%
USD 17,000,000 Republic of Venezuela DCB,
Variable Rate, 6 mo. LIBOR + .88% (6.50%), due 12/18/08 14,843,125
USD 378,000 Republic of Venezuela FLIRB Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88% (6.44%), due 3/31/07 340,200
USD 21,265,500 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1 (6.63%), due 12/18/05 18,713,640
USD 2,062,500 Republic of Venezuela New Money Bond Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88% (6.50%), due 12/18/05 1,815,000
--------------
35,711,965
--------------
TOTAL DEBT OBLIGATIONS (Cost $210,655,837) 277,242,928
--------------
LOAN ASSIGNMENTS - 2.6%
Congo - 1.1%
ECU 3,414,900 Congo Loan Agreement
(Direct Assignment with F.H. International)* 1,138,374
FRF 102,482,960 Congo Loan Agreement
(Direct Assignment with F.H. International,
Salomon, and Bank of America)* 5,216,516
--------------
6,354,890
--------------
Peru - 1.1%
USD 5,000,000 Peru Banco Central Stand-by Credit Agreement
(Direct Assignment with J. P. Morgan)* 6,100,000
--------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Russia - 0.4%
DEM 5,200,000 Russia Vnesheconombank Note Purchase Agreement
(Direct Assignment with German Hermes Club)* 2,029,084
--------------
TOTAL LOAN ASSIGNMENTS (Cost $9,109,547) 14,483,974
--------------
LOAN PARTICIPATIONS - 34.1%
Algeria - 3.2%
JPY 217,500,000 Algeria Tranche 1,
Japanese LIBOR + 13/16 (2.06%)(Participation with Bank of America) 1,288,528
USD 2,000,000 Algeria Tranche 2,
LIBOR + 13/16 (6.63%)(Participation with Salomon) 1,600,000
FRF 50,564,324 Algeria Tranche 3 Loan, PIBOR + 13/16 (5.00%)
(Participation with Salomon and Union De Banques Arabes Et Francaises) 5,901,967
USD 5,845,284 Algeria Tranche 3, 6.63%,
(Participation with Salomon) 4,150,153
FRF 40,000,000 Algeria Unrestructured Loan, 5.00% (Participation with Salomon) 4,668,878
--------------
17,609,526
--------------
Cameroon - 0.6%
NLG 28,052,902 Cameroon Loan Agreement
(Participation with Bank of America and Salomon)* 3,250,284
--------------
Congo - 0.2%
USD 4,179,127 Republic of Congo Loan
(Participation with F.H. International)* 1,211,947
--------------
Ivory Coast - 6.0%
USD 3,656,573 Ivory Coast Credit Agreement
(Participation with J. P. Morgan)* 1,417,109
FRF 378,297,436 Ivory Coast Credit Agreement (Participation with Banque Paribas,
J.P. Morgan, Bank of America, Chase Manhattan and Salomon)* 28,551,752
DEM 361,735 Ivory Coast Credit Agreement (Participation with Salomon)* 79,281
FRF 1,150,000 Ivory Coast Credit Agreement (Participation with Salomon)* 86,795
SDR 2,974,383 Ivory Coast Credit Agreement (Participation with Salomon)* 1,524,113
BEF 18,333,554 Ivory Coast Refinancing Agreement (Participation with Salomon)* 194,780
JPY 428,291,342 Ivory Coast Refinancing Agreement (Participation with J. P. Morgan)* 1,313,015
--------------
33,166,845
--------------
Jamaica - 0.9%
USD 6,000,000 Jamaica Refinancing Agreement Tranche B, LIBOR + 13/16 (6.31%)
Participation with Salomon and Chase Manhattan Bank) 5,100,000
--------------
Morocco - 3.8%
JPY 384,300,844 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese
Long Term Fixed Prime + .2175% (3.02%)(Participation with J. P. Morgan) 2,419,990
JPY 2,971,603,837 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese
Long Term Floating Prime + .1175% (2.82%)(Participation with Bankers
Trust Co. and J.P. Morgan) 18,712,561
--------------
21,132,551
--------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Russia - 18.5%
USD 2,500,000 International Bank for Economic Cooperation (Comecon Countries)
Loan Agreement (Participation with Bank of America)* 1,212,500
DEM 10,000,000 International Investment Bank Loan Agreement
(Participation with Bank of America)* 3,169,056
JPY 900,000,000 International Investment Bank Loan Agreement
(Participation with Bank of America)* 3,243,848
USD 32,000,000 International Investment Bank Loan Agreement
(Participation with Bank of America and Salomon)* 17,120,000
DEM 3,705,533 Russia Vnesheconombank Loan Agreement
(Participation with Chase Manhattan Bank)* 1,928,822
FRF 348,120,994 Russia Vnesheconombank Loan Agreement (Participation with Banque Paribas,
Chase Manhattan, Bank of America, Lehman Brothers and
J. P. Morgan)* 53,388,573
ECU 2,550,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 2,561,158
GBP 8,311,366 Russia Vnesheconombank Loan Agreement
(Participation with Chase Manhattan Bank and Bank of America)* 11,848,045
NLG 2,165,880 Russia Vnesheconombank Loan Agreement
(Participation with J. P. Morgan)* 996,649
ECU 3,000,000 Russia Vnesheconombank Note Purchase Agreement
(Participation with Bank of America)* 3,013,127
ECU 5,000,000 Russia Vnesheconombank Note Purchase Agreement
(Participation with J. P. Morgan)* (c) 4,322,752
--------------
102,804,530
--------------
Yugoslavia - 0.9%
USD 2,488,674 Yugoslavia Loan Participation Note Tranche A
(Participation with Chase Manhattan Bank)* 1,368,771
USD 3,711,287 Yugoslavia Loan Participation Note Tranche B
(Participation with Chase Manhattan Bank)* 2,041,208
USD 3,266,190 Yugoslavia Loan Participation Note Tranche C
(Participation with Chase Manhattan Bank and J. P. Morgan)* 1,796,405
--------------
5,206,384
--------------
TOTAL LOAN PARTICIPATIONS (Cost $110,382,000) 189,482,067
--------------
Principal Amount PUT OPTIONS PURCHASED - 0.2%
(000's omitted) Options on Bonds - 0.0%
USD 15,000 Brazil EI Brady Bond, Expires 4/11/97 Strike 85.0625 7,815
USD 15,000 Brazil Real Commercial, Expires 3/3/97 Strike 1.053 0
USD 10,000 Venezuela Discount Bond, Expires 7/10/97 Strike 88.25 less DCB offer 32,900
--------------
40,715
--------------
Options on Currency - 0.2%
USD 20,000 Thai Baht, Expires 8/29/97 Strike 26.10 498,000
--------------
TOTAL PUT OPTIONS PURCHASED (Cost $552,500) 538,715
--------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Principal Amount CALL OPTIONS PURCHASED - 3.7%
(000's omitted) Options on Bonds - 3.7%
USD 50,000 Argentina Discount Bond, Expires 6/6/97 Knock Out 75.00, Strike 75.00 3,840,000
USD 48,000 Brazil Discount Z, Expires 4/25/97 Strike 73.00 4,260,000
USD 30,000 Brazil Discount Z, Expires 5/30/97 Strike 77.00 1,485,210
USD 75,000 Brazil Par Bond, Expires 5/2/97 Knock Out 57.00, Strike 57.00 5,851,500
USD 50,000 Mexico Discount Bond, Expires 5/23/97 Strike 87.00 1,987,100
USD 50,000 Venezuela Par Bond, Expires 5/16/97 Strike 70.00 2,943,450
--------------
20,367,260
--------------
Options on Currency - 0.0%
USD 20,000 Thai Baht, Expires 8/29/97 Strike 26.10 208,000
--------------
TOTAL CALL OPTIONS PURCHASED (Cost $20,828,600) 20,575,260
--------------
Shares RIGHTS AND WARRANTS - 0.0%
Mexico - 0.0%
99,271,000 Mexican Value Recovery Rights, Expires 6/30/03 --
--------------
Nigeria - 0.0%
14,000 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20 --
--------------
Venezuela - 0.0%
312,840 Republic of Venezuela Recovery Warrants,
Expires 4/15/20 --
--------------
TOTAL RIGHTS AND WARRANTS (Cost $0) --
--------------
Par Value SHORT-TERM INVESTMENTS - 6.9%
Repurchase Agreements - 6.2%
$ 5,474,450 Prudential Securities, Inc. Repurchase Agreement dated 2/28/97,
due 3/3/97, with a maturity value of $5,476,626 and an effective
yield of 4.77%, collateralized by a U.S. Government Agency
Obligation with a rate of 0.00%, a maturity date of 3/27/97 and
market value of $5,584,000. 5,474,450
29,203,555 Salomon Brothers Repurchase Agreement, dated 2/28/97, due
3/3/97 with a maturity value of $29,215,358 and an effective yield
of 4.85%, collateralized by U.S. Treasury Obligations with rates
ranging from 7.25% to 11.88%, maturity dates ranging from
11/15/03 to 5/15/20 and an aggregate market value of $29,819,250. 29,203,555
--------------
34,678,005
--------------
U.S. Government - 0.7%
4,000,000 U.S. Treasury Bill, 5.56% due 1/08/98 (a) 3,816,852
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $38,494,204) 38,494,857
--------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investment - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL INVESTMENTS - 97.4%
(Cost $390,022,688) * * 540,817,801
Other Assets and Liabilities (net) - 2.6% 14,670,556
-----------
TOTAL NET ASSETS - 100.0% $555,488,357
===========
</TABLE>
Notes to the Schedule of Investments:
DCB- Debt Conversion Bond.
FLIRB- Front Loaded Interest Reduction Bond.
PIK - Payment In Kind.
PDI - Past Due Interest.
Knock Out - Option will expire if underlying security
reaches Knock Out price.
144A Securities exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may
be resold in transactions exempt from registration,
normally to qualified institutional buyers.
Variable and Step up rates - The rates shown on variable
and step up rate notes are the current interest
rates at February 28, 1997, which are subject to
change based on the terms of the security.
(a) All or a portion of this security is held as
collateral for open futures contracts.
(b) Principal is linked to the value of the Brazilian
Capitalization Bond and the Brazilian IDU Bond.
Restricted as to public resale. At the date of
aquisition, this security was valued at cost. There
were no outstanding unrestricted securities of the
same class as those held.
(c) Security contains a swap feature dated 12/5/95,
expiring 3/24/97, with a current notional amount of
ECU 500,000 to pay 7.80% and receive 6 mo. ECU
LIBOR + .25%
* Non-performing. Borrower not currently paying
interest.
* * The aggregate identified cost for federal income
tax purposes is $390,022,688, resulting in gross
unrealized appreciation and depreciation of
$152,943,138 and $2,148,025, respectively, and net
unrealized appreciation of $150,795,113.
Currency Abbreviations
AGP - Argentinian Peso
CZK - Czech Koruna
BEF - Belgian Franc
DEM - German Mark
ECU - European Currency Unit
FRF - French Franc
GBP - British Pound
JPY - Japanese Yen
NLG - Netherlands Guilder
SDR - Special Drawing Rights
USD - United States Dollar
6 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $390,022,688)(Note 1) $ 540,817,801
Receivable for investments sold 27,099 598
Receivable for Fund shares sold 52,245
Receivable for open swap contracts (Notes 1 and 6) 1,508,059
Interest receivable 6,591,074
Receivable for open forward foreign currency contracts (Note 6) 9,361,742
Receivable for expenses waived or borne by Manager (Note 2) 91,354
Total assets 585,521,873
Liabilities:
Payable for investments purchased 6,448,211
Payable for Fund shares repurchased 22,425,145
Payable to brokers for open futures contracts (Notes 1 and 6) 17,792
Payable for open forward foreign currency contracts (Note 6) 619,019
Payable to affiliate for (Note 2):
Management fee 227,047
Shareholder service fee 68,117
Accrued expenses 228,185
--------------
Total liabilities 30,033,516
Net assets $ 555,488,357
Net assets consist of:
Paid-in capital $ 298,584,032
Accumulated undistributed net investment income 21,594,553
Accumulated undistributed net realized gain 73,442,653
Net unrealized appreciation 161,867,119
--------------
$ 555,488,357
Net assets attributable to:
Class I share $ 36,124
Class III shares $ 555,452,233
--------------
Shares outstanding:
Class I 2,566
Class III 39,409,825
Net asset value per share:
Class I $ 14.08
--------------
Class III $ 14.09
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Year Ended February 28, 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest (including securities lending income of $76,117) $ 56,944,730
---------------------
Expenses:
Management fee (Note 2) 3,190,658
Custodian fees 471,640
Legal fees 166,759
Audit fees 71,131
Transfer agent fees 22,492
Trustees fee (Note 2) 3,155
Miscellaneous 6,095
Fees waived or borne by Manager (Note 2) (986,384)
---------------------
2,945,546
Shareholder service fee (Note 2)
Class I 12
Class III 722,023
---------------------
Net expenses 3,667,581
---------------------
Net investment income 53,277,149
---------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 202,889,446
Closed futures contracts 2,681,151
Closed swap contracts 47,791
Written options 352,000
Foreign currency, forward contracts and foreign
currency related transactions 17,842,274
---------------------
Net realized gain 223,812,662
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 67,621,423
Open futures contracts (2,733,014)
Open swap contracts 1,484,450
Written options (349,360)
Foreign currency, forward contracts and foreign
currency related transactions 7,984,410
---------------------
Net unrealized gain 74,007,909
---------------------
Net realized and unrealized gain 297,820,571
---------------------
Net increase in net assets resulting from operations $ 351,097,720
=====================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
--------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 53,277,149 $ 65,130,740
Net realized gain 223,812,662 61,081,420
Change in net unrealized appreciation (depreciation) 74,007,909 119,723,421
--------------------- -------------------
Net increase in net assets resulting from operations 351,097,720 245,935,581
--------------------- -------------------
Distributions to shareholders from:
Net investment income
Class III (60,410,173) (55,195,795)
--------------------- -------------------
Net realized gains
Class III (149,956,551) (30,587,693)
--------------------- -------------------
(210,366,724) (85,783,488)
--------------------- -------------------
Net share transactions: (Note 5)
Class I 34,101 --
Class III (200,761,783) 211,881,606
--------------------- -------------------
Net (decrease) increase in net assets resulting
from Fund share transactions (200,727,682) 211,881,606
--------------------- -------------------
Total (decrease) increase in net assets (59,996,686) 372,033,699
Net assets:
Beginning of period 615,485,043 243,451,344
--------------------- -------------------
End of period (including accumulated undistributed
net investment income of $21,594,553 and
$13,630,078, respectively) $ 555,488,357 $ 615,485,043
===================== ===================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from December 31, 1996
(commencement of operations)
to February 28, 1997
<S> <C>
Net asset value, beginning of period $ 12.87
-----------
Income from investment operations:
Net investment income 0.10
Net realized and unrealized gain 1.11
-----------
Total from investment operations 1.21
-----------
Net asset value, end of period $ 14.08
===========
Total Return (a) 9.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 36
Net expenses to average
daily net assets 0.71%*
Net investment income to average
daily net assets 6.06%*
Portfolio turnover rate 152%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.00
</TABLE>
* Annualized.
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
See accompanying notes to the financial statements.
10
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
--------------------------------------------------------------------------------------------------------------------
Year Ended February 28/29,
----------------------------------------------------------
1997 1996 1995*
---------------- ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.76 $ 8.39 $ 10.00
---------------- ------------ -------------
Income from investment operations:
Net investment income 1.48 1.35 0.48
Net realized and unrealized gain (loss) 6.40 3.84 (1.59)
---------------- ------------ -------------
Total from investment operations 7.88 5.19 (1.11)
---------------- ------------ -------------
Less distributions to shareholders:
From net investment income (1.58) (1.17) (0.40)
From net realized gains (3.97) (0.65) -
In excess of net realized gains - - (0.10)
---------------- ------------ -------------
Total distributions (5.55) (1.82) (0.50)
---------------- ------------ -------------
Net asset value, end of period $ 14.09 $ 11.76 $ 8.39
================ ============ =============
Total Return (a) 74.32% 63.78% (11.65%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 555,452 $ 615,485 $ 243,451
Net expenses to average
daily net assets 0.57% 0.50% 0.50%**
Net investment income to average
daily net assets 8.35% 12.97% 10.57%**
Portfolio turnover rate 152% 158% 104%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.02 $ 0.01
</TABLE>
* For the period from April 19, 1994 (commencement of operations) to
February 28,1995.
** Annualized
(a) Calculation excludes purchase premiums and redemption fees. The
total returns would have been lower had certain expenses not been
waived during the periods shown.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks high total return by investing primarily in sovereign debt of
countries in Asia, Latin America, the Middle East, Southern Europe, Eastern
Europe and Africa.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
12
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis of
a price provided by a principal market maker. These prices may differ from the
value that would have been used had a broader market for the securities
existed and the differences could be material to the financial statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign currencies
are translated at prevailing exchange rates when accrued or incurred. The Fund
does not isolate realized and unrealized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in the
market value of investments. Such fluctuations are included with net realized
and unrealized gain or loss on investments. Net realized gains and losses on
foreign currency transactions represent net exchange gains and losses on
disposition of foreign currencies, currency gains and losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes recorded
on the Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. Upon purchase
of a futures contract, the Fund is required to deposit with its custodian, in
a segregated account in the name of the futures broker, an amount of cash or
U.S. government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the variation
margin disclosed in the Statement of Assets and Liabilities. Losses may arise
from changes in the value of the underlying instrument, if there is an
illiquid secondary market for the contracts, or if counterparties do not
perform under the contract terms. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they are traded. See Note 6 for all open futures contracts held as of
February 28, 1997.
13
<PAGE>
GMO Emerging Country Debt 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 settling
planned purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Fund's portfolio securities. A forward
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange
rates. Forward currency contracts are marked to market daily and the change
in value is recorded by the Fund as an unrealized gain or loss. Realized
gains or losses equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed are recorded
upon delivery or receipt of the currency or, if a forward currency contract is
offset by entering into another forward currency contract with the same
broker, upon settlement of the net gain or loss. These contracts may involve
market risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be exposed
to risk if the counterparties are unable to meet the terms of the contracts or
if the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is shown
under Note 6 and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of February 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset against
the proceeds or amounts paid on the transaction to determine the realized
gain or loss. The Fund as a writer of an option has no control over whether
the underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option. There is the risk the Fund may not be
able to enter into a closing transaction because of an illiquid market. At
February 28, 1997, the Fund had no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
14
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Loan agreements
The Fund may invest in direct debt instruments which are interests in amounts
owed by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from third
parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive payments
of principal, interest and any fees to which it is entitled only from the
lender selling the loan agreement and only upon receipt by the lender of
payments from the borrower. The Fund generally has no right to enforce
compliance with the terms of the loan agreement with the borrower. As a
result, the Fund may be subject to the credit risk of both the borrower and
the lender that is selling the loan agreement. When the Fund purchases
assignments from lenders it acquires direct rights against the borrower on the
loan. Direct indebtedness of emerging countries involves a risk that the
governmental entities responsible for the repayment of the debt may be unable
or unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices, or
other financial indicators. The Fund uses indexed securities to increase or
decrease its exposure to different underlying instruments and to gain exposure
to markets that may be difficult to invest in through conventional securities.
Indexed securities may be more volatile than their underlying instruments, but
any loss is limited to the amount of the original investment.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes possession
of securities collateralizing the repurchase agreement. The collateral is
marked to market daily to ensure that the market value of the underlying
assets remains sufficient to protect the Fund in the event of default by the
seller. In connection with transactions in repurchase agreements, if the
seller defaults and the value of the collateral declines or if the seller
enters insolvency proceedings, realization of collateral by the Fund may be
delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York Stock
Exchange. The loans are collateralized at all times with cash or securities
with a market value at least equal to the market value of the securities on
loan. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for lending
its securities. At February 28, 1997, there were no securities on loan.
15
<PAGE>
GMO Emerging Country Debt 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
interest rates. The Fund entered into interest rate swap agreements which
involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. Interest rate swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received or
made at the end of the measurement period are recorded as realized gain or
loss in the Statement of Operations. Entering into these agreements involves,
to varying degrees, elements of credit and market risk in excess of the
amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there is no liquid market for these agreements,
that the counterparty to the agreements may default on its obligation to
perform and that there may be unfavorable changes in the fluctuation of
interest rates. See Note 6 for a summary of open swap agreements as of
February 28, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund
intends to distribute substantially all of its taxable net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions and redemptions in-
kind. Gains resulting from such in-kind transactions amounted to $4,191,544.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
16
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
-------------------------- -------------------------- ------------------
<S> <C> <C>
$15,097,499 ($18,362,548) $3,265,049
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of discounts.
Income is not recognized and discounts are not amortized on securities for
which collection is not expected. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified cost
basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and the
relative size of the Funds. Investment income, common expenses and realized
and unrealized gains and losses are allocated pro-rata among the classes based
on the relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .50% of the amount invested.
In the case of cash redemptions, the fee is .25% of the amount redeemed.
Effective June 1, 1996, the Manager will reduce such premium or fee only when
any portion of a purchase is offset by a corresponding redemption occurring on
the same day. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the year ended February 28,
1997, the Fund received $600,562 in purchase premiums and $497,945 in
redemption fees. There is no premium for reinvested distributions or in-kind
transactions.
17
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Investment risk
Investments in emerging country debt present certain risks that are not
inherent in many other securities. Many emerging countries present elements
of political and/or economic instability, which may result in the fund's
inability to collect on a timely basis, or in full, principal and interest
payments. Further, countries may impose various types of foreign currency
regulations or controls which may impede the fund's ability to repatriate
amounts it receives. The fund may acquire interests in securities or bank
loans which are in default at the time of acquisition in anticipation of
improving conditions in the related countries. These factors may result in
significant volatility in the values of its holdings. The markets for
emerging country debt are relatively illiquid. Accordingly, the fund may not
be able to realize in an actual sale amounts approximating those used to
value its holdings.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of average
daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder
Services Plan under which the Fund pays GMO a shareholder service fee for
client and shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based on
the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including transfer taxes), shareholder service fees
and extraordinary expenses) exceed .35% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .50%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged. Additionally, effective March 1, 1996, the waiver
was adjusted to exclude custodian fees.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $3,155. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
18
<PAGE>
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 28, 1997, 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 $ 28,060,938 $ 28,074,975
Investments (non-U.S. Government securities) 794,039,650 1,065,835,431
</TABLE>
4. Principal shareholders
At February 28, 1997, 70% of the outstanding Class I shares of the Fund were
held by four shareholders and 13% of the outstanding Class III shares of the
Fund were held by one shareholder, each holding in excess of 10% of the
outstanding shares of the respective class.
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 December 31, 1996
(commencement of operations)
to February 28, 1997
-------------------------------
Class I: Shares Amount
------------ ------------
<S> <C> <C>
Shares sold 2,566 $ 34,101
Shares issued to shareholders in
reinvestment of distributions - -
Shares repurchased - -
------------ ------------
Net increase 2,566 $ 34,101
============ ============
</TABLE>
19
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
------------------------------- --------------------------------
Class III: Shares Amount Shares Amount
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 11,310,056 $ 162,038,721 34,834,354 $ 342,519,546
Shares issued to shareholders in
reinvestment of distributions 14,440,766 185,738,098 5,671,374 61,638,059
Shares repurchased (38,680,281) (548,538,602) (17,191,233) (192,275,999)
------------- ------------- ------------- ----------------
Net increase (decrease) (12,929,459) $ (200,761,783) 23,314,495 $ 211,881,606
============= ============= ============= ================
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
<TABLE>
<CAPTION>
Forward currency contracts
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
------------- --------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Buys
4/30/97 FRF 46,800,000 $ 8,245,599 $ (82,863)
3/3/97 CZK 316,276,000 9,721,953 (278,047)
3/4/97 CZK 316,276,000 9,718,752 195,149
---------------
$ (165,761)
===============
Sales
3/10/97 AGP 7,000,000 $ 7,000,000 $ (30,665)
3/14/97 AGP 3,000,000 2,999,520 (7,001)
4/7/97 AGP 7,000,000 6,992,728 (24,086)
3/7/97 DEM 39,600,000 23,466,927 3,132,570
5/22/97 ECU 1,850,000 2,132,914 (789)
4/30/97 FRF 816,800,000 143,910,370 4,056,860
4/18/97 GBP 8,600,000 14,017,940 509,180
4/10/97 JPY 3,613,000,000 30,114,185 1,467,983
3/3/97 CZK 316,276,000 9,721,953 (195,568)
---------------
$ 8,908,484
===============
</TABLE>
20
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
----------- ------------------- --------------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales
200 Euro Dollar September 1997 $ 47,000,000 $ 153,500
38 MATIF Bond March 1997 4,857,002 (149,083)
62 MATIF Bond June 1997 7,135,946 (7,694)
200 U.S. Treasury Bill June 1997 47,385,000 60,975
500 U.S. Treasury Bond June 1997 55,218,750 823,906
----------------
$ 881,604
================
</TABLE>
At February 28, 1997, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
Written option transactions
<TABLE>
<CAPTION>
Calls
Principal Amount
of Contracts
(000's omitted) Premiums
------------------ ------------
<S> <C> <C>
Outstanding, beginning of period 40,000 $ 352,000
Options written 75,000 5,512,500
Options exercised (75,000) (5,512,500)
Options expired (40,000) (352,000)
------------------ ------------
Outstanding, end of period - $ -
================== ============
</TABLE>
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------- -------------- -------------------------------------- -------------------
<S> <C> <C> <C> <C>
ECU 500,000 3/24/97 Agreement with Morgan Guaranty Trust $ (10,097)
Company dated 12/5/95 to pay the
notional amount multiplied by the 6
month ECU LIBOR plus a specified
spread and to receive the notional
amount multiplied by a specified
rate.
$ 54,278,259 2/26/99 Agreement with Credit Suisse 1,518,156
Financial Products dated 2/12/97 to
purchase, for a set price, a
specified amount of Bulgaria FLIRB
Fixed/Floating Rate Note Series A
due July 28, 2012 and Bulgaria FLIRB
Fixed/Floating Rate Note Series B
due July 28 2012. In the event of
default by Bulgaria, the agreement
to purchase the bonds is eliminated;
in its place, Credit Suisse
Financial Products acquires the
option to sell the same amount of
the bonds to the Fund for a lower
set price.
------------------
$ 1,508,059
==================
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
23.44% of distributions as net capital gain dividends.
23
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr. Thomas F. Cooper and Mr. William L. Nemerever are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the Emerging Country Debt Fund returned 74.3% for the
fiscal year ended February 28, 1997, compared to 43.3% for the J.P. Morgan
Emerging Market Bond Index Plus. Consistent with the Fund's investment
objectives and policies, the Fund was substantially invested in sovereign debt
instruments of emerging countries throughout the period.
The past year was an exceptional period for emerging country debt. The trend
toward improving sovereign credit fundamentals and narrowing yield spreads which
began in March 1995 continued into 1997. During the year sovereign yield spreads
fell to levels not seen since the end of 1993, new investors entered the market,
and confidence returned.
The Fund performed exceptionally well in this environment, outperforming its
benchmark by 31.0% for the fiscal year. The value was added through security
selection primarily, with secondary emphasis placed on active country
allocation. The Fund remained fully invested throughout the period. The
longer-dated, less-marketable holdings favored by the managers rose in price as
liquidity premiums contracted. An overweighted position in Russian loans helped
performance as did holdings of Ivory Coast loans. Both of these countries
announced restructuring programs enabling holders of the defaulted loans to
exchange them for interest-paying bonds. These restructuring programs caused the
value of the loans held by the Fund to increase significantly.
Outlook
- -------
There remain many opportunities in emerging country debt. The Fund retains an
overweighted position in Russian debt and holds issues of many countries not in
the benchmark. These include: Algeria, Costa Rica, the Dominican Republic, Ivory
Coast, Jamaica, Jordan and Yugoslavia. The outlook for these markets is
generally good, though the managers do not expect returns to be near those of
the past two years.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advice.
<PAGE>
- --------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in
GMO Emerging Country Debt Fund Class III shares and the
J.P. Morgan Emerging Markets Bond Index Plus
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
Since
1 Year 5 Year Inception
<S> <C> <C> <C>
Class III 4/19/94
73.0% n/a 37.7%
Class I 12/31/96
n/a n/a 8.7%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
J.P. Morgan
Emerging Markets
Date GMO Emerging Country Debt Fund Bond Index +
<S> <C> <C>
04/19/94 9,950 10,000
02/28/95 8,792 9,220
02/29/96 14,364 13,030
02/28/97 25,040 18,668
</TABLE>
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on the purchase and 25 bp on the redemption.
Transaction fees are paid to the Fund to cover trading costs. Class III shares
are a redesignation of the single class of shares that has been offered by the
Fund since inception. Performance for Class I shares may be different due to
higher shareholder service fees. Class II shares have not commenced operations.
Past performance is not indicative of future performance, Information is
unaudited.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
DEBT OBLIGATIONS - 49.9%
Argentina - 10.1%
AGP 35,134,370 Argentina Pro-1 Co-Participation Rights,
Variable Rate, 1 mo. Peso Deposit Rate (3.22%), due 4/01/07 23,169,845
USD 10,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate (3.22%), due 4/01/07 10,300,000
USD 9,000,000 Republic of Argentina Discount Bond
Variable Rate, 6 mo. LIBOR + .81% (6.38%), due 3/31/23 7,470,000
USD 15,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up (5.25%) due 3/31/23 9,975,000
USD 5,000,000 Republic of Argentina, 11.75% due 2/12/07 144A 5,260,000
-----------
56,174,845
-----------
Brazil - 5.3%
USD 33,073,835 Brazil Capitalization Bond, PIK. 8.00% due 4/15/14 26,190,343
USD 4,000,000 Brazil Discount ZL Bond,
Variable Rate. 6 mo.L LIBOR + .81% (6.50%), due 4/15/24 3,280,000
-----------
29,470,343
-----------
Costa Rica - 0.8%
USD 2,530,192 Central Bank of Costa Rica Interest Series A,
Variable Rate, 3 mo. LIBOR + .81% (6.31%), due 5/21/05 2,353,079
USD 1,439,592 Central Bank of Costa rica Interest Series B,
Variable Rate, 3 mo. LIBOR + .81% (6.31%), due 5/21/05 1,281,235
USD 1,000,000 Central Bank of Costa Rica Principal Bond Series A,
6.25% due 5/21/10 830,000
-----------
4,464,314
Dominican Republic - 1.6%
USD 11,957,000 Dominican Republic Discount Bond,
Variable Rate 6 mo. LIBOR + .81% (6.38%), due 8/30/24 8,848,180
-----------
Ecuador - 5.7%
USD 8,215,000 Republic of Ecuador Discount Bond (Global Registered),
Variable Rate, 6 mo. LIBOR + .81 (6.44%), due 2/28/25 5,668,350
USD 46,500,000 Republic of Ecuador Par Bond,
Variable Rate, Step up (3.25%), due 2/28/25 20,925,000
USD 6,484,768 Republic of Ecuador PDI, (Registered), PIK,
Variable Rate, 6 mo. LIBOR + 81% (6.44), due 2/27/15 4,020,556
USD 1,848,820 Republic of Ecuador PDI, (Global Bearer Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 2/27/15 1,146,268
-----------
31,760,174
-----------
Jordan - 5.1%
USD 14,750,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up (4.00%), due 12/23/23 144A 9,808,750
USD 3,070,939 Hashemite Kingdom of Jordan PDI (Registered),
Variable Rate, 6 mo. LIBOR + .81% (6.50%), due 12/23/05 144A 2,886,683
USD 16,470,753 Hashemite Kingdom of Jordan PDI,
Variable Rate, 6 mo. LIBOR + .81% (6.50%), due 12/23/05 15,482,508
-----------
28,177,941
-----------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of GMO Global Hedged Equity
Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Global Hedged Equity Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 79.8%
<C> <S> <C>
Australia - 2.5%
22,448 Adelaide Brighton Ltd 32,235
14,100 Advance Property Fund 16,307
3,800 Amalgamated Holdings Ltd 17,550
111,803 Australia and New Zealand Banking Group Ltd 697,723
4,400 Australian Gas & Light 25,171
94,485 Australian National Industries Ltd 104,875
57,296 Boral Ltd 155,656
25,802 Bougainville Copper Ltd * 11,215
6,800 Broken Hill Proprietary Ltd 89,993
47,835 Burns Philp & Co Ltd 74,259
12,200 Capral Aluminum Ltd 42,045
5,700 Coca-Cola Amatil Ltd 52,207
42,960 Coles Myer Ltd 189,069
7,065 Commonwealth Bank of Australia 70,303
7,983 Consolidated Rutile Ltd 6,444
9,184 Cortecs International Ltd * 34,574
1,800 Coventry Group Ltd 7,195
7,800 CRA Ltd 116,801
4,900 CSL Ltd 24,912
121,432 CSR Ltd 428,863
23,000 Cultus Petroleum * 37,848
2,495 Dominion Mining Ltd Warrants 12/31/98 * 775
4,990 Dominion Mining Ltd * 3,447
20,660 Email Ltd 65,268
1,000 Emperor Mines Ltd * 1,746
3,900 Faulding (FH) & Co Ltd 22,704
7,804 Foodland Associated 37,556
32,310 Fosters Brewing Group Ltd 67,463
2,763 G E Crane Holdings Ltd 25,092
28,606 General Property Trust Units 55,732
152,241 Goodman Fielder Ltd 184,344
69,184 Hardie (James) Industries Ltd 198,692
6,000 HIH Winterthur International Holdings 14,391
200 Jupiters Ltd 432
4,300 KLZ Ltd 11,815
7,599 Leighton Holdings 33,031
14,400 Macmahon Holdings 11,177
7,900 Mayne Nickless Ltd 46,664
5,198 Metal Manufactures Ltd 12,669
8,900 Mirvac Ltd 18,238
1,204 Mount Leyshon Gold Mines 2,075
15,842 National Australia Bank Ltd 199,450
3,344 National Consolidated Ltd 2,440
204,292 News Corp Ltd 1,087,800
108,981 News Corp Ltd Preferred 1.19% 492,320
10,210 Normandy Mining Ltd 14,107
15,777 North Broken Hill Peko Ltd 51,066
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Austraila - continued
18,579 Orbital Engine Corp * 14,854
200 Pacific BBA Ltd 668
120,613 Pacific Dunlop Ltd 290,221
138,600 Pioneer International Ltd 412,036
23,507 PMP Communications Ltd 59,300
5,900 Portman Mining Ltd 12,182
2,200 Publishing & Broadcasting Ltd 11,014
28,190 Qantas Airways Ltd 53,390
3,300 QBE Insurance Group Ltd 16,521
27,992 QNI Ltd 57,795
2,900 Reinsurance Australia 9,859
7,531 RGC Ltd 29,929
12,526 Rothmans Holdings Ltd 84,587
28,294 Santos Ltd 101,903
83,317 Schroders Property 153,916
2,769 Sea World Property Trust 3,654
1,141 Seven Network Ltd 3,782
928 Siddons Ramset Ltd 4,812
4,501 Simsmetal Ltd 27,258
3,400 Smith (Howard) Ltd 28,521
12,500 Southcorp Holdings Ltd 44,243
1,187 St George Bank 7,094
76,591 Stockland Trust Group 196,779
6,600 Tabcorp Holdings 30,276
900 Ticor Ltd * 747
2,300 Village Roadshow 7,623
900 W H Soul Pattison & Co Ltd 39,120
18,377 Walker Corp 12,980
1,700 Westfield Holdings 26,259
125,721 Westfield Trust Units 242,010
5,945 Weston Foods Ltd 34,609
63,400 Westpac Banking Corp 359,241
5,200 Westpac Property Trust 7,185
12,611 Wills (WD & HO) Holdings Ltd 24,570
------------------
7,304,677
------------------
Austria - 0.7%
61 Allgemeine Baugesellschaft AG * 5,494
242 Austrian Airlines * 36,052
1,704 Bank Austria AG (Participating Certificate) 50,197
1,459 Bau Holding AG Preferred 2.42% (Non Voting) 69,995
2,220 Brau Union AG 125,189
2,802 Creditanstalt-Bankverein 172,159
2,323 Creditanstalt-Bankverein Preferred 1.65% 88,942
207 EA-Generali AG 57,494
120 EA-Generali AG Preferred 6.00% 12,494
1,191 EVN Energie-Versorgung Niederoesterreich AG 175,324
495 Jenbacher Werke AG 14,374
425 Lenzing AG 20,461
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Austria - continued
783 Leykam-Muerztaler Papier und Zellstoff AG 21,814
318 Miba Holding AG Class B Preferred 1.34% 13,811
1,967 OEMV AG 231,778
2,019 Oesterreichische Brau Beteiligungs AG 124,051
4,199 Oesterreichische Elektrizitaetswirtschafts AG 304,998
2,829 Oesterreichische Laenderbank AG 193,581
1,608 Oesterreichische Laenderbank AG Preferred (Non Voting) 56,437
267 Perlmooser Zementwerke AG 13,821
1,380 Radex-Heraklith AG 50,055
402 RAS Versicherungs AG 49,704
739 Steyr-Daimler-Puch AG * 13,062
178 Strabag Oesterreich AG 10,352
332 Universale Bau AG 13,133
108 Wiener Allianz Versicherungs AG 12,271
405 Wienerberger Baustoffindustrie AG 73,527
------------------
2,010,570
------------------
Canada - 2.1%
6,600 Abitibi-Price Inc 108,881
877 Agrium Inc * 12,030
7,500 Air Canada Inc * 37,859
4,000 Alberta Energy Ltd 84,132
2,300 Anderson Exploration Ltd * 27,343
500 Avenor Inc 8,614
3,390 Bank of Nova Scotia 129,211
2,200 BC Telecom Inc 48,123
6,610 BCE Inc 321,094
700 BCE Mobile Communications * 22,277
600 Bombardier Inc Class A 11,479
9,600 Bombardier Inc Class B 184,359
2,500 Brascan Ltd Class A (Convertible) 59,898
1,600 CAE Industries Inc 13,344
20,400 Canadian Imperial Bank of Commerce 989,480
1,400 Canadian Marconi Co 17,770
2,200 Canadian National Railway 79,669
1,600 Canadian Pacific Ltd 39,330
4,100 Canadian Tire Corp Ltd Class A 74,687
1,100 Canfor Corp 11,669
1,600 CCL Industries Class B 18,611
400 Cinram Ltd 10,930
1,800 Corel Corp * 11,720
1,300 Co-Steel Inc 21,399
6,000 Cott Corp * 59,039
3,900 Dofasco Inc 70,616
4,100 Dominion Textile Inc 19,197
22,800 Domtar Inc 207,667
2,400 Donohue Inc Class A 46,177
500 Dupont Canada Class A 12,089
3,000 Echo Bay Mines Ltd * 23,264
1,200 Edper Group Ltd Class A 20,543
600 Falconbridge Ltd 14,002
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Canada - continued
10,600 Fletcher Challenge Canada Class A 176,033
8,500 Gulf Canada Resources Ltd * 59,697
1,900 Hudsons Bay Co 38,017
8,500 Imasco Ltd 233,192
5,800 Imperial Oil Ltd 254,591
2,900 Inco Ltd 102,155
2,000 Inmet Mining Ltd * 13,461
1,200 International Forest Products A * 8,779
600 Ipsco Inc 17,339
4,300 Laidlaw Inc Class B (Non Voting) 59,613
19,200 Macmillan Bloedel Ltd 265,477
1,200 Magna International Class A 63,253
1,200 MDS Inc Class B 24,362
5,800 Methanex Corp * 56,859
2,000 Molson Co Ltd, Class A 34,823
3,800 Moore Corporation Ltd 83,956
6,800 Newbridge Networks Corp * 216,153
7,700 Noranda Forest Inc 53,515
100 Noranda Inc 2,411
27,200 Nova Corp of Alberta 249,733
4,900 Nova Scotia Power Inc 50,724
1,700 Oshawa Group Ltd Class A 25,433
1,600 Pegasus Gold Inc * 13,754
200 Potash Corp of Saskatchewan 15,751
5,100 Provigo Inc * 21,081
500 QLT Phototherapeutics * 13,534
2,400 Quebecor Inc Class B 44,071
700 Rio Algom Ltd 17,796
2,900 Rogers Cantel Mobile Communications Class B * 48,797
1,900 Rogers Communications Inc Class B * 12,997
3,900 Royal Oak Mines * 13,410
8,900 Seagram Ltd 347,366
1,700 Sears Canada Inc 16,355
3,400 Semi-Tech Class A 6,840
400 Shell Canada Ltd Class A 16,387
700 Slocan Forest Products Ltd 7,528
2,000 Southam Inc 30,873
6,900 Stelco Inc Class A * 37,859
1,100 Suncor Inc 49,009
6,000 Telus Corp 90,863
5,100 Thomson Corp 105,030
700 Torstar Corp Class B 18,743
600 Total Petroleum North America 6,145
8,700 Transalta Corp 103,427
11,300 Transcanada Pipelines Ltd 209,565
2,300 United Dominion Inds Ltd 62,174
576 Westaim Corp * 1,896
6,100 Westcoast Energy Inc 110,897
700 Weston (George) Ltd 38,357
------------------
6,366,584
------------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Finland - 0.2%
1,500 Amer Group Class A 31,431
600 Cultor OY Class 1 36,346
11,000 Enso OY Class A 93,944
400 Finnair Class A 3,098
400 Huhtamaki OY Class L 18,749
1,000 Instrumentarium OY, Class A 37,538
100 Instrumentarium OY, Class B 3,674
1,100 Kesko OY 16,058
900 Metra AB Class A 52,911
100 Metra AB Class B 5,958
2,700 Partek OY 44,670
4,863 Rautaruukki OY 45,782
200 Stockmann AB Class A 11,599
200 Stockmann AB Class B 10,924
1 Unitas Bank Ltd Class A 4
4,400 Valmet OY 79,962
------------------
492,648
------------------
France - 3.6%
940 Accor SA 129,353
390 Air Liquide L Shares 61,334
1,160 Alcatel Alsthom Cie Generale d'Electricite SA 119,109
9,900 Assurances Generales De France (Bearer) 348,402
6,234 Axa SA 415,031
6,234 Axa UAP * 22,322
9,858 Banque Nationale de Paris 447,281
700 Bertrand Faure SA 34,881
170 BIC SA 27,571
40 BIS SA 3,430
45 Bongrain 17,440
870 Bouygues 83,071
350 Canal Plus 65,610
300 Cap Gemini SA * 17,966
1,550 Casino Guichard-Perrachon 70,735
550 Casino Guichard-Perrachon Preferred 21,093
4,400 Cerus * 106,886
200 Cetelem 24,784
550 CGIP 156,873
3,954 Cie Bancaire SA 479,563
70 Cie Generale de Geophysique * 6,002
430 Ciments Francais 14,642
830 Ciments Francais Class B Preferred 15.12% 32,691
112 Clarins 15,530
320 Club Mediterranee SA 24,573
112 Colas SA 15,511
8,955 Compagnie de Suez SA 437,588
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
2,489 Credit Commercial de France 116,645
1,897 Credit Local de France SA 189,457
3,640 Credit Lyonnais * 144,711
712 Credit National 46,864
570 Dollfus-Mieg and Cie 16,168
7,090 Elf Aquitaine SA 678,225
80 Elf Gabon 21,484
870 Elf Sanofi SA 86,125
1,360 Eridania Beghin-Say SA 219,852
100 Essilor International 27,452
100 Esso 11,058
28,500 Euro Disney SCA (Bearer) * 52,275
44,600 Eurotunnel SA Units (Bearer) * 55,189
3,170 Financiere de Paribas SA 215,829
3,093 FINEXTEL 52,389
3,275 GAN (Group Assurances National) * 85,708
63 Gaz Et Eaux 27,866
682 Generale Des Eaux 94,927
420 Group Axime * 53,815
100 Groupe Andre * 8,425
550 Groupe Danone 83,408
30 Guyenne Et Gascogne 10,321
70 Havas Advertising 8,478
200 INGENICO SA 3,668
130 Labinal SA 29,549
8,829 Lafarge Coppee SA 553,236
2,122 Lagardere Groupe 62,573
200 Legris Industries 9,513
925 Lyonnaise Des Eaux 94,492
6,100 Michelin SA Class B 382,020
1,200 Moulinex SA * 27,803
1,120 Nord-Est 29,861
494 Pechiney SA Class A 20,888
175 Pernod-Ricard 9,553
3,924 Peugeot SA 433,911
50 Pinault Printemps Redoute 21,159
400 Remy Cointreau SA 10,426
6,230 Renault SA 160,635
14,268 Rhone Poulenc SA Class A 500,869
370 Saint Louis 97,155
2,744 Saint-Gobain 404,571
470 Salomon SA 32,280
760 Seita 29,080
930 SGS Thomson Microelectronics * 61,132
7,420 Skis Rossignol 201,868
600 Societe Eurafrance 283,292
988 Societe Generale d 'Entreprise SA * 22,874
5,228 Societe Generale Paris 605,634
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
10 Sodexho Alliance 5,564
2,700 Sommer Allibert 81,986
3,673 SPIE Batignolles 193,472
260 Strafor Facom 20,536
140 Sylea (Bearer) 13,515
90 Synthelabo 9,763
200 Technip SA (Compagnie Francaise) 20,220
5,172 Thomson CSF 163,858
2,360 Total SA 188,268
270 TV Francaise 25,022
8,600 Usinor Sacilor 132,835
1,550 Valeo 104,471
510 Vallourec 30,122
1,320 Worms et Compagnie SA 88,042
------------------
10,671,659
------------------
Germany - 2.5%
1,150 Adidas AG 110,014
4,595 AGIV AG * 75,939
50 Axel Springer Verlag AG 34,948
700 Bankgesellschaft Berlin AG 13,393
16,350 BASF AG 602,883
33,000 Bayer AG 1,392,720
2,400 Bayerische Hypotheken-und Wechsel - Bank AG 70,939
50 Bayerische Motorenwerke AG 33,645
7,545 BHF Bank AG 178,770
750 Bilfinger & Berger 30,210
50 Buderus AG 22,805
7,166 Continental AG 139,653
150 Degussa 63,973
236 Deutsche Babcock & Wilcox * 10,624
100 DLW AG * 8,263
3,600 Douglas Holdings AG 126,881
1,100 Draegerwerk AG Preferred 15,703
26,432 FAG Kugelfischer 403,948
1,700 Fresenius AG Preferred 366,544
150 Friedrich Krupp AG 23,972
2,550 Gerresheimer Glas AG 54,831
76 Hamburgische Electricitaets-Werke AG 21,699
900 Heidelberg Port-Zement 74,103
900 Henkel KGAA Preferred 47,980
5,690 Klockner Humboldt Deutz * 28,312
356 Klockner-Werke AG * 22,353
3,959 Kolbenschmidt * 63,083
200 Leirheit AG 6,634
113,250 Lufthansa AG 1,502,666
100 MAN AG 25,560
100 MAN AG Preferred 21,295
11,322 Metallgesellschaft * 241,369
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Germany - continued
350 Pfaff (GM) AG * 7,567
7,400 Phoenix AG 108,269
250 Preussag AG 64,196
900 Puma AG Preferred 31,454
14,300 RWE Preferred 519,669
100 Schmalbach-Lubeca 20,495
500 SGL Carbon AG 68,120
4,100 Siemens AG 207,283
7,750 SKW Trostberg AG 235,961
50 Suedzucker AG 22,657
500 Thyssen AG 106,060
1,400 Veba AG 80,109
350 Viag AG 154,558
------------------
7,462,110
------------------
Hong Kong - 4.9%
765,000 Allied Properties Ltd 140,276
350,000 Amoy Properties Ltd 418,066
40,000 ASM Pacific Technology 33,316
527,000 Cathay Pacific Airways Ltd 820,035
50,000 Century City International 17,756
224,000 Champion Technology Holdings 33,843
44,800 Champion Technology Holdings Warrants 6/30/98 * 2,719
138,000 Cheung Kong Holdings 1,314,243
26,500 China Light & Power Co 122,508
402,000 China Overseas Land & Investment Ltd 234,898
200 Chinese Estates Holdings Ltd 213
100,000 CP Pokphand Co * 36,157
4,000 Dah Sing Financial Services 16,736
61,800 Dao Heng Bank 317,619
162,000 Denway Investments * 14,016
20,066 Dickson Concept International Ltd 73,200
251,100 Elec & Eltek International Holdings Ltd 64,202
309 Evergo China Holdings * 48
63,000 FPB Bank Holding Co 29,084
12,300 Furama Hotel Enterprises Ltd 20,648
74,000 Gold Peak Industry 48,257
2,000 Goldlion Holdings Ltd 1,782
173,770 Great Eagle Holdings Ltd 651,862
163,000 Guangzhou Investment Co 82,616
42,000 Guoco Group 234,840
377,700 Hang Lung Development Co Ltd 760,863
4,000 Harbour Centre Development Ltd 5,914
600,000 Henderson Investment Ltd 674,070
83,680 HKR International Ltd 126,428
72,000 Hon Kwok Land Investment 26,266
55,000 Hong Kong Ferry Co Ltd 104,759
59,100 Hongkong Aircraft Engineering Co Ltd 187,359
213,000 Hongkong Electric Holdings Ltd 737,138
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong - continued
93,000 Hysan Development Co Ltd 326,052
19,700 Johnson Electric Holdings Ltd 54,440
19,892 Kantone Holdings Ltd * 2,954
168,000 Kumagai Gumi Hong Kong Ltd 191,994
122,000 Lai Sun Development 182,748
59,700 Lai Sun Garment International Ltd 87,114
60,000 Leading Spirit Holdings 14,101
33,800 Liu Chong Hing Bank Ltd 64,161
58,000 Liu Chong Hing Investment Ltd 72,275
1,000 National Mutual Asia Ltd 1,091
42,600 New Asia Realty & Trust A Shares 154,854
160,724 New World Development Co Ltd 996,223
91,200 Oriental Press Group 37,980
17,800 Oriental Press Group Warrants 10/2/98 * 954
120,000 Paul Y- ITC Construction Holdings Ltd 27,583
200 Peregrine Investments Holdings 365
27,700 Playmate Toys Holding 6,796
5,000 Realty Development Corp Ltd Class A 19,273
1,357,397 Regal Hotels International Ltd 403,153
5,200 San Miguel Brewery Ltd 2,182
50,000 Shaw Brothers Ltd 57,141
66,000 Shell Electric Co Ltd 43,040
316,000 Shun Tak Holdings Ltd 224,432
161,700 Sino Land Co Ltd 185,838
515,000 South China Morning Post Ltd 462,197
95,000 Sun Hung Kai Properties Ltd 1,101,014
149,000 Sun Hung Kai & Co Ltd 39,443
39,800 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 3,443
166,000 Swire Pacific Ltd Class B 226,149
123,300 Tai Cheung Holdings Ltd 111,454
40,000 Tem Fat Hing Fung 12,784
24,000 Texwinca Holdings Ltd 18,285
8,900 Union Bank of Hong Kong 13,791
144,000 Wharf Holdings Ltd 639,669
412,900 Wheelock & Co Ltd 1,111,695
9,900 Wing Lung Bank 70,632
103,500 Winsor Industrial Corp Ltd 25,260
22,300 Winsor Properties Holdings Ltd * 41,323
248,000 World Trade Centre Group Ltd 48,678
174,000 Yizheng Chemical Fibre Co 40,669
182,000 Yue Yuen Industrial Holding 74,032
------------------
14,548,999
------------------
Italy - 2.4%
52,100 Alitalia Linee Aeree Italiane Class A * 18,805
2,000 Alleanza Assicurazioni di Risp (Non Convertible) 10,769
8,000 Alleanza Assicurazioni SPA 57,609
6,800 Ansaldo Transporti SPA * 7,001
2,500 Assicurazioni di Milano 6,953
34,000 Assicurazioni Generali SPA 617,633
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
305,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 629,852
37,000 Banca Commerciale Italiana SPA 74,876
197,057 Banca di Roma * 144,703
87,763 Banca Fideuram SPA 221,225
16,666 Banca Nazionale dell'Agricoltura * 11,489
3,100 Banca Popolare di Bergamo Credit 46,041
24,000 Banca Popolare di Milano 131,361
9,300 Banca Toscana 17,609
10,000 Banco Ambrosiano Veneto SPA (Non Convertible) 18,402
8,000 Banco Ambrosiano Veneto SPA 20,355
157,562 Banco di Napoli di Risp * 70,856
1,000 Bulgari SPA 17,101
10,000 Caffaro SPA 9,592
10,000 Cartiere Burgo SPA 45,858
15,000 Cementir Cementerie del Tirreno SPA 9,630
70,870 Cia Italiana del Grandi Alberghi Cigahotels SPA * 33,045
10,400 COFIDE SPA (Non Convertible) * 2,708
38,600 COFIDE SPA * 16,217
36,810 Cogefar Impresit Costruzioni Generali SPA * 27,466
13,250 Comau Finanziaria SPA 40,377
27,500 Compart SA * 12,123
12,500 Compart SPA * 6,280
35,000 Credito Italiano 47,840
80,600 Dalmine SPA * 17,837
500 Danieli and Co SPA 3,652
69,400 Edison SPA 381,495
1,000 Editoriale L'Espresso SPA 3,373
1,450 Ericsson SPA 18,618
7,300 Falck Acciaierie and Ferriere Lombarde 32,375
23,000 Fiat SPA 71,041
121,000 Fiat SPA Preferred 203,337
175,000 Fiat SPA (Non Convertible) 296,154
16,200 Finmeccanica SPA * 7,199
4,000 Fondiaria SPA 15,361
111,300 Gemina * 63,158
47,500 Gilardini SPA 63,661
26,400 IFI Istituto Finanziario Preferred 2.46% 324,142
7,100 IFIL Finanziaria di Partecipazioni SPA 21,216
63,700 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 122,500
40,000 Industriali Riunite SPA (Non Convertible) * 16,379
45,050 Industriali Riunite SPA * 29,962
31,000 Istituto Bancario San Paolo 219,935
23,000 Istituto Mobilaire Italiano 200,876
287,493 Istituto Nazionale Delle Assicurazioni 375,952
2,400 Italcementi Fabbriche Riunite Cemento SPA 13,030
15,250 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 37,087
2,500 Italmobiliare SPA 39,349
17,000 Mediobanco SPA 111,003
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
2,600 Merloni Elettrodomestici SPA 5,777
400 Mondadori Editore 2,615
65,000 Montedison SPA (Non Convertible) * 43,846
565,000 Montedison SPA * 407,870
53,013 Montefibre SPA 32,592
59,250 Olivetti and Co SPA * 21,737
169,234 Parmalat Finanziaria SPA 232,822
58,000 Permafin Finanziaria * 17,160
17,600 Pirelli and Co 24,682
1,500 Pirelli and Co (Non Convertible) 1,842
5,000 Pirelli SPA 9,896
7,000 Pirelli SPA (Non Convertible) 10,811
7,500 RAS SPA 67,633
5,000 RAS SPA (Non Convertible) 27,071
1,500 SAFILO SPA 24,941
2,000 SAI 16,746
6,000 Sasib SPA (Non Convertible) 11,751
93,040 SMI (Societa Metallurgica Italy) * 41,455
10,000 Snia BPD SPA 9,976
8,600 Snia BPD SPA (Non Convertible) 6,412
7,500 Sopaf SPA 8,432
7,350 Stefanel SPA * 6,589
30,000 STET di Risp (Non Convertible) 104,911
43,769 Telecom Italia Mobile SPA (Non Convertible) 66,948
190,000 Telecom Italia Mobile SPA 497,485
61,400 Telecom Italia RNC 123,527
113,100 Telecom Italia SPA 265,685
1,000 Toro Assicurazioni 12,426
4,500 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 11,822
------------------
7,177,928
------------------
Japan - 7.0%
2,000 77th Bank 16,323
6,000 Advantest Corp 339,050
4,000 Aisin Seiki Co Ltd 56,011
1,000 Aiwa Co 18,643
7,000 Alps Electric Co Ltd 74,240
6,000 Amada Co Ltd 43,798
3,000 Anritsu Corp 34,303
72,000 Aoki Corp * 103,803
2,000 Aoyama Trading 50,211
8,000 Asahi Breweries Ltd 77,554
2,000 Asahi Chemical Industries 10,821
12,000 Ashikaga Bank Ltd 40,070
1,000 Bandai Co 20,631
1,000 Bank of Yokohama Ltd 4,789
2,000 Banyu Pharmaceutical Co Ltd 29,166
1,100 Canon Sales Co Inc 21,327
5,000 Casio Computer Co 38,528
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
3,700 Chubu Electric Power Co Inc 65,300
7,000 Chugai Pharmaceutical Co Ltd 55,274
1,900 Chugoku Electric Power Co Inc 32,902
6,000 Citizen Watch Co 42,754
20,000 Cosmo Oil Co Ltd 77,885
2,000 Credit Saison Co 42,588
8,600 CSK Corp 204,507
53,000 Daicel Chemical Industries Ltd 228,354
3,000 Daifuku Ltd 35,297
7,000 Daiichi Seiyaku Co Ltd 114,260
6,000 Daikin Industries Ltd 47,030
5,000 Daikyo Inc 18,850
5,000 Dainippon Pharmaceutical Co Ltd 35,794
15,000 Dainippon Printing Co Ltd 249,814
14,000 Dainippon Screen Manufacturing Co Ltd 112,984
1,000 Daishowa Paper Manufacturing * 4,019
1,400 Daito Trust Construction Co Ltd 13,688
3,000 Daiwa House Industry Co Ltd 33,308
7,000 Denso Corp 134,560
36 East Japan Railway Co 153,318
5,000 Eisai Co Ltd 93,628
2,800 Fanuc Co 87,000
7,000 Fuji Electric Co 28,884
18,000 Fuji Heavy Industries Ltd 85,757
6,000 Fuji Photo Film Co Ltd 200,845
13,000 Fujikara Ltd 101,897
27,000 Fujisawa Pharmaceutical Co Ltd 234,899
2,000 Fujitec Co 18,394
38,000 Fujitsu Ltd 374,679
8,000 Furukawa Electric Co Ltd 37,186
12,000 Gakken Co Ltd 54,188
12,000 General Sekiyu (KK) 72,583
8,000 Green Cross Corp 33,143
20,000 Hankyu Corp 95,948
55,000 Haseko Corp * 106,637
12,000 Hazama-Gumi Ltd 26,846
1,000 Hirose Electric 56,011
32,000 Hitachi Ltd 275,748
7,000 Hitachi Maxell Ltd 140,360
5,000 Hitachi Metals Ltd 34,800
1,600 Hokkaido Electric Power 27,310
2,000 Hokuriku Bank Ltd 6,877
5,000 Honda Motor Co Ltd 154,528
1,000 Hosiden Corp * 6,885
1,000 House Foods Corp 13,920
2,000 Hoya Corp 85,177
16,000 INAX Corp 105,394
4,000 Intec Inc 47,394
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
3,000 Ito-Yokado 136,217
6,000 Japan Airport Terminal Co Ltd 61,148
3,000 Japan Metals & Chemicals * 7,656
4,000 Japan Radio Co 38,446
36,000 Japan Synthetic Rubber Co Ltd 255,332
15 Japan Tobacco Inc 100,671
4,000 JGC Corp 22,835
7,000 Joshin Denki Co Ltd 63,220
2,000 Kaken Pharmaceutical Co Ltd 10,324
5,000 Kamigumi Co Ltd 26,349
2,000 Kandenko Co 16,903
8,000 Kanebo Ltd * 13,854
4,000 Kansai Electric Power 72,583
2,000 Kansai Paint Co Ltd 8,269
7,000 Kao Corp 76,560
1,000 Katokichi Co Ltd 16,074
9,000 Kawasaki Heavy Industry 37,286
13,000 Kawasaki Kisen * 26,498
7,000 Kenwood Corp * 29,870
2,000 Kinden Corp 26,017
20,000 Kirin Brewery Co Ltd 170,685
1,000 Kissei Pharmaceutical Co Ltd 19,969
21,000 Kobe Steel * 38,802
2,000 Kokusai Electric 30,988
7,000 Kokusai Kogyo Co Ltd 58,000
1,000 Komori Corp 20,880
1,000 Konami Co Ltd 28,668
2,000 Koyo Seiko Co Ltd 14,865
9,000 Kubota Corp 40,940
56,000 Kumagai Gumi Co Ltd 88,160
28,000 Kurabo Industries Ltd 70,064
1,000 Kurita Water Industries Ltd 21,129
3,000 Kyocera Corp 177,728
3,000 Kyowa Exeo Corp 23,589
3,000 Kyowa Hakko Kogyo Co Ltd 19,911
1,000 Kyudenko Corp 7,623
3,100 Kyushu Electric Power Co Inc 53,683
2,000 Kyushu Matsushita Electric 21,874
600 Mabuchi Motor Co 29,878
15,000 Maeda Corp 91,101
1,000 Makita Corp 13,754
22,000 Marui Co Ltd 315,353
1,000 Maruichi Steel Tube 15,660
4,000 Matsushita Communications 105,063
18,000 Matsushita Electric Industrial Co Ltd 277,405
23,000 Matsushita Electric Works Ltd 202,005
2,000 Matsushita Kotubuki 57,171
39,000 Mazda Motor Corp * 113,746
9,000 Meiji Seika Kaisha Ltd 43,400
15,000 Minebea Co Ltd 124,037
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
4,000 Minolta Co Ltd 24,691
2,000 Misawa Homes 12,197
1,000 Mitsubishi Corp 9,280
29,000 Mitsubishi Electric Corp 162,913
16,000 Mitsubishi Gas Chemical Co Inc 58,596
16,000 Mitsubishi Oil Co Ltd 66,551
4,000 Mitsubishi Rayon Co Ltd 14,517
8,000 Mitsubishi Steel Manufacturing * 27,508
2,000 Mitsubishi Warehouse & Transportation Co Ltd 23,200
12,000 Mitsui Mining & Smelting Co Ltd 46,135
9,000 Mitsui OSK Lines * 17,897
1,000 Mochida Pharmaceutical Co Ltd 8,369
4,000 Murata Manufacturing Co Ltd 140,194
5,000 Nachi Fujikoshi Co 14,997
1,100 Namco Ltd 31,080
3,000 National House Industrial 36,291
34,000 NEC Corp 394,399
5,000 New Japan Securities Co Ltd * 15,370
12,000 New Oji Paper Co Ltd 66,816
2,000 NGK Insulators 18,229
5,000 NGK Spark Plug Co 51,371
2,000 Nichicon Corp 23,034
19,000 Nichiei Co Ltd 35,421
10,000 Nichii Co Ltd 128,428
9,000 Nihon Cement Co Ltd 42,878
9,000 Nikon Corp 131,991
6,200 Nintendo Co Ltd 437,170
15,000 Nippon Carbon Co Ltd * 41,636
2,000 Nippon Chemical 13,108
4,000 Nippon Comsys 44,080
2,000 Nippon Electric Glass Co 27,508
12,000 Nippon Express Co Ltd 77,256
2,000 Nippon Kayaku Co Ltd 11,451
2,000 Nippon Meat Packers Inc 20,051
348,000 Nippon Oil Co Ltd 1,467,661
9,000 Nippon Paper Industries 42,207
4,000 Nippon Soda Chemical Co Ltd 29,166
12,000 Nippon Suisan Kaisha Ltd * 31,916
82 Nippon Telegraph & Telephone 583,627
7,000 Nishimatsu Construction 52,200
45,000 Nissan Motor Co Ltd 265,474
1,000 Nisshinbo Industries Inc 7,209
17,000 Nissho Iwai Corp 64,090
1,000 Nissin Food Products Co Ltd 19,140
1,000 Nitsuko Corp 6,653
5,000 Nitto Boseki Co Ltd 15,370
19,000 Nitto Denko Corp 253,459
8,000 NTN Corp 39,241
22,000 Oki Electric Industry 115,933
4,000 Okuma Corp 33,143
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
5,000 Okumura Corp 26,431
3,000 Olympus Optical Co Ltd 25,106
4,000 Omron Corp 62,971
4,000 Ono Pharmaceutical Co Ltd 128,594
8,000 Onoda Cement Co Ltd 28,105
2,000 Orix Corp 84,514
8,000 Penta Ocean Construction 28,569
9,000 Pioneer Electronics Corp 173,751
45,000 Renown Inc * 89,485
14,000 Ricoh Co Ltd 164,720
6,000 Royal Co Ltd 101,417
6,000 Sanden Corp 48,223
6,000 Sankyo Co Ltd 167,040
1,000 Sanrio Co Ltd * 6,297
4,000 Sanwa Shutter Corp 28,934
4,000 Sapporo Breweries Ltd 29,596
2,000 Sato Kogyo Co Ltd 4,474
1,000 Secom Co Ltd 56,343
3,900 Sega Enterprises 109,222
1,000 Seiko Corp 5,957
2,000 Seino Transportation Co Ltd 19,886
2,000 Seiyu 17,234
12,000 Sekisui Chemical Co Ltd 124,285
5,000 Sekisui House Ltd 46,400
3,000 Seven-Eleven Japan 180,462
1,300 Shikoku Electric Power 22,512
7,000 Shin-Etsu Chemical Co Ltd 135,140
14,000 Shionogi and Co Ltd 87,116
29,000 Shiseido Co Ltd 338,802
3,000 Shokusan Jutaku Sogo Co Ltd * 5,046
17,000 Showa Denko 37,327
11,000 Showa Shell Sekiyu 82,119
1,000 SMC 68,026
4,000 Sony Corp 288,673
4,000 Stanley Electric Co Ltd 20,350
12,000 Sumitomo Corp 90,181
2,000 Sumitomo Electric 27,674
4,000 Sumitomo Forestry Co Ltd 45,737
3,000 Sumitomo Heavy Industries Ltd 9,048
1,000 Sumitomo Osaka Cement Co Ltd 2,734
3,000 Sumitomo Rubber Inc 19,761
2,000 Sumitomo Sitix Corp 36,623
5,000 Taisho Pharmaceutical Co Ltd 115,171
5,000 Taiyo Yuden Co Ltd 58,414
5,000 Takashimaya Co 55,100
23,000 Takeda Chemical Industries Ltd 461,182
4,000 Takuma Corp 45,406
4,000 Tanabe Seiyaku Co Ltd 29,000
6,000 TDK Corp 401,690
8,000 Teikoku Oil Co Ltd 37,650
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
7,000 Terumo Corp 102,080
100 Toho Co Ltd 13,091
2,500 Tohoku Electric Power Co Inc 42,878
2,000 Tokyo Broadcasting System Inc 29,000
6,000 Tokyo Electric Co Ltd * 21,874
6,900 Tokyo Electric Power 128,064
5,000 Tokyo Steel Manufacturing Co 55,100
2,000 Tokyo Style Co Ltd 22,869
2,000 Tokyo Tatemono Co Ltd 8,700
26,000 Tokyu Construction Co Ltd 57,304
7,000 Tokyu Land Corp * 24,070
10,000 Toppan Printing Co Ltd 115,171
2,000 Toray Industries Inc 11,567
4,000 Toshiba Ceramics Co Ltd 31,154
45,000 Toshiba Corp 253,542
9,000 Toshiba Tungaloy Co Ltd 40,268
2,000 Tostem Corp 46,400
2,000 Toyo Seikan Kaisha Ltd 46,897
1,000 Toyo Suisan Kaisha 9,197
7,000 Toyo Trust & Banking Co Ltd 49,996
2,000 Toyoda Auto Loom 34,634
1,000 Toyota Motor Corp 25,603
2,000 Tsubakimoto Chain 10,423
1,000 Tsumura and Co 6,214
1,000 Unicharm Corp 25,686
1,000 Uniden Corp 10,771
1,000 UNY Co Ltd 17,649
23,000 Victor Co of Japan Ltd 219,157
7,000 Wacoal Corp 70,760
2,000 Yakult Honsha Co Ltd 20,217
10,000 Yamaha Corp 190,571
3,000 Yamaha Motor Co 25,603
143,000 Yamaichi Securities Co Ltd 495,269
10,000 Yamanouchi Pharmaceutical Co Ltd 208,799
5,000 Yamato Transport Co Ltd 49,300
2,000 Yamazaki Baking Co Ltd 29,994
1,000 Yokogawa Bridge Corp 8,451
5,000 Yokogawa Electric Corp 38,321
------------------
20,807,159
------------------
Malaysia - 2.7%
12,000 Aluminum Co Malaysia 19,235
54,000 Amalgamated Steel Mills Berhad 47,845
10,100 AMMB Holdings Berhad 95,183
20,000 Aokam Perdana Berhad * 43,093
13,000 Arab Malaysian Finance (Foreign Registered) 90,576
76,000 Berjaya Group 105,904
40,000 Berjaya Industrial Berhad 64,116
43,000 Berjaya Leisure Berhad 120,358
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
50,300 Berjaya Sports Toto 291,712
5,000 Carlsberg Brew Malaysia 43,093
18,000 Cement Industries of Malaysia Berhad 54,732
26,000 DMIB Berhad 30,995
24,800 Edaran Otomobil Berhad 254,692
16,000 Ekran Berhad 57,350
10,300 Esso Malaysia Berhad 28,415
400 Faber Group Berhad * 512
13,000 Genting Berhad 88,482
21,000 Golden Hope Plantations Berhad 37,890
4,000 Golden Plus Holdings 10,310
9,000 Guinness Anchor Berhad 23,198
29,000 Highlands and Lowlands Berhad 51,857
15,800 Hong Leong Industries Berhad 54,088
400 Hong Leong Industries Berhad Class A 1,369
75,000 Hong Leong Properties Berhad 138,945
6,000 Hume Industries Berhad 37,938
20,000 IJM Corp Berhad Class A 53,564
10,000 Innovest Berhad 38,059
48,000 IOI Corporation Berhad 86,605
8,000 Jaya Tiasa Holdings Berhad 43,818
15,000 Johan Holdings Berhad 16,190
12,000 Kedah Cement Berhad 23,294
7,000 Kelanamas Industries 14,801
16,000 Kemayan Corporation Berhad 24,100
6,000 Kian Joo Can Factory 28,272
19,500 Kuala Lumpur Kepong Berhad 58,901
53,200 Kumpulan Guthrie Berhad 92,559
31,000 Land & General Berhad 63,049
20,000 Landmark Berhad 35,924
44,000 Leader Universal Holdings 93,919
88,000 Magnum Corp Berhad 182,521
23,000 Malayan Cement Berhad 60,209
73,000 Malayan United Industries Berhad 66,738
12,000 Malayawata Steel 23,681
23,000 Malaysia Mining Corp Berhad 31,865
42,000 Malaysian Airline Systems 111,639
33,000 Malaysian Helicopter Berhad 46,782
58,100 Malaysian International Ship (Alien Market) 153,264
13,000 Malaysian Mosaics 22,618
8,000 Malaysian Oxygen Berhad 43,174
11,000 Malaysian Pacific Industries 45,630
10,000 Malaysian Plantations Rights 4/9/97 * 4,350
15,000 Malaysian Plantations 35,340
2,000 Matsushita Electric 19,573
37,000 MBF Capital Berhad 75,997
102,000 MBF Holdings Berhad 67,781
30,000 Mulpha International 32,622
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
50,000 Multi Purpose Holdings 118,808
6,000 Nestle Malaysia 45,671
12,000 New Straits Times 76,359
41,900 Oriental Holdings Berhad 377,994
6,000 OYL Industries Berhad 58,478
72,100 Pan Malaysia Cement 85,951
30,000 Perlis Plantations 93,033
72,000 Pernas International Hotel & Property 88,731
83,000 Perusahaan Otomobil 548,208
6,000 Petaling Garden Berhad 10,246
24,500 Petronas Dagangan Berhad 65,616
11,000 Petronas Gas Berhad 40,093
10,000 Pilecon Engineering Berhad 18,123
14,000 PJ Development Holdings 16,182
31,000 Promet Berhad * 35,083
86,666 Public Bank Berhad (Alien Market) 202,442
124,000 Renong Berhad 225,727
44,000 Resorts World Berhad 205,558
10,000 RJ Reynolds Berhad 27,386
2,000 Rothmans of Pall Mall Malaysia Berhad 20,741
77,000 Sarawak Enterprises Corp 146,992
14,400 Shell Refinery Co 46,395
18,000 Sime Darby 20,803
36,000 Sime Darby Berhad 136,287
8,600 Sime UEP Properties Berhad 23,206
8,000 Sistem Television Malaysia 16,432
37,000 Sungei Way Holdings 107,290
41,000 TA Enterprise Berhad 65,058
142,000 Tan Chong Motor Holdings Berhad 288,804
25,000 Technology Resources Industries 58,397
29,000 Telekom Malaysia 234,756
76,000 Tenaga Nasional 364,237
24,000 Time Engineering Berhad 54,128
13,000 Tractors Malaysia Holdings Berhad 27,225
45,000 UMW Holdings Berhad 237,414
9,000 Uniphone Telecommunications 12,541
19,000 Westmont Industries Berhad 38,643
27,000 YTL Corp 156,585
------------------
7,884,350
------------------
Netherlands - 0.6%
1,000 Elsevier NV 16,010
622 ING Groep NV 24,077
1,250 Kon Bolswessanen 21,922
4,200 Royal Dutch Petroleum Co ADR 726,600
5,800 Unilever NV 1,104,900
------------------
1,893,509
------------------
New Zealand - 0.0%
276 Brierley Investment Ltd 265
------------------
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Norway - 0.9%
51,400 Norsk Hydro AS 2,574,348
------------------
Singapore - 2.2%
120,500 Chuan Hup Holdings Ltd 92,952
276,000 DBS Land Ltd 1,074,194
136,000 First Capital Corp Ltd 408,191
21,800 Fraser and Neave Ltd 195,680
12,000 Golden Hope Plantations Berhad 21,795
240,000 Hai Sun Hup Group Ltd 178,401
102,000 Haw Par Brothers International Ltd 237,475
140 Haw Par Brothers International Ltd Warrants 7/18/2001 * 135
135,000 Hotel Properties Ltd 238,569
48,000 Inchcape Berhad 167,630
655,250 Jardine Strategic Holdings Ltd 2,149,220
7,000 Prima Ltd 24,348
33,000 Robinson and Co Ltd 135,379
84,000 Singapore Airlines Ltd 742,216
133,000 Straits Trading Co Ltd 328,303
21,000 Times Publishing Ltd 46,830
13,000 United Engineers 22,518
522,000 United Industrial Corp Ltd 450,252
30,000 Wearne Brothers Ltd 82,048
------------------
6,596,136
------------------
Spain - 2.4%
24,290 Argentaria Corporacion Bancaria de Espana SA 972,617
39,580 Banco Bilbao Vizcaya SA 2,333,108
35,840 Banco Central Hispanoamericano SA 950,066
206,630 FENOSA SA 1,636,031
37,352 Fuerzas Electricas de Cataluna SA 298,347
42,580 Iberdrola SA 464,860
47,421 Sevillana de Electricidad 430,047
2,750 Tableros Defibras Class B 26,570
------------------
7,111,646
------------------
Sweden - 2.0%
2,606 Assi Doman 67,599
1,500 Autoliv AB 68,217
4,800 Avesta Sheffield AB 48,652
15,500 Bilspedition AB Class B * 57,675
5,105 Celsius Industrier AB Class B 98,381
600 Custos AB Series Class B 13,884
10,800 Electrolux AB Class B 675,531
15,100 Ericsson LM Class B 480,302
2,614 Esselte AB Class A 63,275
1,800 Esselte AB Class B 43,691
1,288 Euroc Industri AB Class A 47,926
34 Fastighets AB (Hufvudstaden) Class A 252
1,400 Hennes and Mauritz AB Class B 199,037
630 Industrivarden AB Class A 31,676
</TABLE>
See accompanying notes to the financial statements.
19
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Sweden - continued
316 Industrivarden AB Class C (Bearer) 15,172
2,400 Kinnevik Investment Class B 68,017
3,900 Marieberg Tidnings AB Class A 108,187
18,000 Mo Och Domsjo AB Class B 571,345
5,200 Nordbanken 188,634
700 Skandia Group Foersaekrings AB 21,285
30,540 Skandinaviska Enskilda Banken Class A 321,770
17,106 Skanska AB Class B 755,136
2,000 SKF AB Class B 47,745
16,200 Sparbanken Sverige AB Class A 319,761
7,300 Ssab Swedish Steel Class A 124,131
2,400 Ssab Swedish Steel Class B 40,810
12,019 Stena Line AB Class B 57,065
31,700 Stora Kopparberg Bergslags Class A 433,343
5,600 Stora Kopparberg Bergslags Class B 75,806
611 Svedala Industries 11,979
23,400 Svenska Cellulosa Class B 519,612
6,100 Svenska Handelsbanken Class A 170,843
400 Svenska Kullagerfabriken AB 9,442
11,000 Trelleborg AB Class B 172,377
94 Trygg Hansa Holdings AB Class B 1,981
750 Volvo AB Class A 18,655
3,700 Volvo AB Class B 92,770
------------------
6,041,964
------------------
Switzerland - 0.0%
214 Banque Cantonale Vaudoise (Bearer) 52,666
1,100 Biochem Pharma Inc * 58,344
------------------
111,010
------------------
United Kingdom - 12.4%
6,500 3 Group Plc 53,978
9,900 Allied Colloids 20,755
69,700 Allied Domecq Plc 495,231
52,051 AMEC 101,056
3,670 Amersham International 77,539
24,070 Amstrad Plc 75,006
19,300 Anglian Water Plc 204,042
6,533 Argos Plc 73,118
45,000 Arjo Wiggins Appleton Plc 118,936
717,600 ASDA Group 1,311,256
9,900 Ashley (Laura) Holdings 25,439
38,600 Associated British Foods 306,063
11,900 Associated British Ports Holding Ltd 60,866
5,900 Astec (BSR) 13,861
57,200 Bank of Scotland 318,694
34,730 Barratt Development 157,237
105,010 Bass 1,464,819
8,200 BAT Industries 71,841
3,000 BBA Group 16,788
</TABLE>
See accompanying notes to the financial statements.
20
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
32,700 Beazer Holmes Plc 106,700
3,700 Berisford International 8,270
633,100 BG Plc 1,761,099
4,527 BICC 20,385
12,400 Blue Circle Industries 80,619
12,370 Booker Plc 69,223
16,000 BPB Industries Plc 89,276
26,270 British Aerospace 546,566
22,818 British Airways 234,720
4,800 British Land Co 41,897
104,000 British Petroleum 1,152,948
126,300 British Steel 309,088
377,800 British Telecom Plc 2,623,255
34,200 BTR 134,193
2,538 Bunzl Co 8,716
6,230 Burmah Castrol Plc 105,098
197,640 Burton Group 504,634
21,300 Caradon 94,870
3,020 Carlton Communications 25,720
633,100 Centrica Plc * 676,551
40 Charter Plc (Registered) 482
1,400 Chubb Security 9,753
87,699 Coats Viyella 184,574
800 Cobham Group Plc 7,655
44,427 Cookson Group 169,609
15,700 Cordiant Plc * 25,038
8,600 Costain Group (b) 6,314
8,000 Courtaulds 47,509
13,100 Courtaulds Textiles Plc 53,004
9,000 Dalgety Plc 48,162
41,164 Dawson International 46,340
7,600 Delta 43,522
19,400 Electrocomponents Plc 127,079
731 Energy Group Plc * 6,226
63,261 English China Clays Plc 220,870
58,000 Enterprise Oil 588,580
98,700 Eurotunnel SA Units (Registered) * 122,382
12,500 FKI 38,136
2,800 General Electric 17,039
12,890 Glaxo Wellcome Plc 218,502
7,670 Granada Group 115,626
127 Grand Metropolitan 943
7,490 Great Portland Estates Plc 25,784
23,582 Greenalls Group Plc 214,685
3,900 Greycoat Plc 10,181
100 Guinness 747
3,600 Hambros 15,271
954 Hammerson 6,817
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
914 Hanson Plc 4,101
42,800 Harrisons & Crosfield 92,173
32,093 Hazlewood Foods 62,308
1,300 Hepworth 5,557
90,472 Hillsdown Holdings 281,926
8,500 Hyder Plc 115,102
1,000 Imperial Chemical Industries Plc 12,350
731 Imperial Tobacco Group Plc * 5,069
751 Inchcape 3,259
39,600 Kingfisher 437,392
8,060 Kwik Save Group 40,173
313,735 Ladbroke Group 1,177,275
6,500 Laing (John) 32,132
800 Laporte Plc 8,392
270,300 Lasmo 1,062,797
72,425 Legal & General Group 462,011
7,900 Lex Service 44,982
45,000 Lloyds TSB Group 374,429
36,300 London International 98,903
173,465 Lonrho 407,532
29,483 Lucas Variety Plc * 98,368
44,209 Marley 89,437
15,500 Meggitt 26,806
4,190 Mercury Asset Management 92,149
13,400 Meyer International 87,886
23,400 MFI Furniture Group 74,827
104 Millennium Chemicals Inc 1,989
81,791 Mirror Group Plc 279,561
11,901 National Grid Holdings Plc 40,192
137,860 National Power 1,104,913
14,300 Next 138,816
2,974 NFC Plc 8,346
45,254 Norcros Plc 67,925
23,400 Northern Foods Plc 81,317
10,360 Ocean Group 79,356
82,500 Orange Plc 285,349
135,300 Peninsular & Oriental Steam Navigation Co 1,472,349
196,349 Pilkington 464,498
2,300 Powell Duffryn 15,310
29,698 Powergen 299,435
3,100 Premier Farnell Plc 24,934
42 Racal Electronics 199
17,200 Railtrack Group Plc 126,980
15,012 Reckitt & Colman 195,202
22,733 Redland 129,069
53,300 Rentokil Plc 392,185
56,500 Reuters Holdings 605,621
400 RMC Group 6,216
36,798 Rolls-Royce 139,283
1,404 Royal & Sun Alliance Insurance 11,270
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
19,700 Rugby Group 35,033
9,689 Safeway Plc 57,224
4,200 Sainsbury (J) 21,174
1,300 Salvesen (Christian) 6,798
34,300 Scottish Hydro-Electric Plc 199,219
101,954 Scottish Power Plc 582,183
10,600 Scottish & Newcastle Plc 117,080
252,900 Sears 334,211
13,700 Securicor Plc 69,960
6,300 Sedgwick Group 12,951
18,461 Severn Trent Plc 214,749
10,013 Shell Transport & Trading (Registered) 169,733
16,470 Siebe Plc 260,109
58,591 Signet Group Plc * 30,589
44,966 Simon Engineering 30,812
3,900 Slough Estates 18,070
7,501 Smith & Nephew Plc 23,619
47,317 Smithkline Beecham Plc 707,903
2,930 Smiths Industries 36,904
21,400 Southern Electric Plc 276,520
7,600 Southwest Water 85,060
44,710 Storehouse Plc 199,868
108,144 T & N 287,592
349,530 Tarmac 575,961
5,400 Tate & Lyle 38,456
94,900 Taylor Woodrow Plc 295,724
126,439 Tesco 697,244
31,800 Thames Water 356,427
1,200 Thistle Hotels Plc * 4,033
8,200 TI Group Plc 70,504
52,380 Tomkins Plc 243,555
21,700 Transport Development Group 72,577
5,100 Unigate 38,025
11,480 Unilever Plc 295,272
67,816 United Biscuits 265,540
4,500 United News & Media Plc 51,980
86,500 United Utilities 935,657
5,300 Vendome Luxury Group Plc Units 45,483
9,200 Vickers 40,526
25,920 Vodafone Group Plc 123,059
21,900 Waste Management International * 84,322
23,321 Wessex Water Plc 136,974
64,460 Whitbread Plc Class A 826,609
7,000 Willis Corroon Group Plc 17,473
29,616 Wilson (Connolly) Holdings 75,860
105,800 Wimpey (George) 243,384
1,711 Wolseley 13,148
11,900 Yorkshire Electricity Group 173,375
11,700 Yorkshire Water 137,247
------------------
36,734,610
------------------
</TABLE>
See accompanying notes to the financial statements.
23
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - 30.7%
900 3 Com Corp * 29,798
31,900 Abbott Laboratories 1,794,375
3,400 Advanced Micro Devices * 121,975
2,900 AES Corp * 189,588
3,500 Aetna Inc 290,063
3,550 AFLAC I 143,331
14,500 Albertson's Inc 511,125
8,100 Allegheny Power System 248,063
5,100 Allegheny Teledyne Corp 130,050
600 Allergan Inc 20,400
6,300 Allstate Corp 399,263
1,700 Ambac Corp 113,475
12,500 American Electric Power 521,875
1,100 American General Corp 47,713
17,500 American Home Products 1,120,000
7,500 American Stores Co 335,625
3,700 Amsouth Bancorporation 189,625
34,300 Anheuser-Busch Cos, Inc 1,526,350
5,700 Apache Corp 184,538
26,660 Archer Daniels Midland 493,210
28,700 AT & T Corp 1,144,413
5,800 Atlantic Richfield Co 725,000
2,600 Avnet Inc 162,500
3,400 Baker Hughes 120,700
11,700 Baltimore Gas & Electric Co 321,750
300 Bandag Inc 14,625
14,100 Bank of Boston Corp 1,062,788
13,900 Bank of New York Co, Inc 538,625
6,500 Bankers Trust New York Corp 589,875
12,700 Barnett Banks Inc 587,375
9,518 Bear Stearns Co Inc 285,540
600 Becton Dickinson & Co 29,550
4,200 Bell Atlantic Corp 290,325
700 Bellsouth Corp 32,813
2,700 Beneficial Corp 186,638
400 BHC Communications Inc Class A 40,800
25,100 Bristol-Myers Squibb Co 3,275,550
14,500 Burlington Northern Santa Fe Corp 1,207,125
2,800 Burlington Resources Inc 122,850
1,700 Cabletron Systems Inc * 51,000
8,800 Callaway Golf Company 280,500
400 Cardinal Health 24,600
5,700 Carolina Power & Light Co 211,613
19,300 Central & South West Corp 470,438
2,700 Champion International 119,138
23,156 Chase Manhattan Corp 2,318,495
7,500 Chevron Corp 483,750
27,000 Chrysler Corp 914,625
</TABLE>
See accompanying notes to the financial statements.
24
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - continued
1,300 Cigna Corp 198,738
1,200 Cincinnati Bell Inc 74,400
15,900 Cinergy Corp 548,550
300 Circus Circus Enterprises Inc * 9,375
9,800 Cisco Systems Inc * 545,125
3,200 Citicorp 373,600
2,800 Citizens Utilities B 33,250
3,600 Clorox Co 430,200
7,200 CMS Energy Corp 235,800
800 CNA Financial Corp * 89,000
3,600 Coastal Corp 163,800
33,300 Coca Cola Co 2,031,300
3,700 Coca Cola Enterprises Inc 228,475
7,500 Columbia Gas Systems 440,625
800 Columbia HCA Healthcare Corp 33,600
1,000 Comdisco Inc 31,125
13,200 Compaq Computer Corp * 1,046,100
8,100 Computer Associates International Inc 352,350
14,800 Conseco Inc 580,900
2,000 Cooper Industries Inc 88,500
7,800 Corning Incorporated 293,475
4,000 Countrywide Credit Industries Inc 116,500
13,100 CPC International 1,102,038
4,900 CSX Corp 226,013
8,900 CVS Corp 411,625
17,900 Dayton Hudson Corp 751,800
1,500 Dean Foods Co 48,938
12,000 Dean Witter Discover & Co 460,500
7,300 Dell Computer Corp * 519,213
8,000 Dillard Department Stores Class A 241,000
2,900 Dominion Resources Inc 116,725
8,300 DPL Inc 204,388
6,100 DQE Inc 180,713
12,900 Duke Power Co 570,825
3,000 Eastman Chemical 165,375
29,700 Edison International 638,550
2,000 Edwards (AG) Inc 71,000
2,600 Enova Corp 58,175
1,700 Ensco International Inc * 73,738
29,400 Entergy Corp 775,425
500 Equifax Inc 14,875
9,200 Exxon Corp 918,850
1,900 F M C Corp * 130,625
100 Fina Inc Cl A 6,238
1,300 First Chicago NBD Corp 76,050
6,800 Fleet Financial Group Inc 414,800
200 Fleming Co 3,500
35,600 Ford Motor Co 1,170,350
</TABLE>
See accompanying notes to the financial statements.
25
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - continued
4,400 Fruit of The Loom Class A * 179,850
7,700 Gap Inc 254,100
16,800 General Electric Co 1,728,300
20,300 General Motors Corp 1,174,863
3,100 Gillette Co 245,288
10,100 Global Marine Inc * 188,113
2,400 Golden West Financial Corp 162,600
3,400 Goodyear Tire & Rubber Co 179,350
900 Grainger (WW) Inc 71,325
14,900 Great Western Financial Corp 653,738
2,400 Greenpoint Financial Corp 144,000
9,700 GTE Corp 453,475
4,600 Harley-Davidson 171,925
900 Hasbro Inc 38,475
1,400 HBO and Co 80,675
11,500 HF Ahmanson 472,938
1,400 Hillenbrand Industries Inc 52,675
3,900 Home Depot Inc 212,550
1,600 Hormel Foods Corp 42,000
1,500 Household International Inc 145,313
18,400 Houston Industries Inc 427,800
5,600 IBP Inc 130,200
8,200 Illinova Corp 205,000
15,700 Intel Corp 2,227,438
7,800 International Business Machines Corp 1,121,250
5,700 International Game Technology 99,750
11,900 International Paper Co 496,825
5,700 Johnson & Johnson 328,463
44,200 K Mart Corp * 552,500
2,400 Leggett & Platt Inc 86,100
4,000 Lehman Brothers Holdings Inc 134,500
3,700 LG&E Energy Corp 91,575
6,300 Lilly (Eli) and Co 550,463
4,900 Lincoln National Corp 284,813
1,500 Litton Industries Inc * 64,500
3,500 Liz Claiborne 141,750
7,200 Loews Corp 735,300
9,800 Long Island Lighting 225,400
4,200 May Department Stores 195,825
2,100 MBIA Inc 205,013
8,200 MCI Communications Corp 293,150
200 McKesson Corp 13,250
3,400 Mead Corp 198,050
7,000 Mellon Bank Corp 562,625
11,300 Merck & Co 1,039,600
4,500 Merrill Lynch & Co 432,000
21,400 Microsoft Corp * 2,086,500
1,100 Mobil Corp 135,025
</TABLE>
26 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - continued
8,700 Monsanto Co 316,463
2,000 Morgan Stanley Group Inc 126,250
800 Murphy Oil Corp 37,100
6,300 New York State Electric & Gas Corp 146,475
1,800 Newell Co 66,825
3,700 Nike Inc Class B 265,938
1,100 Noble Affiliates Inc 42,900
5,300 Noble Drilling Corp 94,075
800 Noram Energy Corp 12,000
3,100 Northern States Power 147,638
400 Northern Telecommunications 28,750
9,100 Nynex Corp 468,650
5,900 Occidental Petroleum Corp 150,450
3,150 Old Republic International Corp 85,444
8,200 Oracle Systems Corp * 321,850
2,000 Oryx Energy Co * 40,000
30,400 Pacific Telesis Group 1,238,800
17,500 PacifiCorp 360,938
1,600 Paine Webber Group Inc 52,200
8,200 Penney (J C) Co 403,850
2,400 Pennzoil Co 137,700
7,800 Pepsico Inc 256,425
4,100 Pfizer Inc 375,663
18,900 Pharmacia & Upjohn Inc 696,938
3,000 Phelps Dodge Corp 214,500
6,600 Philip Morris Co Inc 891,825
12,400 Phillips Petroleum Co 513,050
1,800 Pitney Bowes 111,825
24,300 PNC Bank Corp 1,029,713
5,500 Portland General Corp 215,188
6,100 Potomac Electric Power Co 154,788
4,000 PP&L Resources 91,500
700 Praxair 34,038
7,800 Procter & Gamble Co 936,975
1,500 Progressive Corp 99,188
900 Provident Companies Inc 49,050
6,400 Providian Corp 357,600
3,100 Public Service of Colorado 120,900
700 Raychem Corp 59,588
11,700 Raytheon Co 551,363
4,300 Reebok International Ltd 201,025
100 Reliastar Financial Corp 6,200
1,200 Reynolds & Reynolds Co Class A 33,600
1,100 RJR Nabisco Holdings Corp 40,288
500 Robert Half International * 20,813
5,400 Ryder Systems Corp 170,100
6,600 SAFECO Corp 275,550
6,400 Safeway Inc * 308,000
</TABLE>
See accompanying notes to the financial statements. 27
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - continued
10,800 Salomon Inc 600,750
17,400 Sara Lee Corp 674,250
4,200 Scana Corp 109,725
4,600 Schering-Plough Corp 352,475
4,400 Schlumberger Ltd 442,750
300 Seagate Technology * 14,175
4,700 Seagram Ltd 183,300
11,700 Sonat Inc 538,200
2,100 Sonoco Products Co 55,125
57,700 Southern Co 1,254,975
3,000 Southern National Corp 116,625
22,700 Sprint Corp 1,032,850
7,900 St Paul Cos 533,250
2,300 Sterling Software * 65,838
10,200 Storage Technology Corp * 425,850
2,600 Student Loan Marketing 275,275
4,700 Summit Bancorp 224,425
1,600 SunAmerica Inc 73,400
3,400 Supervalu Inc 105,400
2,100 Synovus Financial Corp 73,238
5,700 Teco Energy Inc 138,938
5,600 Tellabs Inc * 223,300
4,700 Temple Inland Inc 259,088
16,100 Tenet Healthcare Corp * 436,713
13,500 Texaco Inc 1,334,813
14,600 Texas Utilities 589,475
2,500 TJX Cos Inc 104,375
2,500 Torchmark Corp 147,188
3,600 Tosco Corp 100,350
14,900 Toys R Us Inc * 387,400
3,800 Transamerica Corp 332,975
12,200 Travelers Corp 654,225
8,100 TRW Inc 424,238
4,300 Tyco International 253,700
8,300 Union Carbide Corp 392,175
4,800 United States Surgical Corp 204,600
1,600 United Technologies Corp 120,400
400 Universal Foods Corp 13,800
13,300 Unocal Corp 513,713
6,200 US Bancorp 306,125
400 Us Life Insurance Co 19,050
5,600 US West Inc 201,600
1,800 USX-Marathon Group 47,925
5,100 USX-US Steel Group 160,013
3,300 V F Corporation 229,350
200 Vulcan Materials 12,950
14,400 Wal Mart Stores Inc 379,800
10,700 Warner Lambert 898,800
900 Wellpoint Health Networks Inc * 38,588
1,100 Western Digital Corp * 64,900
</TABLE>
28 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United States - continued
7,400 Westvaco Corp 218,300
5,400 Wheelabrator Technologies Inc 76,950
4,600 Whitman Corp 108,100
500 Willamette Industries 32,000
8,600 Wisconsin Energy Corp 220,375
500 Wrigley (William) Jr Co 29,938
9,200 Xerox Corp 575,000
------------------
90,798,873
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $217,602,380) 236,589,045
------------------
Par Value($)/ DEBT OBLIGATIONS - 8.4%
Shares U.S. Government Agency - 1.7%
$ 5,000,000 Student Loan Marketing Association, 6.05% due 10/26/09 5,021,875
------------------
U.S. Government - 6.7%
$ 20,000,000 U.S. Treasury Note, 5.50% due 11/15/98 (a) 19,840,625
------------------
TOTAL DEBT OBLIGATIONS (Cost $24,889,266) 24,862,500
------------------
SHORT-TERM INVESTMENTS - 14.1%
Cash Equivalents - 12.5%
$ 15,200,000 First National Bank of Chicago Time Deposit, 5.44% due 3/3/97 15,200,000
$ 13,500,000 Republic Bank of New York Time Deposit, 5.34% due 3/3/97 13,500,000
8,626,700 The Boston Global Investment Trust (c) 8,626,700
------------------
37,326,700
------------------
U.S. Government - 1.6%
$ 4,850,000 U.S. Treasury Bill, 5.56% due 1/8/98 4,628,356
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $41,955,445) 41,955,056
------------------
Principal Amount
(000's Omitted) CALL OPTION PURCHASED - 1.4%
United States - 1.4%
$ 300,000 U.S. Treasury Note 5.50%, Expires 04/25/97, Strike 99.00 (Cost $4,828,125) 4,218,750
------------------
TOTAL INVESTMENTS - 103.7%
(Cost $289,275,216) * * 307,625,351
Other Assets and Liabilities (net) - (3.7%) (10,923,399)
------------------
TOTAL NET ASSETS - 100.0% $ 296,701,952
==================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) All or a portion of this security is held as
collateral for open futures contracts.
(b) Valued by management (Note 1).
(c) Represents investment of security lending collateral
(Note 1).
* Non-income producing security. A dividend has not
been declared for the year ended February 28, 1997.
* * The aggregate identified cost for federal income tax
purposes is $289,556,176, resulting in gross
unrealized appreciation and depreciation of
$27,413,492 and $9,344,317, respectively, and net
unrealized appreciation of $18,069,175.
See accompanying notes to the financial statements. 29
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, industry sector diversification of
the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
Industry Sector (Unaudited)
<S> <C>
Banking 8.2%
Conglomerates 7.1
Services 6.4
Utilities 5.8
Real Estate 5.7
Construction 5.4
Oil and Gas 5.4
Consumer Goods 5.0
Chemicals 4.7
Retail Trade 4.6
Telecommunications 4.2
Health Care 4.0
Machinery 4.0
Electronic Equipment 3.9
Transportation 3.4
Food and Beverage 3.2
Automotive 2.6
Communications 2.2
Insurance 2.1
Paper and Allied Products 2.1
Metals and Mining 2.1
Financial Services 1.2
Aerospace 1.1
Textiles 0.7
Computers 0.7
Miscellaneous 4.2
--------
100.0%
========
</TABLE>
30 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $289,275,216) (Note 1) $ 307,625,351
Foreign currency, at value (cost $3,091,434) (Note 1) 3,054,895
Cash 82,669
Receivable for investments sold 1,256,207
Receivable for daily variation margin on open futures contracts 416,687
Dividends and interest receivable 692,559
Receivable for open forward foreign currency contracts (Note 6) 2,867,191
Foreign withholding taxes receivable 147,308
Receivable for expenses waived or borne by Manager (Note 2) 47,494
----------------
Total assets 316,190,361
----------------
Liabilities:
Payable for open swap contracts 4,353,890
Payable upon return of securities loaned (Note 1) 8,626,700
Payable for investments purchased 2,625,354
Payable for Fund shares repurchased 80,000
Payable for open forward foreign currency contracts (Note 6) 3,381,786
Payable to affiliate for (Note 2):
Management fee 148,701
Shareholder service fee 34,304
Accrued expenses 237,674
----------------
Total liabilities 19,488,409
----------------
Net assets $ 296,701,952
================
Net assets consist of:
Paid-in capital $ 279,467,411
Distributions in excess of net investment income (927,940)
Accumulated net realized gain 7,873,611
Net unrealized appreciation 10,288,870
----------------
$ 296,701,952
================
Net assets attributable to Class III Shares $ 296,701,952
===============
Shares outstanding - Class III 27,760,589
===============
Net asset value per share - Class III $ 10.69
===============
</TABLE>
See accompanying notes to the financial statements. 31
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $497,842) $ 7,068,302
Interest (including security lending income of $29,203) 2,607,955
---------------
Total income 9,676,257
---------------
Expenses:
Management fee (Note 2) 2,168,233
Custodian fees 811,557
Audit fees 69,917
Legal fees 64,518
Stamp duties and transfer taxes 56,886
Transfer agent fees 29,537
Registration fees 3,815
Trustees fee (Note 2) 1,689
Miscellaneous 4,612
Fees waived or borne by Manager (Note 2) (531,673)
---------------
2,679,091
Shareholder service fee - Class III (Note 2) 357,586
---------------
Net expenses 3,036,677
---------------
Net investment income 6,639,580
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 47,791,902
Closed futures contracts (17,102,626)
Closed swap contracts (6,769,213)
Foreign currency, forward contracts and foreign
currency related transactions (2,316,993)
---------------
Net realized gain 21,603,070
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (15,992,478)
Open futures contracts (3,710,557)
Open swap contracts (1,332,685)
Foreign currency, forward contracts and foreign
currency related transactions (561,670)
---------------
Net unrealized loss (21,597,390)
---------------
Net realized and unrealized gain 5,680
---------------
Net increase in net assets resulting from operations $ 6,645,260
===============
</TABLE>
32 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
----------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,639,580 $ 7,767,235
Net realized gain (loss) 21,603,070 (16,123,360)
Change in net unrealized appreciation (depreciation) (21,597,390) 31,582,518
---------------- -----------------
Net increase in net assets resulting from operations 6,645,260 23,226,393
---------------- -----------------
Distributions to shareholders from:
Net investment income - Class III (5,664,462) (8,135,996)
---------------- -----------------
Net share transactions - Class III (Note 5) (87,212,602) 153,205,238
---------------- -----------------
Total increase (decrease) in net assets (86,231,804) 168,295,635
Net assets:
Beginning of period 382,933,756 214,638,121
---------------- -----------------
End of period (including distributions in excess of net
investment income of $927,940 and accumulated undistributed
net investment income of $298,205, respectively) $ 296,701,952 $ 382,933,756
================ =================
</TABLE>
See accompanying notes to the financial statements. 33
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
---------------------------------------------------------------
1997 1996 1995*
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.64 $ 10.12 $ 10.00
---------------- ---------------- ----------------
Income from investment operations:
Net investment income 0.24 0.21 0.11
Net realized and unrealized gain (loss)
on investments 0.01 0.55 0.08
---------------- ---------------- ----------------
Total from investment operations 0.25 0.76 0.19
---------------- ---------------- ----------------
Less distributions to shareholders:
From net investment income (0.20) (0.24) (0.07)
---------------- ---------------- ----------------
Net asset value, end of period $ 10.69 $ 10.64 $ 10.12
================ ================ ================
Total Return (a) 2.34% 7.54% 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $296,702 $382,934 $214,638
Net expenses to average
daily net assets 0.91%(c) 0.78% 0.92%**
Net investment income to average
daily net assets 1.99% 2.44% 2.85%**
Portfolio turnover rate 463% 214% 194%
Average broker commission rate (b) $ 0.084 N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.005 $ 0.006
</TABLE>
* Period from July 29, 1994 (commencement of operations) to February 28,
1995.
** Annualized
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission
rate will vary depending on the markets in which trades are executed.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .02% of average daily net assets.
34 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the "Manager" or "GMO").
The Trust was established as a Massachusetts Business Trust under the laws of
the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"), each
of which issues a separate series of shares, and to subdivide a series into
classes.
The Fund seeks total return consistent with minimal exposure to general
equity market risk.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.
35
<PAGE>
GMO Global Hedged Equity 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, other assets and liabilities
are translated to U.S. dollars based on the prevailing exchange rates each
business day. Income and expenses denominated in foreign currencies are
translated at prevailing exchange rates when accrued or incurred. The Fund
does not isolate realized and unrealized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in
the market value of investments. Such fluctuations are included with net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains and
losses on disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid.
Futures contracts
The Fund may purchase index futures contracts. Stock index futures contracts
represent commitments for future delivery of cash based upon the level of a
specified index of equity securities at a specified price at a given date.
The Fund may use futures contracts to manage its exposure to the stock and
currency markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. Upon purchase
of a futures contract, the Fund is required to deposit with its custodian, in
a segregated account in the name of the futures broker, an amount of cash or
U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
subsequently settled. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts involve,
to varying degrees, risk of loss in excess of the variation margin disclosed
in the Statement of Assets and Liabilities. Losses may arise from the changes
in the value of the underlying instrument, if there is an illiquid secondary
market for the contracts or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts held as of February 28,
1997.
36
<PAGE>
GMO Global Hedged Equity 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
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and sell
a currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange rates.
Forward currency contracts are marked to market daily and the change in value
is recorded by the Fund as an unrealized gain or loss. Realized gains or
losses equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed are recorded upon
delivery or receipt of the currency or, if a forward currency contract is
offset by entering into another forward currency contract with the same
broker, upon settlement of the net gain or loss. These contracts may involve
market risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be exposed
to risk if the counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. The
U.S. dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has acquired
or hedged through currency contracts as of February 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to the
premium received is recorded as a liability and subsequently marked to market
to reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or closed are offset against the
proceeds or amounts paid on the transaction to determine the realized gain or
loss. If a written put option is exercised, the premium reduces the cost
basis of the securities purchased by the Fund. The Fund as a writer of an
option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. As of February 28, 1997, there
were no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
37
<PAGE>
GMO Global Hedged Equity 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 enters into equity swap agreements which involve
a commitment by one party in the agreement to pay interest in exchange for a
market linked return based on a notional amount. To the extent that the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Equity
swaps are marked to market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gain or loss in the Statement
of Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform or that there may be
unfavorable changes in the price of the security or index underlying these
transactions. See Note 6 for a summary of open swap agreements as of February
28, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
February 28, 1997, the Fund loaned securities having a market value of
$8,095,505 collateralized by cash in the amount of $8,626,700, which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its taxable net
investment income and net realized short-term and long-term capital gains, if
any, after giving effect to any available capital loss carryover for federal
income tax purposes. Therefore, no provision for federal income or excise tax
is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
38
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency and passive foreign investment
company transactions and swap contracts.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of net
investment income per share in the financial highlights table excludes these
adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------------- ------------------------ ------------------------
<S> <C> <C>
($2,201,263) $2,205,072 ($3,809)
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual basis
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
39
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds. Investment income, common expenses and
realized and unrealized gains and losses are allocated pro-rata among the
classes based on the relative net assets of each class. Shareholder service
fees, which are directly attributable to a class of shares, are charged to
that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .50% of the amount invested.
Prior to June 1, 1996, the premium on cash purchases was .60% of the amount
invested. In the case of cash redemptions, the fee is 1.40% of the amount
redeemed. The Manager may waive the fee on cash redemptions if it is not
necessary to incur costs relating to the early termination of hedging
transactions to meet redemption requests. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund. For
the year ended February 28, 1997, the Fund received $105,117 in purchase
premiums and $49,502 in redemption fees. There is no premium for reinvested
distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities. These
risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .65% of average
daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder
Services Plan under which the Fund pays GMO a shareholder service fee for
client and shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based on
the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including transfer taxes), shareholder service fees
and extraordinary expenses) exceed .50% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .65%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
40
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $1,689. 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 28, 1997, 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 $ 1,159,396,671 $ 1,145,884,656
Investments (non-U.S. Government 258,078,607 384,618,416
securities)
</TABLE>
4. Principal shareholder
At February 28, 1997, 33% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
--------------------------------- --------------------------------
Class III: Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 2,716,101 $ 28,751,811 18,601,167 $ 193,770,517
Shares issued to
shareholders in
reinvestment of
distributions 335,863 3,585,825 393,253 4,125,224
Shares repurchased (11,267,323) (119,550,238) (4,235,364) (44,690,503)
--------------- --------------- --------------- ---------------
Net increase/
(decrease) (8,215,359) $ (87,212,602) 14,759,056 $ 153,205,238
=============== =============== =============== ===============
</TABLE>
41
<PAGE>
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 28, 1997 is as
follows:
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Buys
17 DAX March 1997 $ 3,283,793 $ 104,130
49 MIB-30 March 1997 5,028,734 429,798
113 OMX March 1997 3,094,724 (74,948)
40 TSE-35 March 1997 4,772,551 201,804
--------------
$ 660,784
==============
Sales
123 ALL ORDS March 1997 $ 5,792,803 $ (122,271)
54 CAC March 1997 4,974,146 (256,696)
26 FTSE-100 March 1997 4,544,142 (299,089)
84 HANG SENG March 1997 7,197,056 115,629
77 IBEX-35+ March 1997 2,836,672 132,018
195 S&P 500 March 1997 77,064,000 (4,021,791)
91 TOPIX March 1997 10,510,730 648,540
--------------
$ (3,803,660)
==============
</TABLE>
At February 28, 1997, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
42
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ---------------- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Buys
5/9/97 ATS 338,585 $ 28,604 $ (902)
6/13/97 ATS 20,935,293 1,772,301 (32,699)
3/7/97 AUD 962,205 746,772 (14,073)
7/11/97 AUD 962,205 745,404 (497)
5/7/97 BEF 62,347,200 1,795,339 (60,299)
3/7/97 CAD 562,356 411,516 (478)
5/9/97 CAD 1,809,014 1,329,119 (29,567)
3/7/97 CHF 3,866,392 2,622,064 (224,597)
5/9/97 CHF 11,643,740 7,946,275 (348,204)
7/11/97 CHF 1,176,992 808,794 365
3/7/97 DEM 4,526,771 2,681,995 (286,934)
5/9/97 DEM 17,287,220 10,280,661 (415,208)
7/11/97 DEM 4,526,771 2,703,686 (1,238)
5/9/97 DKK 7,717,934 1,202,257 (38,162)
3/7/97 ESP 38,742,980 270,251 (27,749)
5/9/97 ESP 1,367,473,882 9,526,646 (431,647)
5/9/97 FIM 4,718,149 940,575 (32,292)
6/13/97 FIM 1,480,155 295,792 (7,208)
3/7/97 FRF 4,013,502 704,587 (46,148)
5/9/97 FRF 11,788,198 2,077,281 (64,859)
7/11/97 FRF 1,387,738 245,531 (111)
3/7/97 GBP 412,765 673,391 12,492
5/9/97 GBP 2,345,659 3,820,938 (52,592)
7/11/97 GBP 412,765 671,605 (583)
3/7/97 HKD 20,215,997 2,610,501 368
5/9/97 HKD 7,708,960 995,131 (1,070)
5/9/97 IEP 364,709 577,016 (7,140)
3/7/97 ITL 1,680,893,650 994,444 (99,722)
6/13/97 ITL 9,569,990,140 5,632,456 (237,544)
</TABLE>
43
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ---------------- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Buys - continued
7/11/97 ITL 1,680,893,650 $ 988,365 $ (7,750)
3/7/97 JPY 228,420,480 1,893,408 17,265
3/7/97 MYR 1,277,551 514,453 1,421
5/9/97 MYR 5,507,600 2,211,816 8,424
3/7/97 NLG 7,949,949 4,187,612 (161,502)
5/9/97 NLG 20,056,957 10,605,031 (363,150)
7/11/97 NLG 2,900,520 1,540,325 117
3/7/97 NOK 3,460,269 513,590 (23,681)
5/9/97 NOK 12,935,995 1,925,853 (86,080)
6/13/97 NOK 9,179,857 1,369,214 (46,786)
7/11/97 NOK 3,460,269 516,944 (1,736)
3/7/97 NZD 313,438 216,776 (957)
5/9/97 NZD 2,062,165 1,419,924 6,312
6/13/97 NZD 4,771,046 3,278,588 22,588
3/7/97 SEK 3,335,820 444,935 (14,833)
5/9/97 SEK 10,261,354 1,371,120 (43,441)
6/13/97 SEK 2,939,756 393,326 (5,674)
7/11/97 SEK 723,912 96,972 (1,126)
5/9/97 SGD 2,694,110 1,893,527 (33,506)
---------------
$ (3,182,393)
===============
Sales
5/9/97 ATS 34,205,552 $ 2,891,693 $ 105,734
3/7/97 AUD 962,205 746,772 380
5/9/97 AUD 3,960,506 3,072,798 (27,962)
5/7/97 BEF 2,432,188 70,150 2,301
3/7/97 CAD 562,356 411,516 9,819
5/9/97 CAD 1,366,565 1,004,560 20,144
7/11/97 CAD 562,356 415,025 152
</TABLE>
44
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ---------------- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales - continued
3/7/97 CHF 3,866,392 $ 2,622,064 $ 168,159
5/9/97 CHF 4,002,600 2,733,733 125,267
6/13/97 CHF 807,348 553,517 16,483
3/7/97 DEM 4,526,771 2,681,995 1,331
6/13/97 DEM 9,227,904 5,503,107 59,893
6/13/97 DKK 17,020,704 2,657,574 41,426
3/7/97 ESP 38,742,980 270,251 7,636
5/9/97 ESP 1,367,473,882 9,526,646 277,246
5/9/97 FIM 2,273,939 454,085 14,769
3/7/97 FRF 4,013,502 704,587 27,137
3/7/97 GBP 412,765 673,391 366
5/9/97 GBP 3,810,526 6,211,119 (35,019)
6/13/97 GBP 1,825,285 2,973,436 (6,436)
3/7/97 HKD 20,215,997 2,610,501 2,499
4/9/97 HKD 50,351,750 6,501,664 8,776
7/11/97 HKD 20,215,997 2,609,444 (693)
5/9/97 IEP 216,169 342,332 7,668
3/7/97 ITL 1,680,893,650 994,444 7,699
5/9/97 ITL 4,851,054,020 2,861,219 128,645
3/7/97 JPY 228,420,480 1,893,408 156,493
5/9/97 JPY 504,543,266 4,222,402 69,833
6/13/97 JPY 86,949,800 731,250 (13,250)
7/11/97 JPY 228,420,480 1,929,048 (19,481)
3/7/97 MYR 1,277,551 514,453 (7,025)
5/9/97 MYR 6,444,618 2,589,469 (10,930)
6/13/97 MYR 2,506,904 1,006,170 (5,170)
7/11/97 MYR 1,277,551 512,322 (1,547)
3/7/97 NLG 7,949,949 4,187,612 318,033
</TABLE>
45
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ---------------- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sales - continued
4/9/97 NLG 3,025,890 $ 1,598,107 $ 162,155
5/9/97 NLG 14,428,952 7,636,112 315,346
7/11/97 NLG 5,049,429 2,684,115 (2,528)
3/7/97 NOK 3,460,269 513,590 1,630
5/9/97 NOK 19,368,450 2,887,357 96,306
3/7/97 NZD 313,438 216,776 1,487
5/9/97 NZD 8,127,717 5,602,110 81,825
7/11/97 NZD 313,438 215,291 824
3/7/97 SEK 3,335,820 444,935 38,759
5/9/97 SEK 65,533,118 8,764,791 452,816
7/11/97 SEK 2,611,908 350,241 1,058
5/9/97 SGD 6,414,885 4,513,393 67,744
---------------
$ 2,667,798
===============
</TABLE>
Currency Abbreviations
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc MYR Malaysian Ringgit
DEM German Mark NLG Netherlands Guilder
DKK Danish Krona NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
FIM Finnish Markka SEK Swedish Krona
FRF French Franc SGD Singapore Dollar
GBP British Pound
46
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Unrealized
Amount Expiration Appreciation/
Fund/Counterparty Date Description (Depreciation)
- ------------------- ------------ ------------------------------------------------ ----------------
<C> <C> <S> <C>
$ 20,383,440 3/15/97 Agreement with Swiss Bank Corporation dated $ (257,419)
January 31, 1997 to pay (receive) the notional
amount multiplied by the return on the EAFE
Index (including dividends) and to receive the
notional amount multiplied by LIBOR adjusted by
a specified spread.
23,816,707 3/31/97 Agreement with Swiss Bank Corporation dated (219,614)
January 31, 1997 to pay (receive) the notional
amount multiplied by the return on the EAFE
X-Japan Index (including dividends) and to
receive the notional amount multiplied by LIBOR
adjusted by a specified rate.
6,259,069/ 5/16/97 Agreement with Morgan Stanley Capital Services, 17,744
6,001,144 Inc. dated May 20, 1996 to pay (receive) the
notional amount multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount multiplied
by 6 month LIBOR adjusted by a specified spread
and to receive (pay) the change in market value
of a basket of selected securities (including
dividends) less the counterparty's notional
amount multiplied by 6 month LIBOR adjusted by
a specified spread.
15,504,633 5/30/97 Agreement with Deutsche Bank AG dated May 31, 706,475
1996 to pay (receive) the notional amount
multiplied by the return on the EAFE Index
and to receive the notional amount multiplied
by 6 month LIBOR adjusted by a specified spread.
</TABLE>
47
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation/
Amount Date Description (Depreciation)
- ------------------- ------------ ------------------------------------------------ ----------------
<C> <C> <S> <C>
$ 21,000,000 5/30/97 Agreement with Swiss Bank Corporation dated $ (2,274,814)
May 31, 1996 to pay (receive) the notional
amount multiplied by the return on the EAFE
X-Japan Index (including dividends) and to
receive the notional amount multiplied by
6 month LIBOR adjusted by a specified spread.
CHF 6,956,000 8/06/97 Agreement with Swiss Bank Corporation dated 1,089,845
August 6, 1996 to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread and to receive (pay) the
notional amount multiplied by the return on the
Swiss Market Index (including dividends).
$ 25,000,000 8/29/97 Agreement with Deutsche Bank AG dated August 30, (2,617,737)
1996 to pay (receive) the notional amount
multiplied by the return on the EAFE X-Japan
Index (including dividends) and to receive the
notional amount multiplied by 6 month LIBOR
adjusted by a specified rate.
8,000,000 8/29/97 Agreement with Swiss Bank Corporation dated 67,252
August 30, 1996 to pay (receive) the notional
amount multiplied by the return on the EAFE
Index (including dividends) and to receive the
notional amount multiplied by 6 month LIBOR
adjusted by a specified spread.
</TABLE>
48
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Notional Unrealized
Amount Expiration Appreciation/
Fund/Counterparty Date Description (Depreciation)
- ------------------- ------------ ------------------------------------------------ ----------------
<C> <C> <S> <C>
$ 5,826,645/ 9/11/97 Agreement with Morgan Stanley Capital $ (331,548)
5,837,283 Services, Inc. dated September 9, 1996 to pay
(receive) the notional amount multiplied by the
return on the Standard & Poor's 500 Index
(including dividends) less the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread and to receive (pay) the
change in market value of a basket of selected
securities (including dividends) less the
counterparty's notional amount multiplied by
6 month LIBOR adjusted by a specified spread.
15,000,000 9/30/97 Agreement with Deutsche Bank AG dated September $ 418,332
30, 1996 to pay (receive) the notional amount
multiplied by the return on the EAFE Index
(including dividends) and to receive the
notional amount multiplied by 6 month LIBOR
adjusted by a specified spread.
15,000,000 10/07/97 Agreement with Morgan Stanley Capital Services, (952,406)
Inc. dated December 23, 1996 to pay (receive)
the notional amount multiplied by the return on
the Standard & Poor's 500 Index (including
dividends) less the notional amount multiplied
by 6 month LIBOR adjusted by a specified spread
and to receive (pay) the counterparty's
notional amount multiplied by the return on the
Russell 2000 Index (including dividends) less
the notional amount multiplied by 6 month LIBOR
adjusted by a specified spread.
----------------
Net unrealized depreciation $ (4,353,890)
================
</TABLE>
49
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income.
The Fund has also elected to defer to March 1, 1997 post-October foreign
currency losses of $2,765,057.
50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Mr. Forrest Berkley 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 has been with GMO and involved in portfolio management for more than ten
years.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The GMO Global Hedged Equity Fund underperformed the Salomon 3 Month T-Bill
benchmark index for the fiscal year ended February 28, 1997 with the Fund
returning 2.3% versus 5.2% for the Salomon 3 Month Treasury Bill. Consistent
with the Fund's investment objective and policies, the Fund was invested
substantially in hedged global equities, combining long positions in common
stocks of the U.S. and developed international equity markets with 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 ranged from 2% to 30% during the year, 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 underperformance of
the Salomon 3 Month T-Bill was principally due to the underperformance of the
Fund's U.S. stock holdings relative to the S&P 500 index, which was sold short.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Global Hedged Equity Fund Class III shares and the
Salomon Brothers 3 Month Treasury Bill Index
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
Since
Inception
1 Year 5 Year 07/29/94
<S> <C> <C> <C>
Class III 0.4% N/A 3.7%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Global Hedged Fund Salomon Brothers 3 Month Treasury Bill Index
<S> <C> <C>
07/29/94 9,950 10,000
02/28/95 10,132 10,297
02/29/96 10,744 10,882
02/28/97 10,996 11,451
</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 50 bp on the purchase and 140 bp on the redemption.
Transaction fees are paid to the Fund to cover trading costs. Class III shares
are a redesignation of the single class of shares that has been offered by the
Fund since inception. Class I shares and Class II shares have not commenced
operations. Past performance is not indicative of future performance.
Information is unaudited.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Domestic Bond Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Domestic Bond Fund at February
28, 1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 17, 1997
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS - 95.7%
Asset Backed Securities - 40.9%
$ 5,000,000 Augusta Funding Series 1996-F2,
Variable Rate, LIBOR + .30% (5.89%), due 4/15/06 144A 4,951,465
11,887,168 Augusta Funding VI Series 1996-A3, 7.375% due 4/15/13 144A 11,783,039
17,000,000 Bombardier Receivables Master Trust I 97-1 Class A
Variable Rate, 1 mo. LIBOR + .12% (5.56%), due 4/15/04 17,023,906
15,000,000 Chevy Chase Master Credit Card 1995-C Class A,
Variable Rate, LIBOR + .26% (5.68%), due 5/15/06 15,056,250
10,000,000 Circuit City Credit Card Master Trust 1996-1 Class A,
Variable Rate, LIBOR + .17% (5.59%), due 10/15/06 10,006,250
4,167,900 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + .88% (6.42%), due 11/15/03 4,173,110
7,400,000 Discover Card Master Trust I 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35% (5.77%), due 10/16/04 7,465,118
5,000,000 European Sovereign Investments,
Variable Rate, 6 mo. LIBOR + .40% (6.09%), due 1/20/99 5,020,000
14,000,000 First Chicago Master Trust II 95-0
Variable Rate, 1 mo. LIBOR + .23% (5.65%), due 2/15/04 14,052,500
15,000,000 First Deposit Master Trust Series 1996-1A,
Variable Rate, 1 mo. LIBOR + .17% (5.60%), due 8/15/07 15,037,500
13,500,000 First Union Master Credit Card Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17% (5.65%), due 9/15/03 13,536,450
7,500,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + .37% (5.81%), due 8/15/03 7,566,225
10,050,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73% (6.11%), due 11/25/21 10,050,000
10,000,000 Keycorp Student Loan Trust 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75% (6.19%), due 10/27/21 10,000,000
14,688,910 Keystone Auto Grantor Trust Series 1996-A Class A, 6.60% due 12/15/02 144A 14,872,521
6,000,000 National Premier Finance 95-2, 6.21% due 6/01/99 144A 5,988,000
14,000,000 National Premier Finance IX 96-1A, 7.20% due 7/01/00 14,224,000
6,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30% (5.74%), due 8/25/07 6,046,875
5,194,322 New York City Tax Lien Series 1996-1 Class B, 6.91% due 5/25/05 144A 5,298,208
3,500,000 Premier Auto Trust 94-4 Certificates, 6.85% due 5/02/99 3,533,110
5,000,000 Premier Auto Trust 95-1 Certificates, 8.10% due 3/04/01 5,149,219
6,652,034 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45% (5.83%), due 6/25/26 6,660,349
3,290,448 Resolution Trust Corp 94-C1 Class A3,
Variable Rate, 1 mo. LIBOR + .55% (5.93%), due 6/25/26 3,294,561
2,637,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75% (6.42%), due 10/25/23 2,637,000
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65% (6.09%), due 4/25/25 4,925,835
5,888,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75% (6.56%), due 7/25/03 5,897,200
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Backed Securities - continued
$ 8,000,000 Student Loan Marketing Association Series 1996-2 Class A2,
Variable Rate, 3 mo. LIBOR +.71% (5.85%), due 7/27/09 8,028,000
3,089,148 UCFC Home Equity Loan 95-B2 Class A8,
Variable Rate, 1 mo. LIBOR + .45% (5.95%), due 10/10/26 3,092,237
------------------
235,368,928
------------------
Structured Notes - 6.1%
2,900,000 Federal Home Loan Bank
Variable Rate, (10% - 6 mo. LIBOR)(4.25%), due 3/03/98 2,842,000
3,550,000 Federal Home Loan Bank,
Variable Rate, (10 YR CMT + 2.55% - 3 mo. LIBOR)(3.55%), due 7/28/98 3,345,875
3,000,000 Federal Home Loan Bank, 4.90% due 2/23/98 2,992,500
2,500,000 Federal National Mortgage Association,
Variable Rate, ((.50 x 10 YR CMT) + 1.50%)(4.69%), due 2/25/98 2,462,500
1,250,000 Federal National Mortgage Association,
Variable Rate, ((.50 x 2YR CMT) + 1.80%)(4.91%), due 3/10/98 1,233,750
22,500,000 Student Loan Marketing Association,
Variable Rate, (10.25% - 5YR DM SWAP)(4.84%), due 3/23/98 22,027,500
------------------
34,904,125
------------------
U.S. Government - 18.3%
28,000,000 U.S. Treasury Bond, 6.25% due 8/15/23 (a) 25,672,500
10,000,000 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 10,025,000
40,000,000 U.S. Treasury Note, 6.375% due 8/15/02 39,950,000
29,000,000 U.S. Treasury Note, 6.875% due 8/31/99 (a) 29,471,250
------------------
105,118,750
------------------
U.S. Government Agency - 30.4%
5,000,000 Agency for International Development Floater (Support of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40% (5.63%), due 10/01/12 4,993,750
25,000,000 Agency for International Development Floater (Support of Portugal),
Variable Rate, 6 mo. LIBOR (5.59%), due 1/01/21 24,773,438
10,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10% (5.47%), due 2/01/27 10,040,625
9,000,000 Agency for International Development Floater (Support of Jamaica),
Variable Rate, 6 mo. LIBOR + .30% (5.58%), due 12/01/14 9,028,125
15,000,000 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR + .15% (5.57%), due 10/29/26 15,051,563
20,000,000 Agency for International Development Floater (Support of Morocco),
Variable Rate, 6 mo. LIBOR - .015% (5.66%), due 2/01/25 19,587,500
10,772,500 Agency for International Development Floater (Support of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20% (5.79%), due 6/15/12 10,819,630
10,500,000 Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115% (5.09%), due 1/01/12 10,506,563
10,500,000 Federal National Morgage Association Aces Series 96-M3 Class A2,
7.41% due 3/25/21 10,563,000
20,000,000 Federal National Mortgage Association, 6.49% due 1/19/06 19,379,100
5,000,000 Federal National Mortgage Association, 6.73% due 11/04/02 4,935,620
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value ($)/Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. Government Agency - continued
$ 15,000,000 Federal National Mortgage Association, 5.19% due 7/20/98 14,838,930
$ 20,000,000 Small Business Administration, 7.35% due 08/01/06 20,270,000
------------------
174,787,844
------------------
TOTAL DEBT OBLIGATIONS (Cost $550,334,117) 550,179,647
------------------
PREFERRED STOCK - 3.5%
20,000 Home Ownership Funding 2 Preferred 144A 13.338% 19,844,025
------------------
TOTAL PREFERRED STOCK (Cost $20,016,160) 19,844,025
------------------
SHORT-TERM INVESTMENTS - 14.9%
Cash Equivalents - 14.8% (b)
23,839,784 American AAdvantage Money Market Fund 23,839,784
$ 25,562,761 Bank of Boston Eurodollar Time Deposit, 5.5375% due 3/3/97 25,562,761
$ 23,000,000 Harris Bank and Trust Eurodollar Time Deposit, 5.375% due 3/3/97 23,000,000
12,500,000 Merrimac Cash Fund Premium Class 12,500,000
------------------
84,902,545
------------------
Repurchase Agreement - 0.1%
$ 489,061 Salomon Brothers Repurchase Agreement, dated 2/28/97,
due 3/3/97, with a maturity value of $489,258 and an
effective yield of 4.85% collateralized by U.S. Treasury
Obligations with rates ranging from 7.25% to 11.88%,
with maturity dates ranging from 11/15/03 to 5/15/20
and with an aggregate market value of $499,372. 489,061
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $85,391,606) 85,391,606
------------------
TOTAL INVESTMENTS - 114.1%
(Cost $655,741,883) * * 655,415,278
Other Assets and Liabilities (net) - (14.1)% (80,922,638)
------------------
TOTAL NET ASSETS - 100.0% $ 574,492,640
==================
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investment - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
CMT - Constant Maturity Treasury Index
DM SWAP - 5 Year Deutsche Mark Constant Maturity Swap Rate
(a) A portion of this security is held as collateral for
open futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
Variable rates - The rates shown on variable rate notes
are the current interest rates at February 28, 1997, which
are subject to change based on the terms of the security.
144A - Securities exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be
resold in transactions exempt from registration, normally
to qualified institutional buyers.
** The aggregate identified cost for federal income tax
purposes is $655,741,883, resulting in gross
unrealized appreciation and depreciation of $1,599,731
and $1,926,336, respectively, and net unrealized
depreciation of $326,605.
See accompanying notes to the financial statements.
4
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
--------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $655,741,883)(Note 1) $ 655,415,278
Receivable for variation margin on open futures contracts (Notes 1 and 6) 245,241
Receivable for Fund shares sold 50,000
Interest receivable 5,007,628
Receivable for expenses waived or borne by Manager (Note 2) 110,801
------------------
Total assets 660,828,948
------------------
Liabilities:
Written options outstanding, at value (premiums $126,563) (Note 6) 117,188
Payable upon return of securities loaned (Note 1) 84,902,545
Payable for Fund shares repurchased 1,025,700
Payable to affiliate for (Note 2):
Management fee 111,028
Shareholder service fee 67,004
Accrued expenses 112,843
------------------
Total liabilities 86,336,308
------------------
Net assets $ 574,492,640
==================
Net assets consist of:
Paid-in capital $ 571,604,845
Accumulated undistributed net investment income 5,703,472
Accumulated undistributed net realized loss (489,105)
Net unrealized depreciation (2,326,572)
------------------
$ 574,492,640
==================
Net assets attributable to:
Class I shares $ 3,630,253
==================
Class III shares $ 570,862,387
==================
Shares outstanding:
Class I 357,259
==================
Class III 56,064,794
==================
Net asset value per share:
Class I $ 10.16
==================
Class III $ 10.18
==================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Interest (including securities lending income of $88,959) $ 28,485,759
-----------------
Expenses:
Management fee (Note 2) 1,112,368
Custodian and transfer agent fees 77,433
Registration fees 46,913
Audit fees 44,446
Legal fees 21,352
Trustees fee (Note 2) 2,089
Miscellaneous 3,025
Fees waived or borne by Manager (Note 2) (744,230)
-----------------
563,396
Shareholder service fee (Note 2)
Class I 2,058
Class III 547,675
-----------------
Net expenses 1,113,129
-----------------
Net investment income 27,372,630
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 709,323
Closed futures contracts 275,213
-----------------
Net realized gain 984,536
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (2,238,873)
Open futures contracts (951,144)
Written options 9,375
-----------------
Net unrealized loss (3,180,642)
-----------------
Net realized and unrealized loss (2,196,106)
-----------------
Net increase in net assets resulting from operations $ 25,176,524
=================
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------
Year Ended
February 28, 1997 February 29, 1996
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 27,372,630 $ 18,427,858
Net realized gain 984,536 14,899,226
Change in net unrealized appreciation (depreciation) (3,180,642) (1,699,294)
----------------- -----------------
Net increase in net assets resulting from operations 25,176,524 31,627,790
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class I (17,070) -
Class III (25,071,527) (16,310,249)
----------------- -----------------
Total distributions from net investment income (25,088,597) (16,310,249)
----------------- -----------------
Net realized gains
Class I (1,958) -
Class III (3,491,659) (11,149,215)
----------------- -----------------
Total distributions from net realized gains (3,493,617) (11,149,215)
----------------- -----------------
In excess of net realized gains
Class I (878) -
Class III (1,566,602) -
----------------- -----------------
Total distributions in excess of net realized gains (1,567,480) -
----------------- -----------------
(30,149,694) (27,459,464)
----------------- -----------------
Net share transactions: (Note 5)
Class I 3,600,624 -
Class III 264,915,841 97,403,771
----------------- -----------------
Net increase in net assets resulting
from net share transactions 268,516,465 97,403,771
----------------- -----------------
Total increase in net assets 263,543,295 101,572,097
Net assets:
Beginning of period 310,949,345 209,377,248
----------------- -----------------
End of period (including accumulated undistributed
net investment income of $5,703,472 and
$3,439,616, respectively) $ 574,492,640 $ 310,949,345
================= =================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 10, 1996
(commencement of operations)
February 28, 1997
------------------------------
<S> <C>
Net asset value, beginning of period $ 10.01
----------
Income from investment operations:
Net investment income 0.36
Net realized and unrealized gain 0.13
----------
Total from investment operations 0.49
----------
Less distributions to shareholders:
From net investment income (0.29)
From net realized gains (0.03)
In excess of net realized gains (0.02)
----------
Total distributions (0.34)
----------
Net asset value, end of period $ 10.16
==========
Total Return (a) 4.93%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,630
Net expenses to average
daily net assets 0.38%*
Net investment income to average
daily net assets 5.83%*
Portfolio turnover rate 25%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01
</TABLE>
* Annualized.
(a) The total return would have been lower had certain expenses not
been waived during the period shown.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- -------------------------------------------------------------------------------------------
Year Ended February 28/29,
---------------------------------------
1997 1996 1995*
----------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.40 $ 10.13 $ 10.00
----------- ---------- ----------
Income from investment operations:
Net investment income 0.58 0.66 0.24
Net realized and unrealized gain (loss) (0.09) 0.58 0.07
----------- ---------- ----------
Total from investment operations 0.49 1.24 0.31
----------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.60) (0.60) (0.18)
From net realized gains (0.08) (0.37) 0.00
In excess of net realized gains (0.03)
----------- ---------- ----------
Total distributions (0.71) (0.97) (0.18)
----------- ---------- ----------
Net asset value, end of period $ 10.18 $ 10.40 $ 10.13
=========== ========== ==========
Total Return (a) 4.93% 12.50% 3.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 570,862 $ 310,949 $ 209,377
Net expenses to average
daily net assets 0.25% 0.25% 0.25%**
Net investment income to average
daily net assets 6.15% 6.52% 6.96%**
Portfolio turnover rate 25% 70% 65%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.01 $ 0.01
</TABLE>
* For the period from August 18, 1994 (commencement of operations) to
February 28, 1995.
** Annualized
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate series
of shares, and to subdivide a series into classes.
The Fund seeks high total return through investment in U.S. government
securities and other investment grade bonds denominated in U.S. dollars
while generally maintaining a portfolio duration of approximately four to
six years (excluding short-term investments).
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
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.
10
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 28, 1997, the
total value of these securities represented 13% of net assets. These prices
may differ from the value that would have been used had a broader market for
the securities existed.
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 changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to
the premium received is recorded as a liability and subsequently marked to
market to reflect the current value of the option written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or closed are offset
against the proceeds or amounts paid on the transaction to determine the
realized gain or loss. If a written put option is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The Fund as
a writer of an option has no control over whether the underlying securities
may be sold (call) or purchased (put) and as a result bears the market risk
of an unfavorable change in the price of the security underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. See Note 6 for a summary of open
written option contracts as of February 28, 1997.
11
<PAGE>
GMO Domestic Bond 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 28, 1997, the Fund
loaned securities having a market value of $81,979,254, collateralized by
cash in the amount of $84,902,545, which was invested in short-term
instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
12
<PAGE>
GMO Domestic 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 wash
sales.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
--------------------------- ------------------------ ------------------
<S> <C> <C>
($20,177) $20,179 ($2)
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
13
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other support.
Pursuant to the Shareholder Services Plan, the shareholder service fee is
calculated based on the average daily net assets of each class at the annual
rate of .28% for Class I shares, .22% for Class II shares and .15% for Class
III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .10% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .25%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the year ended February 28, 1997, was $2,089. 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 28, 1997, 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 $ 195,887,179 $ 57,640,000
Investments (non-U.S. Government securities) 188,897,202 50,949,578
</TABLE>
4. Principal shareholders
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by three shareholders and 63% of the oustanding Class III shares
of the Fund were held by three shareholders, each holding in excess of 10%
of the outstanding shares of the respective class.
14
<PAGE>
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 September 10, 1996
(commencement of operations)
to February 28, 1997
-----------------------------------------
Class I: Shares Amount
------------------ ----------------
<S> <C> <C>
Shares sold 385,608 $ 3,888,618
Shares issued to shareholders in 1,967 19,906
reinvestment of distributions (30,316) (307,900)
Shares repurchased ------------------- ----------------
357,259 $ 3,600,624
Net increase =================== ================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
----------------------------------- ----------------------------------
Class III: Shares Amount Shares Amount
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 26,591,731 $ 269,419,204 10,635,774 $ 112,856,301
Shares issued to
shareholders in
reinvestment
of distributions 2,531,335 25,549,376 2,246,492 23,494,050
Shares
repurchased (2,947,048) (30,052,739) (3,664,474) (38,946,580)
---------------- --------------- -------------- ---------------
Net increase 26,176,018 $ 264,915,841 9,217,792 $ 97,403,771
================ =============== ============== ===============
</TABLE>
15
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number
of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
- --------------- -------------------------- --------------- ---------------- --------------
<C> <S> <C> <C> <C>
638 U.S. Treasury Bond June 1997 $ 70,459,125 $ (539,784)
989 U.S. Treasury Note 10 Yr June 1997 106,502,937 (784,198)
721 U.S. Treasury Note 5 Yr June 1997 76,257,016 (685,360)
--------------
$ (2,009,342)
==============
</TABLE>
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
Written put option transaction
<TABLE>
<CAPTION>
Principal
Amount
of Contracts
(000's omitted) Premiums
--------------- ----------
<S> <C> <C>
Outstanding, beginning of period - $ -
Option written 30,000 126,563
Option exercised - -
Option expired - -
--------------- -----------
Outstanding, end of period 30,000 $ 126,563
=============== ===========
</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>
U.S. Treasury Note 30,000 $ 100.42 3/7/97 $ 117,188
===========
</TABLE>
16
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
14.18% of distributions as net capital gain dividends.
The Fund has also elected to defer to March 1, 1997 post-October losses of
$2,498,230.
17
<PAGE>
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. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. LLC since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the Domestic Bond Fund returned 4.9% for the fiscal year
ended February 28, 1997, as compared to 4.6% for the Lehman Brothers Government
Bond Index. Consistent with the Fund's investment objectives and policies, the
Fund was substantially invested in high-quality, domestic fixed income
instruments throughout the period.
The Fund was able to add 0.4% to the return of the benchmark in spite of an
across-the-board rise in U.S. interest rates during the fiscal year. Because the
policy of the Fund is to match approximately the duration, or maturity risk, of
the benchmark, the shift in rates did not impact adversely its relative
performance. Of course the higher rate environment meant that the total return
of the Fund was reduced.
During the year the majority of the Fund's assets were invested in U.S. agency
and asset-backed securities. These higher-yielding alternatives to U.S. Treasury
securities enabled the Fund to outperform its benchmark. Because these issues
tend to have short effective maturities, U.S. Treasury interest rate futures
were used to maintain the Fund's interest rate exposure near that of the
benchmark.
At the fiscal year end approximately 41% of the Fund was invested in highly-
rated, floating rate, asset-backed securities. These included issues backed by
auto, truck, credit card and health care receivables. Also, approximately 30% of
the Fund was invested in U.S. government agency issues which offered higher
yields than similar maturity U.S. Treasury securities.
GMO believes that asset-backed securities will continue to offer attractive
opportunities to enhance the yield of the Fund. The maturity exposure of the
fund is managed to approximate that of the U.S. treasury market. As such, the
Fund will remain exposed to capital changes resulting from shifts in U.S.
interest rates.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo
& Co LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Domestic Bond Fund Class III Shares and the
Lehman Brothers Government Bond Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 08/18/94
<S> <C> <C> <C>
Class III 4.9% n/a 8.1%
09/10/96
Class I n/a n/a 4.9%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Domestic Bond Fund Lehman Brothers Government Bond Index
<S> <C> <C>
08/18/94 10,000 10,000
02/28/95 10,315 10,366
02/29/96 11,604 11,620
02/28/97 12,176 12,149
</TABLE>
Performance shown in net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that and
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. Class III shares are a
redesignation of the single class of shares that has been offered by the Fund
since inception. Performance for Class I shares may be different due to higher
shareholder service fees. Class II shares have not commenced operations. Past
performance in not indicative of future performance. Information is unaudited.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
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 relaed statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Currency Hedged International
Bond Fund at February 28, 1997, 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 responsibitity of the Trust's management; our responsibilty
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 84.7%
Argentina - 0.2%
USD 1,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate (3.22%), due 4/01/07 1,030,000
----------------
Australia - 1.0%
GBP 2,700,000 Commonwealth Bank Australia Series EMTN, 8.125% due 12/07/06 4,526,189
----------------
Austria - 0.9%
SEK 25,000,000 Oesterreich Kontrollbank, 9.25% due 7/15/99 3,642,256
ATS 7,030,000 Republic of Austria, 7.00% due 2/14/00 639,796
----------------
4,282,052
----------------
Brazil - 0.7%
USD 3,906,139 Brazil Capitalization Bond, PIK, 8.00% due 4/15/14 3,093,174
----------------
Bulgaria - 0.1%
USD 1,000,000 Bulgaria FLIRB Series B,
Variable Rate, Step up (2.75%), due 7/28/12 452,500
----------------
Canada - 3.6%
CAD 8,000,000 Government of Canada Real Return, 4.25% due 12/1/21 6,435,467
CAD 5,000,000 Government of Canada Real Return, 4.25% due 12/1/26 3,806,570
CAD 3,000,000 Government of Canada, 10.25% due 3/15/14 2,921,867
CAD 5,000,000 Province of Quebec, 7.50% due 12/1/03 3,892,018
----------------
17,055,922
----------------
Cayman Islands - 1.3%
CAD 8,000,000 Government of Canada (Cayman), 7.25% due 6/01/08 6,007,755
----------------
Denmark - 5.8%
DKK 113,800,000 Kingdom of Denmark Bullet, 7.00% due 12/15/04 18,754,921
DKK 48,800,000 Kingdom of Denmark, 8.00% due 11/15/01 8,476,711
----------------
27,231,632
----------------
Ecuador - 0.3%
USD 2,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step up (3.25%), due 2/28/25 900,000
USD 515,599 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 2/27/15 319,672
----------------
1,219,672
----------------
France - 10.1%
FRF 21,000,000 Auxiliare Credit Foncier, 10.00% due 4/20/01 4,408,404
FRF 30,000,000 Auxiliare Credit Foncier, 6.25% due 3/28/03 5,565,794
SEK 30,000,000 Credit Foncier, 6.50% due 2/22/99 4,101,039
ECU 15,000,000 Government of France, 8.25% due 4/25/22 20,320,286
ECU 10,000,000 Societe Nationale des Chemins de Fer, 9.38% due 3/12/01 13,265,230
----------------
47,660,753
----------------
</TABLE>
See accompanying notes to financial statements. 1
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - 1.2%
ESP 320,000,000 Deutsche Ausgleichsbank, 8.60% due 5/22/03 2,427,625
GBP 2,000,000 Deutsche Pfandbriefe Bank, 6.50% due 12/31/98 3,235,265
----------------
5,662,890
----------------
Greece - 0.8%
GRD 1,000,000,000 Hellenic Republic,
Variable Rate, 12 mo. GTB + 1.50% (14.20%), due 9/30/03 3,932,457
----------------
Japan - 5.5%
GBP 5,300,000 Export Import Bank of Japan, 10.75% due 5/15/01 9,697,554
GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.125% due 02/16/05 5,337,452
GBP 6,000,000 Kobe City, 9.50% due 10/20/04 10,895,157
----------------
25,930,163
----------------
Jordan - 0.3%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up (4.00%), due 12/23/23 144A 665,000
USD 947,368 Hashemite Kingdom of Jordan PDI,
Variable Rate, 6 mo. LIBOR + .81% (6.50%), due 12/23/05 890,526
----------------
1,555,526
----------------
Mexico - 2.1%
USD 2,500,000 Mexico Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81% (6.45%), due 12/31/19 2,290,625
FRF 54,500,000 Mexico Par Bond, 6.63% due 12/31/19 7,796,237
----------------
10,086,862
----------------
New Zealand - 0.4%
NZD 2,700,000 New Zealand Index Linked Bond, 4.50% due 2/15/16 1,769,611
----------------
Spain - 2.6%
ESP 821,900,000 European Investment Bank, 10.35% due 12/20/05 6,923,225
ESP 500,000,000 Government of Spain, 10.25% due 11/30/98 3,725,846
ESP 180,000,000 Government of Spain, 10.90% due 8/30/03 1,526,892
----------------
12,175,963
----------------
Supranational - 3.1%
JPY 440,000,000 Asian Development Bank, 5.00% due 2/5/03 4,260,005
SEK 15,000,000 International Finance Corp, 10.63% due 9/20/99 2,260,773
JPY 200,000,000 International Bank Recon and Development, 6.75% due 6/18/01 2,020,880
GBP 3,000,000 International Bank Recon and Development, 11.50% due 11/09/03 5,946,818
----------------
14,488,476
----------------
Sweden - 6.9%
SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00% due 12/1/20 4,780,344
SEK 80,400,000 Kingdom of Sweden, 13.00% due 6/15/01 13,722,932
SEK 52,800,000 Kingdom of Sweden, 10.25% due 5/5/03 8,532,530
SEK 41,000,000 Kingdom of Sweden, 6.00% due 2/9/05 5,305,104
----------------
32,340,910
----------------
United Kingdom - 1.8%
GBP 4,160,000 Guaranteed Export Financial Corp, 12.88% due 9/29/02 8,460,045
----------------
</TABLE>
2 See accompanying notes to financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States - 35.3%
Asset Backed Securities - 0.6%
USD 3,000,000 Augusta Funding VI Series 1996-A3, 7.375% due 4/15/13 144A 2,973,715
USD 3,051,948 Banc One Student Loan Trust 1994-A Class A2,
Variable Rate, 1 mo. LIBOR + .30% (5.74%), due 10/25/16 3,064,156
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25% (5.88%), due 4/15/03 144A 5,006,250
USD 5,000,000 Bombardier Receivables Master Trust I 97-1 Class A
Variable Rate, 1 mo. LIBOR + .12% (5.56%), due 4/15/04 5,007,031
USD 2,000,000 Discover Card Master Trust I 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35% (5.77%), due 10/16/04 2,017,600
USD 2,000,000 Discover Card Master Trust I Series 1996-2A,
Variable Rate, 1 mo. LIBOR +.22% (5.64%), due 7/18/05 2,004,000
USD 13,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25% (6.00%), due 10/03/01 13,065,000
USD 5,300,000 European Sovereign Investments,
Variable Rate, 3 mo. LIBOR + .10% (5.60%), due 7/28/99 5,313,250
USD 5,000,000 First Deposit Master Trust Series 96-1A,
Variable Rate, 1 mo. LIBOR +.17% (5.60%), due 8/15/07 5,012,500
USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73% (6.11%), due 11/25/21 1,950,000
USD 8,661,448 Keystone Auto Grantor Trust Series 1996-A Class A, 6.60% due 12/15/02 144 8,769,716
USD 10,000,000 MBNA Master Credit Card Trust 94-C Class A,
Variable Rate, 1 mo. LIBOR + .25% (5.69%), due 3/15/04 10,059,375
USD 12,000,000 MBNA Master Credit Card Trust 96-J Class A,
Variable Rate. 1 mo. LIBOR + .15% (5.57%), due 2/15/06 12,030,000
USD 9,000,000 National Premier Finance 95-2, 6.21% due 6/01/99 144A 8,982,000
USD 6,500,000 National Premier Finance IX 96-1A, 7.20% due 7/01/00 6,604,000
USD 10,000,000 Navistar Financial Dealer Note Master Trust 90-A Class A3,
Variable Rate, 1 mo. LIBOR + .90% (6.28%), due 1/25/03 10,137,500
USD 8,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30% (5.74%), due 8/25/07 8,062,500
USD 1,947,871 New York City Tax Lien Series 1996-1 Class B, 6.91% due 5/25/05 144A 1,986,828
USD 4,000,000 PARMA Food Corp BV,
Variable Rate, 3 mo. LIBOR + .25% (5.87%), due 12/20/00 3,996,400
USD 10,000,000 Prudential Bank & Trust Master Trust Series 94-A Class A,
Variable Rate, 1 mo. LIBOR +.28% (5.66%), due 8/15/01 10,037,500
USD 2,620,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75% (6.42%), due 10/25/23 2,620,000
USD 5,000,000 Student Loan Marketing Association Series 1996-4 Class A2,
Variable Rate, 3 mo. LIBOR +.64% (5.76%), due 7/25/09 5,021,875
USD 3,465,000 TMS Auto Grantor Trust Series 1996-1 Class CTFS, 7.10% due 12/20/02 3,556,823
----------------
137,278,019
----------------
Structured Notes - 0.0%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (b) 2,271,000
----------------
</TABLE>
See accompanying notes to financial statements. 3
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency - 5.5%
USD 1,700,000 Agency for International Development Floater (Support of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50% (5.73%), due 1/01/14 1,697,875
USD 16,666,667 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. U.S. Treasury Bill + .45% (5.56%), due 2/01/99 16,671,875
USD 5,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10% (5.47%), due 2/01/27 5,020,313
USD 2,500,000 Agency for International Development Floater (Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill * 115% (5.09%), due 1/01/12 2,501,563
----------------
25,891,626
----------------
Total United States 165,440,645
----------------
Venezuela - 0.7%
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 3/31/20 1,725,000
USD 2,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 3/31/20 1,725,000
----------------
3,450,000
----------------
TOTAL DEBT OBLIGATIONS (Cost $389,693,919) 397,853,197
----------------
LOAN PARTICIPATIONS - 1.0%
Russia - 1.0%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 1,004,376
FRF 25,000,000 Russia Vnesheconombank Loan Agreement (Participation with Banque
Paribas, Chase Manhattan, Bank of America, Lehman Brothers and
J.P. Morgan)* 3,834,053
----------------
4,838,429
----------------
TOTAL LOAN PARTICIPATIONS (Cost $1,570,993) 4,838,429
----------------
Principal Amount
(000's omitted) CALL OPTIONS PURCHASED - 2.4%
Cross Currency Options - 1.9%
DEM 269,300 DEM Call/BEF Put, Expires 4/11/97 Knock Out 20.50, Strike 20.50 1,052,826
ECU 117,800 ECU Call/DEM Put, Expires 5/14/97 Knock Out 1.894, Strike 1.894 2,965,503
ECU 210,500 ECU Call/DEM Put, Expires 6/13/97 Knock Out 1.9075, Strike 1.9075 3,714,237
ECU 132,800 ECU Call/DEM Put, Expires 7/24/97 Knock Out 1.915, Strike 1.92 1,389,148
----------------
9,121,714
----------------
Options on Bonds - 0.4%
USD 8,500 Brazil Discount Z, Expires 4/25/97 Strike 73.00 754,375
SEK 230,000 Sweden Government Bond 1033, Expires 4/11/97 Strike 117.725 894,774
----------------
1,649,149
----------------
Options on Currency - 0.1%
USD 25,000 German Mark, Expires 2/9/98 Strike 1.61 637,500
----------------
TOTAL CALL OPTIONS PURCHASED (Cost $8,576,546) 11,408,363
----------------
</TABLE>
4 See accompanying notes to financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Principal Amount
(000's omitted) PUT OPTIONS PURCHASED - 2.5%
Cross Currency Options - 0.4%
DEM 112,000 DEM Put/ITL Call, Expires 1/21/98 Strike 950.00 265,372
DEM 109,600 DEM Put/ITL Call, Expires 3/18/97 Strike 1025.00 1,460,727
----------------
1,726,099
----------------
Options on Bonds - 0.0%
USD 1,500 Venezuela Discount Bond, Expires 7/10/97 Strike 88.25 less DCB offer 4,935
----------------
Options on Currency - 2.1%
USD 108,400 French Franc, Expires 6/30/97 Strike 5.195 8,780,400
USD 25,000 German Mark, Expires 2/9/98 Strike 1.61 1,190,000
----------------
9,970,400
----------------
TOTAL PUT OPTIONS PURCHASED (Cost $4,714,088) 11,701,434
----------------
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 SHORT-TERM INVESTMENTS - 5.2%
Repurchase Agreement - 4.0%
$ 18,848,183 Salomon Brothers Repurchase Agreement, dated 2/28/97,
due 3/3/97 with a maturity value of $18,855,801 and an
effective yield of 4.85%, collateralized by U.S. Treasury
Obligations with rates ranging from 7.25% to 11.88%,
with maturity dates ranging from 11/15/03 to 5/15/20
and with an aggregate market value of $19,245,557. 18,848,183
----------------
U.S. Government - 0.0%
6,000,000 U.S. Treasury Bill, 5.56% due 1/08/98 (a) 5,725,278
----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $24,529,663) 24,573,461
----------------
</TABLE>
See accompanying notes to financial statements. 5
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS - 95.8%
(Cost $429,085,209) * * 450,374,884
Other Assets and Liabilities (net) - 4.2% 19,766,338
----------------
TOTAL NET ASSETS - 100.0% $ 470,141,222
================
</TABLE>
Notes to the Schedule of Investments:
DCB - Debt Conversion Bond
FLIRB- Front Loaded Interest Reduction Bond
GTB - Greek Treasury Bill
PIK - Payment In Kind
Knock Out - Option will expire if underlying security reaches
knock out price.
(a) All or a portion of this security is held as collateral for
open futures.
(b) Principal is linked to the value of the Brazilian
Capitalization Bond and the Brazilian IDU Bond. Restricted
as to public resale. At the date of aquisition, this
security was valued at cost. There were no outstanding
unrestricted securities of the same class as those held.
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 28,
1997, which are subject to change based on the terms of the
security.
* Non-performing. Borrower not currently paying interest.
** The aggregate identified cost for federal income tax
purposes is $429,103,531, resulting in gross unrealized
appreciation and depreciation of $28,819,643 and $7,548,290,
respectively, and net unrealized appreciation of
$21,271,353.
Currency Abbreviations
ATS - Austrian Schilling FRF - French Franc
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc GRD - Greek Drachma
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone NZD - New Zealand Dollar
ECU - European Currency Unit SEK - Swedish Krona
ESP - Spanish Peseta USD - United States Dollar
6 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $429,085,209)(Note 1) $ 450,374,884
Foreign currency, at value (cost $6,640,717)(Note 1) 6,399,306
Receivable for investments sold 52,631
Receivable for Fund shares sold 17,973
Interest receivable 10,057,130
Receivable for open forward foreign currency contracts (Notes 1 and 6) 42,289,271
Receivable for expenses waived or borne by Manager (Note 2) 146,626
------------------
Total assets 509,337,821
------------------
Liabilities:
Payable for investments purchased 16,812,715
Written options outstanding, at value (premiums $2,308,750)(Notes 1 and 6) 2,065,000
Payable to brokers for open futures contracts (Note 1) 921,292
Payable for open forward foreign currency contracts (Notes 1 and 6) 19,038,282
Payable to affiliate for (Note 2):
Management fee 181,094
Shareholder service fee 54,443
Accrued expenses 123,773
------------------
Total liabilities 39,196,599
------------------
Net assets $ 470,141,222
==================
Net assets consist of:
Paid-in capital $ 413,604,897
Distributions in excess of net investment income (7,695,280)
Accumulated undistributed net realized gains 21,692,673
Net unrealized appreciation 42,538,932
==================
$ 470,141,222
==================
Net assets attributable to:
Class I shares $ 1,162,376
==================
Class III shares $ 468,978,846
==================
Shares outstanding:
Class I 95,601
==================
Class III 38,558,577
==================
Net asset value per share:
Class I $ 12.16
==================
Class III $ 12.16
==================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Interest (including securities lending income of $10,682) $ 25,865,143
-------------
Expenses:
Management fee (Note 2) 1,782,864
Custodian and transfer agent fees 223,676
Audit fees 70,098
Registration fees 34,204
Legal fees 16,444
Trustees fee (Note 2) 1,571
Miscellaneous 2,782
Fees waived or borne by Manager (Note 2) (1,149,683)
-------------
981,956
Shareholder service fee (Note 2)
Class I 506
Class III 444,068
-------------
Net expenses 1,426,530
-------------
Net investment income 24,438,613
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 9,316,751
Closed futures contracts 15,320,444
Written options 1,200,352
Foreign currency, forward contracts and foreign
currency related transactions 11,702,212
-------------
Net realized gain 37,539,759
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (1,035,032)
Open futures contracts (2,351,421)
Written options (912,920)
Foreign currency, forward contracts and foreign
currency related transactions 24,298,924
-------------
Net unrealized gain 19,999,551
-------------
Net realized and unrealized gain 57,539,310
-------------
Net increase in net assets resulting from operations $ 81,977,923
=============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
February 28, 1997 February 29, 1996
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 24,438,613 $ 19,875,362
Net realized gain 37,539,759 14,407,640
Change in net unrealized appreciation (depreciation) 19,999,551 23,912,792
----------------- -----------------
Net increase in net assets resulting from operations 81,977,923 58,195,794
----------------- -----------------
Distributions to shareholders from:
Net investment income
Class III (20,376,190) (19,852,732)
----------------- -----------------
Net realized gains
Class III (15,129,774) (8,211,314)
----------------- -----------------
In excess of net realized gains
Class III (14,706,753) (5,504,514)
----------------- -----------------
(50,212,717) (33,568,560)
----------------- -----------------
Net share transactions: (Note 5)
Class I 1,123,429 -
Class III 201,090,729 (27,129,814)
----------------- -----------------
Net increase (decrease) in net assets resulting
from Fund share transactions 202,214,158 (27,129,814)
----------------- -----------------
Total increase (decrease) in net assets 233,979,364 (2,502,580)
Net assets:
Beginning of period 236,161,858 238,664,438
----------------- -----------------
End of period (including distributions in excess of net
investment income and accumulated undistributed net
investment income of $7,695,280 and $2,213,016,
respectively) $ 470,141,222 $ 236,161,858
================= =================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from January 2, 1997
(commencement of operations)
to February 28, 1997
----------------------------
<S> <C>
Net asset value, beginning of period $ 11.75
--------------
Income from investment operations:
Net investment income 0.11
Net realized and unrealized gain 0.30
--------------
Total from investment operations 0.41
--------------
Net asset value, end of period $ 12.16
==============
Total Return (a) 3.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,162
Net expenses to average
daily net assets 0.53%*
Net investment income to average
daily net assets 5.91%*
Portfolio turnover rate 90%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01
</TABLE>
* Annualized.
(a) Calculation excludes purchase premiums. The total return would have
been lower had certain expenses not been waived during the period
shown.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
-----------------------------------------------
1997 1996 1995*
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.92 $ 9.99 $ 10.00
----------- ----------- -----------
Income from investment operations:
Net investment income 0.66 1.05 0.24
Net realized and unrealized gain (loss) 2.07 1.62 (0.09)
----------- ----------- -----------
Total from investment operations 2.73 2.67 0.15
----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.60) (1.04) (0.16)
From net realized gains (0.45) (0.42) -
In excess of net realized gains (0.44) (0.28) -
----------- ----------- -----------
Total distributions (1.49) (1.74) (0.16)
----------- ----------- -----------
Net asset value, end of period $ 12.16 $ 10.92 $ 9.99
=========== =========== ===========
Total Return (a) 25.57% 27.36% 1.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 468,979 $ 236,162 $ 238,664
Net expenses to average
daily net assets 0.40% 0.40% 0.40%**
Net investment income to average
daily net assets 6.86% 8.54% 8.46%**
Portfolio turnover rate 90% 85% 64%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.03 $ 0.01
</TABLE>
* Period from September 30, 1994 (commencement of operations) to
February 28, 1995.
** Annualized.
(a) Calculation excludes purchase premiums. The total returns would have
been lower had certain expenses not been waived during the periods
shown.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units, while generally attempting to hedge substantially all
of its foreign currency risk. The Fund generally seeks to provide a total
return greater than that provided by the international fixed income
securities market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
12
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
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 28, 1997.
13
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 28, 1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. See Note 6 for all open written option contracts as of
February 28, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
14
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Loan agreements
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 28, 1997 there were no securities on
loan.
15
<PAGE>
GMO Currency Hedged International 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 taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions and redemptions
in-kind. Gains resulting from such in-kind transactions amounted to $8,750.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
---------------------------- ------------------------ --------------------------
<S> <C> <C>
($13,970,719) $13,961,969 $8,750
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
16
<PAGE>
GMO Currency Hedged International Bond 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. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. Effective June 1, 1996, the Manager will reduce such premium only
when any portion of a purchase is offset by a corresponding redemption
occurring on the same day. All purchase premiums are paid to and recorded
as paid-in capital by the Fund. For the year ended February 28, 1997, the
Fund received $335,528 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.
17
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997, was $1,571. 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 28, 1997, 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 $ 30,890,844 $ -
Investments (non-U.S. Government securities) 438,530,104 285,791,453
</TABLE>
4. Principal shareholders
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by one shareholder and 41% of the outstanding Class III shares of
the Fund were held by one shareholder.
18
<PAGE>
GMO Currency Hedged 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>
Period from January 2, 1997
(commencement of operations)
to February 28, 1997
---------------------------------------------------------
Class I: Shares Amount
------------------------ -------------------------
<S> <C> <C>
Shares sold 95,601 $ 1,123,429
Shares issued to shareholders in reinvestment
of distributions - -
Shares repurchased - -
------------------------ -------------------------
Net increase 95,601 $ 1,123,429
======================== =========================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
--------------------------------------------- -----------------------------------------
Class III: Shares Amount Shares Amount
------------------- ---------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 20,865,195 $ 251,713,393 9,674,966 $ 108,698,337
Shares issued to shareholders
in reinvestment of
distributions
3,723,568 43,606,382 2,519,953 26,923,624
Shares repurchased (7,658,494) (94,229,046) (14,452,061) (162,751,775)
------------------- ---------------------- ----------------- --------------------
Net increase/(decrease) 16,930,269 $ 201,090,729 (2,257,142) $ (27,129,814)
=================== ====================== ================= ====================
</TABLE>
19
<PAGE>
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 28, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
----------------- ---------------------------- ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Buys
4/24/97 CAD 21,600,000 $ 15,861,651 $ (196,873)
3/7/97 DEM 364,600,000 216,061,652 (11,548,149)
3/20/97 DEM 44,400,000 26,332,230 (2,683,899)
4/18/97 GBP 10,900,000 17,766,924 151,559
3/20/97 ITL 34,808,928,000 20,573,625 (2,006,368)
3/27/97 ITL 8,702,232,000 5,141,364 (503,634)
4/10/97 JPY 6,210,000,000 51,760,057 337,854
------------------
$ (16,449,510)
==================
Sales
5/23/97 AUD 23,600,000 $ 18,299,395 $ (252,475)
4/24/97 CAD 80,000,000 58,746,856 1,051,028
3/7/97 DEM 477,200,000 282,788,317 29,610,176
3/20/97 DEM 42,000,000 24,908,866 3,316,125
4/18/97 GBP 52,200,000 85,085,635 2,581,257
3/20/97 ITL 44,478,536,000 26,288,794 2,727,336
4/10/97 JPY 6,860,000,000 51,177,777 2,051,348
3/21/97 NZD 2,563,879 1,771,448 29,165
------------------
$ 41,113,960
==================
</TABLE>
20
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward cross currency contracts
<TABLE>
<CAPTION>
Net
Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange for (Depreciation)
-------------- ------------------------------------ ------------------------------------ ----------------
<S> <C> <C> <C> <C> <C>
4/15/97 BEF 90,704,680 DEM 4,400,000 $ 2,610
3/14/97 DEM 39,900,000 NLG 44,855,580 (9,811)
3/20/97 DEM 22,200,000 ITL 22,012,224,000 (155,911)
4/25/97 DEM 19,200,000 FRF 64,790,360 (1,214)
4/28/97 DEM 498,163,659 ECU 257,100,000 (26,904)
5/5/97 DEM 41,000,000 CHF 35,475,250 (167,372)
5/7/97 DEM 44,700,000 SEK 198,030,790 (116,114)
7/23/97 DEM 32,900,000 ESP 2,786,022,900 (276,433)
5/6/97 DKK 262,045,140 DEM 68,600,000 (24,929)
4/28/97 ECU 101,800,000 DEM 197,212,050 (12,108)
7/23/97 ESP 846,500,000 DEM 10,000,000 86,219
4/25/97 FRF 263,369,000 DEM 78,000,000 (22,925)
3/20/97 ITL 43,290,288,000 DEM 43,400,000 152,675
3/14/97 NLG 136,620,299 DEM 121,800,000 191,919
5/7/97 SEK 726,346,250 DEM 161,500,000 (1,033,163)
----------------
$ (1,413,461)
================
</TABLE>
21
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
-------------- ----------------------------------------- ----------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Buys
136 Australian Government Bond 3 Year March 1997 $ 12,392,016 $ (52,312)
262 Australian Government Bond 10 Year March 1997 27,040,464 (578,244)
253 Canadian Government Bond June 1997 21,594,353 (206,747)
69 German Government Bond June 1997 10,449,282 (15,874)
199 Italian Government Bond 10 Year June 1997 30,179,725 (602,940)
11 Japanese Government Bond June 1997 11,281,397 5,835
174 MATIF ECU Bond March 1997 21,048,513 382,890
105 MATIF ECU Bond June 1997 11,613,188 (55,573)
359 U.K. Gilt March 1997 33,422,760 575,584
370 U.K. Gilt June 1997 33,666,756 (275,024)
-------------------
$ (822,405)
===================
Sales
120 Euro Dollar September 1997 $ 28,200,000 $ 92,100
159 MATIF FRF Bond March 1997 20,322,758 (623,834)
262 MATIF FRF Bond June 1997 30,151,077 (43,993)
234 Spanish Government Bond 10 Year June 1997 18,380,476 345,636
133 Swiss Government Bond March 1997 12,372,093 (606,877)
27 Swiss Government Bond June 1997 2,205,418 (6,561)
46 U.S. Treasury Bond June 1997 5,080,125 93,093
39 U.S. Treasury Note 5 Year June 1997 4,124,859 24,192
5 U.S. Treasury Note 10 Year March 1997 541,719 3,556
13 U.S. Treasury Note 10 Year June 1997 1,399,938 1,403
60 U.S. Treasury Bill 90 Day June 1997 14,215,500 18,325
-------------------
$ (702,960)
===================
</TABLE>
At February 28, 1997, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
22
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Principal
Amount of Amount of
Contracts Contracts
(000's omitted) Premiums (000's omitted) Premiums
------------------ -------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 12,000 $ 606,000 3,022,000 $ 1,095,890
Options written 25,000 1,243,750 3,725,000 1,169,463
Options exercised (12,000) (606,000) - -
Options expired - - (6,722,000) (1,200,353)
------------------ -------------- -------------------- -------------------
Outstanding, end of period 25,000 $ 1,243,750 25,000 $ 1,065,000
================== ============== ==================== ===================
Summary of written options outstanding
<CAPTION>
Principal Amount of
Contracts Expiration
(000's omitted) Exercise Price Date Value
----------------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Calls
Japanese Yen Call 25,000 JPY 117.00 JPY 02/09/98 $ 1,240,000
Puts
Japanese Yen Put 25,000 JPY 117.00 JPY 02/09/98 825,000
---------------
$ 2,065,000
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
23
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
10.74% of distributions as net capital gain dividends.
24
<PAGE>
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. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the Currency Hedged International Bond Fund returned
25.6% for the fiscal year ended February 28, 1997, compared to 14.3% for the
J.P. Morgan Non-U.S. Government Bond Index (Hedged). Consistent with the Fund's
investment objectives and policies, the Fund was substantially invested in
investment-grade, foreign and domestic fixed income instruments throughout the
period.
The past year was an exceptional period for the Fund. It outperformed its
benchmark by 11.3% by following a variety of successful strategies. During the
year bond market selection, currency selection and the decision to include
emerging country debt added value above the benchmark return in each quarter.
Although foreign interest rates generally declined during the year, the
strength of the U.S. dollar meant that many foreign bond markets performed
poorly. This was especially true in Japan, the second largest bond market in
the world, where the bond market produced a total return (in U.S. dollars) of
- -5.1% for the twelve months ended February 28, 1997. The Fund was significantly
underweight in the Japanese market throughout the year and overweight in many
of the high yielding bond markets. The bond markets in Italy, Spain and Sweden
rose strongly on increased confidence in European Monetary Union (EMU). The
Fund was overweight in the U.K. pound, one of the few currencies to outperform
the U.S. dollar. Because the fund hedged much of its non-U.S. dollar currency
exposure according to its investment policy, it benefited significantly from the
dollar's strength.
During the year the Fund held a position in emerging country sovereign debt,
emphasizing undervalued issues. The strong bull market resulting from improved
country fundamentals and renewed investor confidence produced index returns of
more than 40% and helped the Fund exceed its benchmark's return.
Outlook
- -------
The Fund is structured to benefit from outperformance in the Australian,
Canadian, Danish, U.K., Swedish and emerging bond markets. We expect
underperformance from the French, Japanese, Spanish and Swiss bond markets. Our
strategy maintains a market duration in each country. Strong relative
performance is expected from the U.K. pound, Dutch guilder, Italian lira,
<PAGE>
Spanish peseta, Swiss franc and U.S. dollar. the Australian dollar, Belgian
franc, Canadian dollar, French franc, Deutschemark and Swedish krona are
expected to underperform.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Currency Hedged International Bond Fund Class III shares and the
J.P. Morgan Non-U.S. Government Bond Hedged Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception
<S> <C> <C> <C>
09/30/94
Class III 25.4% n/a 22.1%
01/02/97
Class I n/a n/a 3.3%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Currency Hedged International Bond Fund J.P. Morgan Non-U.S. Government Bond Hedged Index
<S> <C> <C>
09/30/94 9,985 10,000
02/28/95 10,134 10,408
02/29/96 12,906 12,048
02/28/97 16,207 13,772
</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 the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Performance for
Class I shares may be different due to higher shareholder service fees. Class II
shares have not commenced operations. Past performance is not indicative of
future performance. Information is unaudited.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
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 28, 1997, the results of its operations, the changes in
its net assets and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1997 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, 1997
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK AND EQUIVALENTS - 94.7%
Australia - 4.6%
11,400 Aberfoyle Ltd 33,802
33,840 Adelaide Brighton Ltd 48,593
53,100 Advance Property Fund 61,412
13,900 Amalgamated Holdings Ltd 64,196
108,906 Amcor Ltd 716,838
323,832 Australia and New Zealand Banking Group Ltd 2,020,922
19,000 Australian Gas & Light 108,691
108,308 Australian National Industries Ltd 120,218
274,109 Boral Ltd 744,672
8,376 Bougainville Copper Ltd * 3,641
25,800 Broken Hill Proprietary Ltd 341,443
23,900 BT Property Trust 31,908
128,129 Burns Philp & Co Ltd 198,907
10,086 Caltex Australia Ltd 34,055
2,400 Capcount Property Trust 1,639
46,100 Capral Aluminum Ltd 158,876
22,900 Centaur Mining & Exploration Ltd * 33,950
21,600 Coca-Cola Amatil Ltd 197,838
344,598 Coles Myer Ltd 1,516,594
35,757 Comalco Ltd 189,841
35,088 Commonwealth Bank of Australia 349,157
28,824 Consolidated Rutile Ltd 23,268
37,336 Cortecs International Ltd * 140,554
2,100 Coventry Group Ltd 8,395
29,700 CRA Ltd 444,741
15,400 CSL Ltd 78,295
332,663 CSR Ltd 1,174,869
78,200 Cultus Petroleum * 128,682
3,602 Dominion Mining Ltd Warrants 12/31/98 * 1,118
7,205 Dominion Mining Ltd * 4,977
48,323 Email Ltd 152,659
16,900 Emperor Mines Ltd * 29,515
36,700 FAI Life Ltd 23,359
12,200 Faulding (FH) & Co Ltd 71,022
34,690 Foodland Associated 166,944
593,357 Fosters Brewing Group Ltd 1,238,916
11,216 G E Crane Holdings Ltd 101,859
146,000 General Property Trust Units 284,446
383,426 Goodman Fielder Ltd 464,280
15,300 GWA International Ltd 26,246
138,331 Hardie (James) Industries Ltd 397,278
30,350 HIH Winterthur International Holdings 72,793
800 Hills Motorway Group 1,149
6,200 Holyman Ltd 25,198
15,482 ICI Australia Ltd 146,609
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Australia - continued
1,000 Jupiters Ltd 2,158
19,200 KLZ Ltd 52,757
20,566 Leighton Holdings 89,395
2,100 Lend Lease Corp Ltd 38,403
42,200 Macmahon Holdings 32,756
48,599 Mayne Nickless Ltd 287,069
55 Memtec Ltd 1,131
245,943 MIM Holdings Ltd 341,713
30,300 Mirvac Ltd 62,090
9,786 Mount Leyshon Gold Mines 16,863
59,966 National Australia Bank Ltd 754,970
4,829 National Consolidated Ltd 3,523
624,803 News Corp Ltd 3,326,909
342,883 News Corp Ltd Preferred 1.19% 1,548,968
24,115 Normandy Mining Ltd 33,318
146,675 North Broken Hill Peko Ltd 474,751
26,823 Orbital Engine Corp * 21,445
600 Pacific BBA Ltd 2,003
256,017 Pacific Dunlop Ltd 616,033
82,070 Pasminco Ltd 152,887
306,352 Pioneer International Ltd 910,737
22,874 PMP Communications Ltd 57,703
22,200 Portman Mining Ltd 45,836
8,399 Publishing & Broadcasting Ltd 42,050
95,419 Qantas Airways Ltd 180,717
12,600 QBE Insurance Group Ltd 63,082
71,035 QCT Resources Ltd 98,145
108,999 QNI Ltd 225,049
10,900 Reinsurance Australia 37,057
43,970 RGC Ltd 174,743
48,069 Rothmans Holdings Ltd 324,607
235,522 Santos Ltd 848,249
98,697 Schroders Property 182,329
21,695 Sea World Property Trust 28,627
1,400 Seven Network Ltd 4,640
6,000 Siddons Ramset Ltd 31,110
18,351 Simsmetal Ltd 111,132
37,329 Smith (Howard) Ltd 313,130
115,797 Southcorp Holdings Ltd 409,860
5,500 St George Bank 32,872
38,174 Stockland Trust Group 98,077
24,800 Tabcorp Holdings 113,766
13,163 Ticor Ltd * 10,932
8,800 Village Roadshow 29,166
3,749 W H Soul Pattison & Co Ltd 162,959
66,664 Walker Corp 47,088
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Australia - continued
211,937 Western Mining Corp Holdings Ltd 1,335,949
7,300 Westfield Holdings 112,759
184,925 Westfield Trust Units 355,976
5,741 Weston Foods Ltd 33,421
78,450 Westpac Banking Corp 444,518
44,000 Westpac Property Trust 60,792
21,591 Wills (WD & HO) Holdings Ltd 42,065
----------------
27,012,650
----------------
Austria - 0.8%
247 Austrian Airlines * 36,797
1,472 Bank Austria AG (Participating Certificate) 43,363
3,916 Bau Holding AG Preferred 2.42% (Non Voting) 187,870
6,228 Brau Union AG 351,207
8,150 Creditanstalt-Bankverein 500,749
6,328 Creditanstalt-Bankverein Preferred 1.65% 242,283
446 EA-Generali AG 123,876
3,040 EVN Energie-Versorgung Niederoesterreich AG 447,510
1,186 Lenzing AG 57,098
1,334 Leykam-Muerztaler Papier und Zellstoff AG 37,164
5,178 OEMV AG 610,140
2,009 Oesterreichische Brau Beteiligungs AG 123,436
10,365 Oesterreichische Elektrizitaetswirtschafts AG 752,870
6,404 Oesterreichische Laenderbank AG 438,209
3,982 Oesterreichische Laenderbank AG Preferred (Non Voting) 139,758
3,389 Radex-Heraklith AG 122,924
352 RAS Versicherungs AG 43,522
51 Strabag Oesterreich AG 2,966
904 Wienerberger Baustoffindustrie AG 164,119
----------------
4,425,861
----------------
Canada - 3.9%
8,098 Abitibi-Price Inc 133,594
2,600 Agrium Inc * 35,665
23,600 Air Canada Inc * 119,131
10,000 Anderson Exploration Ltd * 118,882
10,600 BC Telecom Inc 231,868
27,298 BCE Inc 1,326,057
3,300 BCE Mobile Communications * 105,019
400 Biochem Pharma Inc * 21,216
2,100 Bombardier Inc Class A 40,175
40,700 Bombardier Inc Class B 781,604
14,900 Brascan Ltd Class A (Convertible) 356,994
33,000 CAE Industries Inc 275,221
2,100 Cambior Inc 33,645
20,094 Canadian Imperial Bank of Commerce 974,638
9,500 Canadian National Railway 344,027
1,200 Canadian Natural Resources * 28,620
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Canada - continued
34,400 Canadian Pacific Ltd 845,592
26,400 Canadian Tire Corp Class A 480,913
5,400 Canfor Corp 57,283
400 Cinram Ltd 10,930
24,289 Cominco Ltd 693,007
7,800 Corel Corp * 50,786
5,300 Co-Steel Inc 87,241
17,200 Cott Corp * 169,244
16,700 Dofasco Inc 302,381
8,400 Dominion Textile Inc 39,330
47,182 Domtar Inc 429,743
18,800 Donohue Inc Class A 361,724
2,100 Dupont Canada Class A 50,775
13,100 Echo Bay Mines Ltd * 101,588
1,400 Falconbridge Ltd 32,672
17,193 Fletcher Challenge Canada Ltd Class A 285,523
16,498 Gulf Canada Resources Ltd * 115,869
2,300 Hudsons Bay Co 46,020
36,300 Imasco Ltd 995,867
13,593 Imperial Oil Ltd 596,664
12,500 Inco Ltd 440,321
8,700 Inmet Mining Ltd * 58,556
5,500 International Forest Products A * 40,237
2,900 Ipsco Inc 83,803
2,400 Laidlaw Inc Class A 32,921
19,900 Laidlaw Inc Class B (Non Voting) 275,883
51,081 Macmillan Bloedel Ltd 706,292
5,200 Magna International Class A 274,095
400 MDS Inc Class B 8,121
24,700 Methanex Corp * 242,139
8,400 Molson Co Ltd, Class A 146,258
11,300 Moore Corporation Ltd 249,660
29,400 Newbridge Networks Corp * 934,545
7,699 Noranda Forest Inc 53,508
1,500 Noranda Inc 36,158
9,198 Norcen Energy Resource 196,826
116,400 Nova Corp of Alberta 1,068,710
20,400 Nova Scotia Power Inc 211,179
7,000 Oshawa Group Ltd Class A 104,726
4,400 Pegasus Gold Inc * 37,823
499 Petro Canada 7,228
900 Potash Corp of Saskatchewan 70,879
20,000 Provigo Inc * 82,669
2,200 QLT Phototherapeutics * 59,551
10,100 Quebecor Inc Class B 185,463
37,900 Repap Enterprises Inc * 67,099
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Canada - continued
2,800 Rio Algom Ltd 71,183
12,100 Rogers Cantel Mobile Communications Class B * 203,599
5,100 Rogers Communications Inc Class B * 34,886
2,594 Royal Bank of Canada 104,660
11,400 Royal Oak Mines * 39,198
37,600 Seagram Ltd 1,467,525
6,800 Sears Canada Inc 65,418
14,800 Semi-Tech Class A 29,775
2,800 Shell Canada Ltd Class A 114,712
3,900 Slocan Forest Products Ltd 41,942
6,700 Southam Inc 103,424
20,700 Stelco Inc Class A * 113,578
400 Stone Consolidated Corp * 6,511
4,500 Suncor Inc 200,490
22,394 Teck Corp Class B 547,194
35,800 Telus Corp 542,146
21,700 Thomson Corp 446,891
3,000 Torstar Corp Class B 80,328
1,500 Total Petroleum North America 15,363
41,900 Transalta Corp 498,116
47,900 Transcanada Pipelines Ltd 888,335
7,199 United Dominion Inds Ltd 194,603
28,300 Westcoast Energy Inc 514,489
3,000 Weston George Ltd 164,387
----------------
22,842,911
----------------
Finland - 0.2%
4,600 Amer Group Class A 96,387
1,500 Cultor OY Class 1 90,866
31,000 Enso OY Class A 264,752
500 Huhtamaki OY Class L 23,436
2,600 Instrumentarium OY, Class A 97,599
900 Instrumentarium OY, Class B 33,069
2,800 Kesko OY 40,875
2,500 Metra AB Class A 146,974
400 Metra AB Class B 23,834
6,900 Partek OY 114,157
12,921 Rautaruukki OY 121,642
300 Stockmann AB Class A 17,399
400 Stockmann AB Class B 21,848
12,700 Valmet OY 230,799
----------------
1,323,637
----------------
France - 8.3%
4,255 Accor SA 585,526
1,768 Air Liquide L Shares 278,049
5,223 Alcatel Alsthom Cie Generale d'Electricite SA 536,299
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
44,800 Assur Gen De France (Bearer) 1,576,606
31,136 Axa SA 2,072,892
31,136 Axa UAP * 111,487
44,469 Banque Nationale de Paris 2,017,664
3,100 Bertrand Faure SA 154,475
410 BIC SA 66,495
236 BIS SA 20,235
230 Bongrain 89,137
3,380 Bouygues 322,735
1,650 Canal Plus 309,304
1,500 Cap Gemini SA * 89,832
6,850 Casino Guichard-Perrachon 312,604
2,650 Casino Guichard-Perrachon Preferred 101,631
680 CEP Communications SA (Bearer) 56,097
21,059 Cerus * 511,570
1,060 Cetelem 131,353
2,420 CGIP 690,239
17,853 Cie Bancaire SA 2,165,310
1,784 Ciments Francais 60,747
4,010 Ciments Francais Class B Preferred 15.12% 157,942
348 Clarins 48,254
2,285 Club Mediterranee SA 175,467
566 Colas SA 78,383
40,424 Compagnie de Suez SA 1,975,329
11,220 Credit Commercial de France 525,817
9,070 Credit Local de France SA 905,838
16,446 Credit Lyonnais * 653,822
3,417 Credit National 224,909
230 Dassault Electronique SA 26,644
2,204 Dollfus-Mieg and Cie 62,515
297 Eiffage SA 18,871
31,990 Elf Aquitaine SA 3,060,143
332 Elf Gabon 89,158
3,938 Elf Sanofi SA 389,839
5,994 Eridania Beghin-Say SA 968,963
430 Essilor International 118,042
1,460 Esso 161,445
118,100 Euro Disney SCA (Bearer) * 216,619
196,500 Eurotunnel SA Units (Bearer) * 243,155
13,552 Financiere de Paribas SA 922,686
15,143 FINEXTEL 256,490
15,705 GAN (Group Assurances National) * 411,004
283 Gaz Et Eaux 125,175
3,060 Generale Des Eaux 425,918
290 Geophysique Cie Generale * 24,865
2,172 Group Axime * 278,300
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
400 Groupe Andre * 33,700
2,280 Groupe Danone 345,764
230 GTM-Entrepose 12,353
140 Guyenne Et Gascogne 48,163
270 Havas Advertising 32,700
130 Imetal 18,711
2,900 INGENICO SA 53,192
290 La Peyre 17,561
672 Labinal SA 152,746
39,593 Lafarge Coppee SA 2,480,947
9,014 Lagardere Groupe 265,802
1,650 Legris Industries 78,485
3,960 Lyonnaise Des Eaux 404,528
1,200 Metaleurop SA * 16,218
27,803 Michelin SA Class B 1,741,195
2,700 Moulinex SA * 62,556
6,270 Nord-Est 167,169
20 Parisienne de Reescompte (CPR-Cie) 1,706
2,375 Pechiney SA Class A 100,423
855 Pernod-Ricard 46,672
17,645 Peugeot SA 1,951,161
90 Pinault Printemps Redoute 38,086
1,800 Remy Cointreau SA 46,917
28,450 Renault SA 733,559
64,185 Rhone Poulenc SA Class A 2,253,173
1,680 Saint Louis 441,135
12,420 Saint-Gobain 1,831,183
3,840 Salomon SA 263,738
3,650 Seita 139,663
4,210 SGS Thomson Microelectronics * 276,735
70 SIMCO 6,782
11,160 Skis Rossignol 303,618
2,400 Societe Eurafrance 1,133,168
4,012 Societe Generale d 'Entreprise SA * 92,883
23,597 Societe Generale Paris 2,733,579
10 Sodexho Alliance 5,564
10,490 Sommer Allibert 318,532
17,639 SPIE Batignolles 929,118
900 Strafor Facom 71,086
640 Sylea (Bearer) 61,784
1,280 Technip SA (Compagnie Francaise) 129,409
25,767 Thomson CSF 816,342
10,070 Total SA 803,331
1,110 TV Francaise 102,870
30 Union Immobiliere de France 2,485
39,200 Usinor Sacilor 605,480
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
7,010 Valeo 472,476
2,510 Vallourec 148,248
6,333 Worms et Compagnie SA 422,400
----------------
48,020,976
----------------
Germany - 6.8%
6,000 Adidas AG 573,984
15,555 AGIV AG * 257,069
150 Axel Springer Verlag AG 104,845
68,700 Bankgesellschaft Berlin AG 1,314,424
88,300 BASF AG 3,255,938
137,450 Bayer AG 5,801,038
13,400 Bayerische Hypotheken-und Wechsel - Bank AG 396,079
250 Bayerische Motorenwerke AG 168,227
198 Berliner Kraft und Licht AG Class A 55,358
30,100 BHF Bank AG 713,186
3,450 Bilfinger & Berger 138,965
250 Brau und Brunnen * 20,880
3,500 Bremer Vulkan Verbund AG * 4,043
350 Buderus AG 159,637
32,890 Continental AG 640,967
450 Daimler-Benz 32,640
700 Degussa 298,543
2,350 Deutsche Babcock & Wilcox * 105,793
350 Didier-Werke AG 28,610
650 DLW AG * 53,711
13,550 Douglas Holdings AG 477,565
6,200 Draegerwerk AG Preferred 88,508
100 Dyckerhoff AG 39,095
116,381 FAG Kugelfischer 1,778,598
13,900 Fresenius AG Preferred .82 (Non Voting) 2,997,038
700 Friedrich Krupp AG 111,871
100 GEA AG Preferred 3.13% 34,238
14,250 Gerresheimer Glas AG 306,406
4,950 Heidelberg Port-Zement 407,564
4,900 Henkel KGAA Preferred 261,225
100 Horten AG 13,032
350 Kaufhalle AG * 35,452
27,096 Klockner Humboldt Deutz * 134,822
1,593 Klockner-Werke AG * 100,023
1,337 Kolbenschmidt * 21,304
1,750 Leirheit AG 58,050
601,805 Lufthansa AG 7,985,092
750 MAN AG 191,698
450 MAN AG Preferred 95,827
46,690 Metallgesellschaft * 995,364
1,400 Pfaff (GM) AG * 30,269
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Germany - continued
33,700 Phoenix AG 493,064
100 Porsche AG Preferred (Non Voting) 112,546
1,250 Preussag AG 320,978
5,050 Puma AG Preferred 176,490
300 Rheinmetall Berlin AG 49,491
100 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 13,458
300 Rosenthal AG * 22,924
73,800 RWE Preferred 2,681,928
100 Salamander AG 11,847
1,300 Schering AG 117,895
450 Schmalbach-Lubeca 92,228
9,450 Schwarz Pharma AG 705,307
2,700 SGL Carbon AG 367,847
22,100 Siemens AG 1,117,305
21,950 SKW Trostberg AG 668,304
150 Strabag Bau AG Preferred 13,594
350 Strabag Bau AG * 30,414
250 Suedzucker AG 113,286
2,650 Thyssen AG 562,116
100 Varta AG * 16,586
6,500 Veba AG 371,935
1,850 Viag AG 816,950
400 Villeroy and Boch AG 54,022
100 Volkswagen AG Preferred .79% 38,088
100 Zanders Feinpapiere * 6,457
----------------
39,262,038
----------------
Hong Kong - 9.5%
2,518,000 Allied Properties Ltd 461,720
1,153,500 Amoy Properties Ltd 1,377,825
146,000 ASM Pacific Technology 121,604
1,724,000 Cathay Pacific Airways Ltd 2,682,619
164,000 Century City International 58,239
728,000 Champion Technology Holdings 109,990
145,600 Champion Technology Holdings Warrants 6/30/98 * 8,837
583,000 Cheung Kong Holdings 5,552,202
87,000 China Light & Power Co 402,195
1,322,000 China Overseas Land & Inventory Ltd 772,475
600 Chinese Estates Holdings Ltd 639
326,000 CP Pokphand Co * 117,872
12,800 Dah Sing Financial Services 53,554
620,533 Dairy Farm International 480,913
262,500 Dao Heng Bank 1,349,109
398,000 Denway Investments * 34,434
69,133 Dickson Concept International Ltd 252,196
1,020,300 Elec & Eltek International Holdings Ltd 260,872
1,124 Evergo China Holdings * 176
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong - continued
76,974 First Sign International Holdings 20,377
242,000 FPB Bank Holding Co 111,719
39,800 Furama Hotel Enterprises Ltd 66,813
265,000 Gold Peak Industry 172,811
24,000 Goldlion Holdings Ltd 21,384
641,281 Great Eagle Holdings Ltd 2,405,632
534,000 Guangzhou Investment Co 270,655
179,700 Guoco Group 1,004,779
1,251,600 Hang Lung Development Co Ltd 2,521,302
25,000 Harbour Centre Development Ltd 36,964
1,976,000 Henderson Investment Ltd 2,219,938
271,680 HKR International Ltd 410,467
288,600 Hon Kwok Land Investment 105,281
179,000 Hong Kong Ferry Co Ltd 340,941
835,287 Hong Kong Land Holdings 2,380,568
200,600 Hongkong Aircraft Engineering Co Ltd 635,941
500 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 881
702,500 Hongkong Electric Holdings Ltd 2,431,173
304,600 Hysan Development Co Ltd 1,067,909
59,000 Innovative International 24,571
24,000 Jardine International Motor Holdings Ltd 30,992
47,400 Johnson Electric Holdings Ltd 130,987
66,477 Kantone Holdings Ltd * 9,872
597,000 Kumagai Gumi Hong Kong Ltd 682,264
382,000 Lai Sun Development 572,211
211,400 Lai Sun Garment International Ltd 308,474
105,000 Lane Crawford International Ltd Class B 12,474
20,000 Laws International Holdings Ltd 3,099
168,000 Leading Spirit Holdings 39,483
111,900 Liu Chong Hing Bank Ltd 212,413
196,000 Liu Chong Hing Investment Ltd 244,241
234,934 Mandarin Oriental 319,510
5,000 National Mutual Asia Ltd 5,456
137,300 New Asia Realty & Trust A Shares 499,095
528,815 New World Development Co Ltd 3,277,779
345,400 Oriental Press Group 143,842
65,300 Oriental Press Group Warrants 10/2/98 * 3,499
498,000 Paul Y ITC Construction Holdings Ltd 114,468
300 Peregrine Investments Holdings 548
161,000 Playmate Toys Holding 39,502
21,300 Realty Development Corp Ltd Class A 82,103
5,123,000 Regal Hotels International Ltd 1,521,552
18,000 San Miguel Brewery Ltd 7,554
154,000 Shaw Brothers Ltd 175,994
217,000 Shell Electric Co Ltd 141,510
1,041,000 Shun Tak Holdings Ltd 739,347
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong - continued
721,100 Sino Land Co Ltd 828,744
1,538,972 South China Morning Post Ltd 1,381,180
428,000 Sun Hung Kai Properties Ltd 4,960,356
617,000 Sun Hung Kai & Co Ltd 163,333
134,600 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 11,645
537,500 Swire Pacific Ltd Class B 732,260
406,500 Tai Cheung Holdings Ltd 367,446
132,000 Tem Fat Hing Fung 42,188
80,000 Texwinca Holdings Ltd 60,950
1,500 Union Bank of Hong Kong 2,324
476,000 Wharf Holdings Ltd 2,114,463
1,521,200 Wheelock & Co Ltd 4,095,690
38,580 Wing Lung Bank 275,251
364,000 Winsor Industrial Corp Ltd 88,838
88,050 Winsor Properties Holdings Ltd * 163,161
743,000 World Trade Centre Group Ltd 145,837
573,000 Yizheng Chemical Fibre Co 133,927
602,000 Yue Yuen Industrial Holding 244,873
----------------
55,478,312
----------------
Italy - 4.1%
284,700 Alitalia Linee Aeree Italiane Class A * 102,762
6,000 Alleanza Assicurazioni di Risp (Non Convertible) 32,308
25,000 Alleanza Assicurazioni SPA 180,030
37,500 Ansaldo Transporti SPA * 38,609
11,000 Assicurazioni di Milano 30,592
108,250 Assicurazioni Generali SPA 1,966,435
318,600 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 657,937
117,000 Banca Commerciale Italiana SPA 236,769
632,017 Banca di Roma * 464,102
265,718 Banca Fideuram SPA 669,798
23,334 Banca Nazionale dell'Agricoltura * 16,085
9,800 Banca Popolare di Bergamo Credit 145,550
76,000 Banca Popolare di Milano 415,976
26,800 Banca Toscana 50,746
31,000 Banco Ambrosiano Veneto SPA (Non Convertible) 57,047
24,000 Banco Ambrosiano Veneto SPA 61,065
193,096 Banco di Napoli di Risp * 86,836
6,000 Bulgari SPA 102,604
19,800 Caffaro SPA 18,992
53,900 Cartiere Burgo SPA 247,175
65,000 Cementir Cementerie del Tirreno SPA 41,731
180,600 Cia Italiana del Grandi Alberghi Cigahotels SPA * 84,209
59,600 COFIDE SPA (Non Convertible) * 15,517
215,500 COFIDE SPA * 90,536
123,455 Cogefar Impresit Costruzioni Generali SPA * 92,116
28,500 Comau Finanziaria SPA 86,849
75,000 Compart SPA * 33,062
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
37,500 Compart SPA * 18,839
147,500 Credito Italiano 201,612
303,700 Dalmine SPA * 67,209
1,900 Danieli and Co SPA 13,879
19,980 Danieli and Co SPA (Non Convertible) 76,137
207,000 Edison SPA 1,137,888
10,000 Editoriale L'Espresso SPA 33,728
4,900 Ericsson SPA 62,917
43,500 Falck Acciaierie and Ferriere Lombarde 192,919
73,000 Fiat SPA 225,479
385,000 Fiat SPA Preferred 646,982
536,700 Fiat SPA (Non Convertible) 908,262
97,184 Finmeccanica SPA * 43,187
13,000 Fondiaria SPA 49,923
325,600 Gemina * 184,764
122,500 Gilardini SPA 164,179
160,500 IFI Istituto Finanziario Preferred 2.46% 1,970,636
22,600 IFIL Finanziaria di Partecipazioni SPA 67,533
201,900 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 388,269
129,700 Industriali Riunite SPA (Non Convertible) * 53,108
268,200 Industriali Riunite SPA * 178,377
99,000 Istituto Bancario San Paolo 702,373
72,750 Istituto Mobilaire Italiano 635,379
912,892 Istituto Nazionale Delle Assicurazioni 1,193,782
7,375 Italcementi Fabbriche Riunite Cemento SPA 40,039
49,250 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 119,774
13,300 Italgas SPA 47,416
5,100 Italmobiliare SPA 80,272
7,250 Luxottica Group Sponsored ADR 422,313
1,000 Marzotto and Figli SPA 7,692
54,000 Mediobanco SPA 352,598
11,425 Merloni Elettrodomestici SPA 25,385
11,392 Mondadori Editore 74,486
206,400 Montedison SPA (Non Convertible) * 139,228
1,789,200 Montedison SPA * 1,291,612
47,333 Montefibre SPA 29,100
297,400 Olivetti and Co SPA * 109,105
822,296 Parmalat Finanziaria SPA 1,131,265
126,033 Permafin Finanziaria * 37,288
58,400 Pirelli and Co 81,898
5,900 Pirelli and Co (Non Convertible) 7,244
15,000 Pirelli SPA 29,689
34,900 Pirelli SPA (Non Convertible) 53,899
24,000 RAS SPA 216,426
15,750 RAS SPA (Non Convertible) 85,274
2,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 10,207
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
22,900 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 45,393
4,700 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 11,444
12,800 SAFFA SPA * 30,750
1,400 SAFILO SPA 23,278
6,500 SAI 54,423
13,150 Saipem SPA 60,031
3,000 Sasib SPA 8,876
14,500 Sasib SPA (Non Convertible) 28,399
7,950 Sirti SPA 49,252
219,040 SMI (Societa Metallurgica Italy) * 97,596
29,300 Snia BPD SPA 29,231
34,600 Snia BPD SPA (Non Convertible) 25,796
20,000 Sopaf SPA 22,485
40,700 Stefanel SPA * 36,486
100,000 STET di Risp (Non Convertible) 349,704
140,146 Telecom Italia Mobile SPA (Non Convertible) 214,365
605,000 Telecom Italia Mobile SPA 1,584,098
413,300 Telecom Italia SPA 970,888
185,900 Telecom Italia SPA di Risp (Non Convertible) 374,000
4,000 Toro Assicurazioni 49,704
5,500 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 14,450
500 Unione Cementi Marchino Emiliane e di Augusta-Casale 3,015
----------------
23,718,673
----------------
Japan - 12.9%
6,000 77th Bank 48,968
21,000 Advantest Corp 1,186,677
2,000 Aida Engineering Ltd 13,058
14,000 Aisin Seiki Co Ltd 196,039
3,000 Aiwa Co 55,928
27,000 All Nippon Airways 195,302
5,000 Alps Electric Co Ltd 53,028
37,000 Amada Co Ltd 270,089
3,000 Amano Corp 30,077
7,000 Anritsu Corp 80,040
180,000 Aoki Corp * 259,508
2,000 Aoki International 36,457
8,000 Aoyama Trading 200,845
3,200 Arabian Oil Co Ltd 102,080
20,000 Asahi Breweries Ltd 193,885
35,000 Asahi Chemical Industries 189,369
30,000 Ashikaga Bank Ltd 100,174
2,000 Autobacs Seven 141,022
3,000 Bandai Co 61,894
15,000 Bank of Fukuoka Ltd 78,673
111,000 Bank of Tokyo-Mitsubishi 1,821,029
43,000 Bank of Yokohama Ltd 205,933
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
9,000 Banyu Pharmaceutical Co Ltd 131,245
15,400 Canon Sales Co Inc 298,583
14,000 Casio Computer Co 107,880
3,000 Chiba Bank Ltd 17,748
18,000 Chiyoda Corp * 95,451
13,000 Chubu Electric Power Co Inc 229,431
1,000 Chudenko Corp 28,586
28,000 Chugai Pharmaceutical Co Ltd 221,095
6,700 Chugoku Electric Power Co Inc 116,025
19,000 Citizen Watch Co 135,388
65,000 Cosmo Oil Co Ltd 253,128
8,000 Credit Saison Co 170,354
25,400 CSK Corp 604,010
84,000 Daicel Chemical Industries Ltd 361,919
11,000 Daido Steel Co Ltd 33,358
16,000 Daiei Inc 105,792
9,000 Daifuku Ltd 105,891
25,000 Daiichi Seiyaku Co Ltd 408,070
17,000 Daikin Industries Ltd 133,250
17,000 Daikyo Inc 64,090
5,000 Daimaru Inc 23,614
4,000 Dainippon Ink & Chemicals Inc 12,627
15,000 Dainippon Pharmaceutical Co Ltd 107,383
48,000 Dainippon Printing Co Ltd 799,403
42,000 Dainippon Screen Manufacturing Co Ltd 338,951
13,000 Daishowa Paper Manufacturing * 52,241
6,300 Daito Trust Construction Co Ltd 61,596
10,000 Daiwa House Industry Co Ltd 111,028
1,100 Denny's Japan Co Ltd 28,254
24,000 Denso Corp 461,347
132 East Japan Railway Co 562,168
9,000 Ebara Corp 113,348
16,000 Eisai Co Ltd 299,611
5,060 Familymart 194,535
9,600 Fanuc Co 298,285
20,000 Fuji Electric Co 82,525
56,000 Fuji Heavy Industries Ltd 266,799
20,000 Fuji Photo Film Co Ltd 669,484
4,000 Fuji Spinning Co Ltd 13,986
50,000 Fujikara Ltd 391,913
82,000 Fujisawa Pharmaceutical Co Ltd 713,398
1,000 Fujita Kanko Inc 11,020
6,000 Fujitec Co 55,183
187,000 Fujitsu Ltd 1,843,815
30,000 Furukawa Electric Co Ltd 139,448
17,000 Gakken Co Ltd 76,767
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
14,000 General Sekiyu (KK) 84,680
24,000 Green Cross Corp 99,428
14,000 Gunma Bank Ltd 108,344
71,000 Hankyu Corp 340,616
7,000 Hankyu Department Stores Inc 62,640
4,000 Hanwa Co Ltd * 10,838
112,000 Haseko Corp * 217,151
16,000 Hazama-Gumi Ltd 35,794
4,000 Heiwa Corp 55,348
4,000 Higo Bank Ltd 22,537
6,000 Hino Motors 36,142
4,000 Hirose Electric 224,045
7,000 Hitachi Cable Ltd 47,328
208,000 Hitachi Ltd 1,792,361
4,000 Hitachi Maxell Ltd 80,205
14,000 Hitachi Metals Ltd 97,440
5,900 Hokkaido Electric Power 100,704
13,000 Hokuetsu Paper Mills 64,628
9,000 Hokuriku Bank Ltd 30,947
2,500 Hokuriku Electric Power 43,086
4,000 Honda Motor Co Ltd 123,623
5,000 Hosiden Corp * 34,427
3,000 House Foods Corp 41,760
11,000 Hoya Corp 468,473
16,000 INAX Corp 105,394
73,000 Industrial Bank of Japan 870,992
4,000 Intec Inc 47,394
3,000 Isetan Co Ltd 32,811
29,000 Ishihara Sangyo Kaisha * 67,040
38,000 Isuzu Motors Ltd 171,597
12,000 Ito-Yokado 544,867
4,000 Iwatani & Co 14,583
3,000 Japan Airport Terminal Co Ltd 30,574
3,000 Japan Aviation Electronics 17,549
134,000 Japan Energy Co Ltd 315,320
8,000 Japan Metals & Chemicals * 20,416
13,000 Japan Radio Co 124,948
73,000 Japan Synthetic Rubber Co Ltd 517,756
82 Japan Tobacco Inc 550,336
3,000 Japan Wool Textile 18,717
3,000 Jeol 17,748
12,000 JGC Corp 68,506
9,000 Joshin Denki Co Ltd 81,283
9,000 Joyo Bank 44,817
10,000 Kaken Pharmaceutical Co Ltd 51,620
17,000 Kamigumi Co Ltd 89,585
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
6,000 Kandenko Co 50,708
25,000 Kanebo Ltd * 43,293
9,000 Kaneka Corp 45,190
11,800 Kansai Electric Power 214,119
9,000 Kansai Paint Co Ltd 37,211
26,000 Kao Corp 284,365
4,000 Katokichi Co Ltd 64,297
27,000 Kawasaki Heavy Industry 111,857
38,000 Kawasaki Kisen * 77,455
20,000 Keihin Electric Express Railway Co Ltd 86,337
21,000 Kenwood Corp 89,610
2,000 Keyence Corp 243,599
11,000 Kikkoman Corp 59,334
8,000 Kinden Corp 104,068
101,000 Kinki Nippon Railway Co Ltd 606,720
31,000 Kirin Brewery Co Ltd 264,562
2,000 Kissei Pharmaceutical Co Ltd 39,937
60,000 Kobe Steel * 110,863
2,000 Kokusai Denshin Denwa 119,314
6,000 Kokusai Electric 92,965
11,000 Kokusai Kogyo Co Ltd 91,143
6,000 Kokuyo Co Ltd 128,262
4,000 Komori Corp 83,520
3,700 Konami Co Ltd 106,073
6,000 Konica Corp 36,092
5,000 Koyo Seiko Co Ltd 37,161
40,000 Kubota Corp 181,954
150,000 Kumagai Gumi Co Ltd 236,142
41,000 Kurabo Industries Ltd 102,593
5,000 Kurita Water Industries Ltd 105,643
12,000 Kyocera Corp 710,912
2,000 Kyodo Printing Co Ltd 14,865
11,000 Kyowa Exeo Corp 86,494
10,000 Kyowa Hakko Kogyo Co Ltd 66,368
3,000 Kyudenko Corp 22,869
11,300 Kyushu Electric Power Co Inc 195,683
5,000 Kyushu Matsushita Electric 54,686
12,000 Lion Corp 50,211
25,000 Long Term Credit Bank of Japan 90,107
1,500 Mabuchi Motor Co 74,696
14,000 Maeda Corp 85,028
7,000 Maeda Road Construction 59,740
7,000 Makino Milling Machine Co Ltd 49,126
5,000 Makita Corp 68,771
26,000 Marudai Food Co Ltd 112,023
59,000 Marui Co Ltd 845,720
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
4,000 Maruichi Steel Tube 62,640
15,000 Matsushita Communications 393,985
95,000 Matsushita Electric Industrial Co Ltd 1,464,082
56,000 Matsushita Electric Works Ltd 491,839
8,000 Matsushita Kotubuki 228,685
104,000 Mazda Motor Corp * 303,323
10,000 Meidensha Corp 52,614
14,000 Meiji Milk Products Co Ltd 62,408
73,000 Minebea Co Ltd 603,646
32,000 Minolta Co Ltd 197,531
3,000 Misawa Homes 18,295
30,000 Mitsubishi Corp 278,399
116,000 Mitsubishi Electric Corp 651,653
61,000 Mitsubishi Gas Chemical Co Inc 223,399
45,000 Mitsubishi Materials Corp 167,040
24,000 Mitsubishi Motors 175,988
40,000 Mitsubishi Oil Co Ltd 166,377
16,000 Mitsubishi Paper Mills Ltd 59,392
15,000 Mitsubishi Rayon Co Ltd 54,437
29,000 Mitsubishi Steel Manufacturing * 99,718
3,000 Mitsubishi Warehouse & Transportation Co Ltd 34,800
15,000 Mitsui Fudosan Co Ltd 162,814
47,000 Mitsui Mining & Smelting Co Ltd 180,694
33,000 Mitsui OSK Lines * 65,623
17,000 Mitsui Petrochemical Industries Ltd 78,035
4,000 Mitsumi Electric Co Ltd 74,571
4,000 Mochida Pharmaceutical Co Ltd 33,474
11,000 Murata Manufacturing Co Ltd 385,533
15,000 Nachi Fujikoshi Co 44,991
10,000 Nagasakiya Co Ltd * 28,503
2,000 Nagase & Co 13,141
13,000 Nagoya Railroad Co Ltd 48,040
3,100 Namco Ltd 87,588
11,000 National House Industrial 133,068
22,000 Navix Line Ltd * 37,551
5,000 NCR Japan Ltd 38,736
82,000 NEC Corp 951,197
19,000 New Japan Securities Co Ltd * 58,406
40,000 New Oji Paper Co Ltd 222,719
5,000 NGK Insulators 45,571
22,000 NGK Spark Plug Co 226,034
9,000 Nichicon Corp 103,654
3,000 Nichido Fire & Marine Insurance Co Ltd 16,704
24,000 Nichiei Co Ltd 44,743
23,000 Nichii Co Ltd 295,385
26,000 Nihon Cement Co Ltd 123,871
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
32,000 Nikon Corp 469,302
17,900 Nintendo Co Ltd 1,262,151
45,000 Nippon Carbon Co Ltd * 124,907
11,000 Nippon Chemical 72,094
14,000 Nippon Comsys 154,280
5,000 Nippon Electric Glass Co 68,771
47,000 Nippon Express Co Ltd 302,585
6,000 Nippon Hodo Co 48,521
13,000 Nippon Kayaku Co Ltd 74,430
15,000 Nippon Light Metal 53,318
5,000 Nippon Meat Packers Inc 50,128
493,000 Nippon Oil Co Ltd 2,079,186
7,000 Nippon Oil & Fats 28,826
3,000 Nippon Paint Co 9,843
31,000 Nippon Paper Industries 145,381
5,000 Nippon Piston Ring Co Ltd 15,080
10,000 Nippon Shokubai Corp 63,800
21,000 Nippon Soda Chemical Co Ltd 153,120
11,000 Nippon Suisan Kaisha Ltd * 29,257
467 Nippon Telegraph & Telephone 3,323,830
1,000 Nippon Television Network 297,456
13,000 Nippon Yakin Kogyo Co Ltd 29,298
12,000 Nippon Zeon Ltd 50,012
21,000 Nishimatsu Construction 156,600
193,000 Nissan Motor Co Ltd 1,138,586
7,000 Nisshin Oil Mills Ltd 35,206
40,000 Nisshinbo Industries Inc 288,342
51,000 Nissho Iwai Corp 192,269
4,000 Nissin Food Products Co Ltd 76,560
3,000 Nitsuko Corp 19,960
17,000 Nitto Boseki Co Ltd 52,258
39,000 Nitto Denko Corp 520,259
37,000 NSK Ltd 212,147
24,000 NTN Corp 117,723
40,000 Odakyu Electric Railway Co Ltd 205,817
67,000 Oki Electric Industry 353,070
11,000 Okuma Corp 91,143
24,000 Okumura Corp 126,870
12,000 Olympus Optical Co Ltd 100,423
15,000 Omron Corp 236,142
14,000 Ono Pharmaceutical Co Ltd 450,079
24,000 Onoda Cement Co Ltd 84,315
7,000 Onward Kashiyama Co Ltd 85,840
18,000 Orient Corp 80,388
5,000 Orix Corp 211,285
25,000 Penta Ocean Construction 89,278
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
33,000 Pioneer Electronics Corp 637,087
3,000 Q.P. Corp 22,620
110,000 Renown Inc * 218,742
54,000 Ricoh Co Ltd 635,347
2,000 Rinnai Corp 36,126
8,000 Royal Co Ltd 135,222
3,000 Ryobi Ltd 10,092
1,000 Ryosan Co 20,051
41,000 Sanden Corp 329,522
5,000 Sankyo Aluminum Industry Co Ltd 16,530
21,000 Sankyo Co Ltd 584,638
2,000 Sanrio Co Ltd * 12,594
11,000 Sanwa Shutter Corp 79,567
13,000 Sapporo Breweries Ltd 96,189
9,000 Sato Kogyo Co Ltd 20,134
5,500 Secom Co Ltd 309,882
12,000 Sega Enterprises 336,068
7,000 Seiko Corp 41,702
6,000 Seino Transportation Co Ltd 59,657
6,000 Seiyu 51,703
40,000 Sekisui Chemical Co Ltd 414,285
55,000 Sekisui House Ltd 510,399
10,000 Seven-Eleven Japan 601,541
5,600 Shikoku Electric Power 96,976
2,000 Shimachu Co 46,400
2,000 Shimano Inc 34,137
3,000 Shimadzu Corp 14,865
23,000 Shin-Etsu Chemical Co Ltd 444,030
22,000 Shionogi and Co Ltd 136,896
26,000 Shiseido Co Ltd 303,753
5,000 Shochiku Co Ltd 45,157
7,000 Shokusan Jutaku Sogo Co Ltd * 11,774
47,000 Showa Denko 103,198
28,000 Showa Shell Sekiyu 209,031
6,000 Skylark Co Ltd 86,503
3,000 SMC 204,077
6,000 Snow Brand Milk Products Co Ltd 29,182
4,000 Sony Corp 288,673
21,000 Stanley Electric Co Ltd 106,836
38,000 Sumitomo Complete Corp 285,575
6,000 Sumitomo Electric 83,023
14,000 Sumitomo Forestry Co Ltd 160,080
31,000 Sumitomo Heavy Industries Ltd 93,496
21,000 Sumitomo Osaka Cement Co Ltd 57,420
33,000 Sumitomo Realty and Development Co Ltd 231,593
10,000 Sumitomo Rubber Inc 65,871
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
48,000 Suzuki Motor Corp 449,416
5,000 SXL Corp Ltd 31,527
18,000 Taisho Pharmaceutical Co Ltd 414,616
20,000 Taiyo Yuden Co Ltd 233,656
4,000 Takara Standard Co 29,862
12,000 Takashimaya Co 132,240
20,000 Takeda Chemical Industries Ltd 401,027
14,000 Takuma Corp 158,920
35,000 Tanabe Seiyaku Co Ltd 253,749
19,000 TDK Corp 1,272,019
94,000 Teijin Ltd 373,850
16,000 Teikoku Oil Co Ltd 75,300
1,000 Teikoku Sen-I Co Ltd * 4,549
5,000 Tekken Corp 19,761
26,000 Terumo Corp 379,153
56,000 Toa Nenryo Kogyo (KK) 566,078
24,000 Toagosei Chemical Industry Co Ltd 84,713
8,000 Toda Corp 45,936
2,000 Toei Co Ltd 12,462
100 Toho Co Ltd 13,091
10,300 Tohoku Electric Power Co Inc 176,659
9,000 Tokai Carbon Co Ltd 31,842
8,000 Tokyo Broadcasting System Inc 116,000
3,000 Tokyo Dome Corp 41,263
17,000 Tokyo Electric Co Ltd * 61,977
24,400 Tokyo Electric Power 452,863
6,000 Tokyo Gas Co 15,262
16,000 Tokyo Ink Manufacturing Co Ltd 60,585
31,000 Tokyo Steel Manufacturing Co 341,619
4,000 Tokyo Style Co Ltd 45,737
9,000 Tokyo Tatemono Co Ltd 39,150
1,000 Tokyotokeiba Co Ltd 2,734
49,000 Tokyu Construction Co Ltd 107,996
9,000 Tokyu Department Store Co Ltd 30,201
21,000 Tokyu Land Corp * 72,210
39,000 Toppan Printing Co Ltd 449,167
6,000 Toray Industries Inc 34,700
11,000 Toshiba Ceramics Co Ltd 85,674
128,000 Toshiba Corp 721,187
5,000 Toshiba Tungaloy Co Ltd 22,371
5,000 Tostem Corp 116,000
1,000 Toyo Exterior Co Ltd 13,671
6,000 Toyo Seikan Kaisha Ltd 140,691
3,000 Toyo Suisan Kaisha 27,591
26,000 Toyo Trust & Banking Co Ltd 185,699
9,000 Toyoda Auto Loom 155,854
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
20,000 Toyota Motor Corp 512,056
7,000 Tsubakimoto Chain 36,482
11,000 Tsumura and Co 68,357
4,000 Ube Industries 11,169
1,000 Unicharm Corp 25,686
6,000 Uniden Corp 64,628
3,000 UNY Co Ltd 52,946
3,000 Ushio Inc 33,806
15,000 Victor Co of Japan Ltd 142,928
13,000 Wacoal Corp 131,411
6,000 Yakult Honsha Co Ltd 60,651
15,000 Yamaha Corp 285,856
9,000 Yamaha Motor Co 76,808
36,000 Yamanouchi Pharmaceutical Co Ltd 751,678
22,000 Yamato Transport Co Ltd 216,919
4,000 Yamazaki Baking Co Ltd 59,988
36,000 Yasuda Trust and Banking Co Ltd 97,837
10,000 Yodogawa Steel Works 57,171
2,000 Yokogawa Bridge Corp 16,903
18,000 Yokogawa Electric Corp 137,957
7,000 Yoshitomi Pharmaceutical Industries Ltd 47,676
----------------
74,167,000
----------------
Malaysia - 5.4%
45,000 Aluminum Co Malaysia 72,130
192,000 Amalgamated Steel Mills Berhad 170,117
141,000 Amcol Holdings Ltd (b) 133,485
70,000 AMMB Holdings Berhad 659,686
62,000 Aokam Perdana Berhad * 133,588
56,000 Arab Malaysian Finance (Foreign Registered) 390,173
6,000 Ayer Hitam Tin Dredging * 13,653
311,000 Berjaya Group 433,371
179,000 Berjaya Industrial Berhad 286,919
184,000 Berjaya Leisure Berhad 515,022
187,500 Berjaya Sports Toto 1,087,394
18,600 Carlsberg Brew Malaysia 160,306
66,000 Cement Industries of Malaysia Berhad 200,685
26,000 DMIB Berhad 30,995
100,500 Edaran Otomobil Berhad 1,032,118
64,000 Ekran Berhad 229,400
29,300 Esso Malaysia Berhad 80,832
400 Faber Group Berhad * 512
55,000 Genting Berhad 374,346
79,000 Golden Hope Plantations Berhad 142,537
26,000 Golden Plus Holdings 67,016
28,000 Guinness Anchor Berhad 72,171
141,000 Highlands and Lowlands Berhad 252,130
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
41,200 Hong Leong Industries Berhad 141,039
2,600 Hong Leong Industries Berhad Class A 8,901
194,000 Hong Leong Properties Berhad 359,404
29,000 Hume Industries Berhad 183,367
83,000 IJM Corp Berhad Class A 222,292
32,000 Innovest Berhad 121,788
195,000 IOI Corporation Berhad 351,832
33,000 Jaya Tiasa Holdings Berhad 180,749
55,000 Johan Holdings Berhad 59,364
60,000 Kedah Cement Berhad 116,472
21,000 Kelanamas Industries 44,402
132,000 Kemayan Corporation Berhad 198,824
28,000 Kian Joo Can Factory 131,937
45,000 Kuala Lumpur Kepong Berhad 135,924
8,000 Kuala Lumpur Kepong Berhad (Singapore) 23,562
149,200 Kumpulan Guthrie Berhad 259,583
115,000 Land & General Berhad 233,890
75,000 Landmark Berhad 134,716
185,000 Leader Universal Holdings 394,885
360,000 Magnum Corp Berhad 746,677
69,000 Malayan Cement Berhad 180,628
281,000 Malayan United Industries Berhad 256,895
40,000 Malayawata Steel 78,937
88,000 Malaysia Mining Corp Berhad 121,917
171,000 Malaysian Airline Systems 454,531
163,000 Malaysian Helicopter Berhad 231,075
149,200 Malaysian International Ship (Alien Market) 393,580
49,000 Malaysian Mosaics 85,252
21,000 Malaysian Oxygen Berhad 113,331
46,000 Malaysian Pacific Industries 190,818
38,666 Malaysian Plantations Rights 4/9/97 * 16,818
58,000 Malaysian Plantations 136,649
40,000 Malaysian Resources Corp 169,150
6,000 Matsushita Electric 58,719
305,000 MBF Capital Berhad 626,460
417,000 MBF Holdings Berhad 277,104
93,000 Metroplex Berhad 126,597
114,000 Mulpha International 123,963
205,000 Multi Purpose Holdings 487,112
24,000 Mycom Berhad 34,217
28,000 Nestle Malaysia 213,129
48,000 New Straits Times 305,437
136,900 Oriental Holdings Berhad 1,235,022
30,000 OYL Industries Berhad 292,388
170,100 Pan Malaysia Cement 202,777
121,000 Perlis Plantations 375,232
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Malaysia - continued
224,000 Pernas International Hotel & Property 276,053
339,000 Perusahaan Otomobil 2,239,066
39,000 Petaling Garden Berhad 66,597
93,900 Petronas Dagangan Berhad 251,484
46,000 Petronas Gas Berhad 167,660
36,000 Pilecon Engineering Berhad 65,244
46,000 PJ Development Holdings 53,170
157,000 Promet Berhad * 177,676
375,666 Public Bank Berhad (Alien Market) 877,512
503,000 Renong Berhad 915,650
179,000 Resorts World Berhad 836,246
57,000 RJ Reynolds Berhad 156,101
8,000 Rothmans of Pall Mall Malaysia Berhad 82,964
293,000 Sarawak Enterprises Corp 559,331
47,400 Shell Refinery Co 152,718
58,000 Sime Darby 67,033
146,000 Sime Darby Berhad 552,718
8,600 Sime UEP Properties Berhad 23,206
31,000 Sistem Television Malaysia 63,673
77,000 Sungei Way Holdings 223,278
168,000 TA Enterprise Berhad 266,581
586,000 Tan Chong Motor Holdings Berhad 1,191,824
100,000 Technology Resources Industries 233,588
118,000 Telekom Malaysia 955,215
309,000 Tenaga Nasional 1,480,910
109,000 Time Engineering Berhad 245,832
46,000 Tractors Malaysia Holdings Berhad 96,335
184,000 UMW Holdings Berhad 970,761
22,000 Uniphone Telecommunications 30,656
121,000 Westmont Industries Berhad 246,093
109,000 YTL Corp 632,139
----------------
31,533,246
----------------
Netherlands - 0.7%
700 ACF Holding NV 11,244
700 Cap Volmac Group NV 23,410
72,900 Elsevier NV 1,167,137
7,300 Fortis Amev NV 280,651
7,200 Getronics NV 235,096
3,800 Gist Brocades NV 128,681
32,308 ING Groep NV 1,250,599
2,800 Internatio-Muller 84,643
5,100 KLM Ltd 156,320
8,505 Kon Bolswessanen 149,156
7,050 Koninklijke KNP BT 161,139
1,878 Koninklijke Pakhoed 58,848
1,500 Nedlloyd 44,080
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Netherlands - continued
5,600 Pirelli Tyre Holdings 57,510
900 Schroders Intl Prop Fund 1,851
3,900 Telegraaf Holdings CVA 85,854
19,200 VNU 397,388
----------------
4,293,607
----------------
Norway - 1.0%
5,100 Aker AS Class A 130,175
7,600 Bergesen D Y AS Class A 157,896
5,300 Bergesen D Y AS Class B 110,898
248,500 Den Norske Bank AS Class A 1,106,313
1,300 Dyno Industrier AS 30,867
6,300 Elkem AS Class A 100,971
3,350 Kvaerner Industrier AS 164,552
6,100 Leif Hoegh and Co AS 117,680
61,600 Norsk Hydro AS 3,085,211
5,900 Norske Skogindustrier AS Class A 181,239
10,150 Nycomed ASA A Shares 158,156
9,900 Nycomed ASA B Shares 146,915
3,950 Orkla-Borregaard AS Class A 314,776
20,919 SAS Norge ASA Class B 207,992
1,700 Unitor AS 21,948
----------------
6,035,589
----------------
Singapore - 1.5%
180,000 Chuan Hup Holdings Ltd 138,850
282,000 DBS Land Ltd 1,097,546
107,000 First Capital Corp Ltd 321,150
109,600 Fraser and Neave Ltd 983,787
14,000 Goodman Fielder Asia Holdings Ltd 24,250
221,000 Hai Sun Hup Group Ltd 164,278
95,000 Haw Paw Brothers International Ltd 221,178
9,500 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 9,194
8,000 Highlands and Lowlands Berhad 14,530
167,000 Hotel Properties Ltd 295,119
31,000 Inchcape Berhad 108,261
279,441 Jardine Matheson Holdings Ltd 1,690,618
482,500 Jardine Strategic Holdings Ltd 1,582,600
40,000 Jurong Shipyard Ltd 190,743
77,000 Lum Chang Holdings Ltd 72,356
24,000 Metro Holdings Ltd 78,429
306,000 Neptune Orient Lines Ltd 263,941
11,000 Prima Ltd 38,261
27,000 Robinson and Co Ltd 110,764
15,400 Shangri-La Hotel Ltd 48,597
19,000 Singapore Land Ltd 107,258
161,000 Straits Trading Co Ltd 397,419
21,000 Times Publishing Ltd 46,830
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Singapore - continued
36,000 United Engineers 62,356
648,000 United Industrial Corp Ltd 558,934
97,000 United Overseas Land Ltd 155,091
31,000 Wearne Brothers Ltd 84,783
----------------
8,867,123
----------------
Spain - 2.8%
20,292 Argentaria Corporacion Bancaria de Espana SA 812,529
21,792 Autopistas Concesionaria Espanola SA (Registered) 243,231
230 Azucarera de Espana SA 10,846
39,511 Banco Bilbao Vizcaya SA 2,329,040
13,636 Banco Central Hispanoamericano SA 361,471
1,628 Bankinter SA 217,483
9,165 Dragados y Construcciones SA 138,738
4,145 Empresa Nacional de Electricidad SA 253,008
5,375 Ercros SA * 3,487
214 Fabricacion de Automoviles Renault de Espana SA 4,105
131,897 FENOSA SA 1,044,319
44,854 Fuerzas Electricas de Cataluna SA 358,269
10,759 General Aguas de Barcelona SA 412,797
269,696 Iberdrola SA 2,944,362
5,890 Prosegur Compania (Registered) 63,276
68,690 Repsol SA 2,611,514
7,161 Sarrio SA 26,026
46,612 Sevillana de Electricidad 422,711
8,101 Tabacalera SA Class A 366,763
9,552 Tableros Defibras Class B 92,288
154,114 Telefonica de Espana SA 3,547,794
2,700 Telefonica de Espana SA ADR 185,963
4,700 Uralita SA 36,885
----------------
16,486,905
----------------
Sweden - 5.8%
14,345 Assi Doman 372,108
8,900 Autoliv AB 404,756
27,000 Avesta Sheffield AB 273,669
85,900 Bilspedition AB Class B * 319,629
25,496 Celsius Industrier AB Class B 491,347
772 Custos AB Series Class A 17,915
4,400 Custos AB Series Class B 101,812
60,800 Electrolux AB Class B 3,802,990
14,547 Esselte AB Class A 352,127
9,200 Esselte AB Class B 223,310
10,474 Euroc Industri AB Class A 389,732
1,108 Fastighets AB (Hufvudstaden) Class A 8,201
7,900 Hennes and Mauritz AB Class B 1,123,138
4,609 Industrivarden AB Class A 231,738
</TABLE>
See accompanying notes to the financial statements. 25
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Sweden - continued
1,765 Industrivarden AB Class C (Bearer) 84,741
13,500 Kinnevik Investment Class B 382,597
23,700 Marieberg Tidnings AB Class A 657,447
100,800 Mo Och Domsjo AB Class B 3,199,531
29,600 Nordbanken 1,073,765
2,600 Perstorp AB Class B 46,812
4,100 Skandia Group Foersaekrings AB 124,672
170,400 Skandinaviska Enskilda Banken Class A 1,795,335
96,205 Skanska AB Class B 4,246,923
10,700 SKF AB Class B 255,438
89,900 Sparbanken Sverige AB Class A 1,774,476
40,800 Ssab Swedish Steel Class A 693,776
14,700 Ssab Swedish Steel Class B 249,963
52,423 Stena Line AB Class B 248,898
177,000 Stora Kopparberg Bergslags Class A 2,419,613
33,900 Stora Kopparberg Bergslags Class B 458,896
131,100 Svenska Cellulosa Class B 2,911,157
33,600 Svenska Handelsbanken Class A 941,038
2,800 Svenska Kullagerfabriken AB 66,097
1,001 Sydkraft AB Class A 22,695
83,100 Telefonaktiebologet LM Ericsson Class B 2,643,250
61,700 Trelleborg AB Class B 966,878
523 Trygg Hansa Holdings AB B Free 11,021
4,050 Volvo AB Class A 100,736
19,500 Volvo AB Class B 488,924
----------------
33,977,151
----------------
Switzerland - 1.6%
25 Adia SA (Bearer) 8,102
26,095 Alberta Energy Ltd 548,856
300 Alusuisse Lonza Holdings (Bearer) 234,508
60 Bobst SA (Bearer) 81,193
21 Danzas Holding AG (Registered) 22,495
765 Elektrowatt AG (Bearer) 275,400
80 Fischer (George) AG (Bearer) 81,627
500 Hilti AG, Schaan (Participating Certificate) 315,254
306 Holderbank Financiere Glarus AG (Bearer) 227,788
1,870 Holderbank Financiere Glarus AG (Registered) 280,183
50 Interdiscount Holdings (Bearer) * 556
50 Kuoni Reisen Holdings AG (Registered) 131,525
5 Magazine zum Globus (Registered) 2,441
310 Merkur Holding AG (Registered) 65,363
638 Novartis AG (Bearer) 730,132
3,306 Novartis AG (Registered) 3,778,926
3,944 Novartis Rights 3/12/97 * 249,608
25 Schindler Holding AG (Participating Certificate) 27,966
25 Schindler Holding AG (Registered) 26,610
10 Schweizerische Rueckversicherungsgesellschaft (Bearer) 10,231
</TABLE>
26 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Switzerland - continued
280 Sika Finanz AG (Bearer) 69,478
648 SMH AG (Bearer) 369,031
800 SMH AG (Registered) 105,356
105 Sulzer Gebrueder AG (Registered) 65,492
6,950 Swiss Bank Corp (Registered) 1,319,322
----------------
9,027,443
----------------
United Kingdom - 24.8%
9,800 3 Group Plc 81,382
38,400 Allied Colloids 80,505
271,500 Allied Domecq Plc 1,929,057
186,490 AMEC 362,068
14,310 Amersham International 302,341
95,740 Amstrad Plc 298,342
75,100 Anglian Water Plc 793,966
25,633 Argos Plc 286,887
175,400 Arjo Wiggins Appleton Plc 463,587
2,794,900 ASDA Group 5,107,065
39,300 Ashley (Laura) Holdings 100,986
150,200 Associated British Foods 1,190,949
46,400 Associated British Ports Holdings Ltd 237,325
23,200 Astec (BSR) 54,505
222,900 Bank of Scotland 1,241,904
135,390 Barratt Development 612,966
408,990 Bass 5,705,134
44,800 BAT Industries 392,500
11,700 BBA Group 65,474
127,300 Beazer Holmes Plc 415,380
15,800 Berisford International 35,315
2,484,800 BG Plc 6,911,987
9,662 BICC 43,507
48,100 Blue Circle Industries 312,723
48,170 Booker Plc 269,561
62,200 BPB Industries Plc 347,059
102,325 British Aerospace 2,128,944
85,981 British Airways 884,453
5,770 British Land Co 50,364
405,000 British Petroleum 4,489,847
492,100 British Steel 1,204,292
1,471,400 British Telecom Plc 10,216,667
115,750 BTR 454,175
11,043 Bunzl Co 37,925
24,280 Burmah Castrol Plc 409,597
766,920 Burton Group 1,958,175
82,800 Caradon 368,791
11,750 Carlton Communications 100,068
2,484,800 Centrica Plc * 2,655,338
150 Charter Plc (Registered) 1,806
4,500 Chubb Security 31,349
</TABLE>
See accompanying notes to the financial statements. 27
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
341,682 Coats Viyella 719,116
6,300 Cobham Group Plc 60,283
173,104 Cookson Group 660,861
61,100 Cordiant Plc * 97,442
23,086 Costain Group (b) 16,949
31,000 Courtaulds 184,098
51,100 Courtaulds Textiles Plc 206,757
35,149 Dalgety Plc 188,094
147,848 Dawson International 166,438
200 De La Rue Plc 2,030
29,600 Delta 169,506
75,400 Electrocomponents Plc 493,906
3,247 Energy Group Plc * 27,653
246,277 English China Clays Plc 859,854
225,900 Enterprise Oil 2,292,417
348,800 Eurotunnel SA Units (Registered) * 432,491
47,990 FKI 146,413
17,254 General Electric 104,999
50,190 Glaxo Wellcome Plc 850,785
29,870 Granada Group 450,292
338 Grand Metropolitan 2,509
29,370 Great Portland Estates Plc 101,105
91,656 Greenalls Group Plc 834,415
7,200 Greycoat Plc 18,795
400 Guinness 2,989
6,300 Hambros 26,724
4,058 Hanson Plc 18,207
166,550 Harrisons & Crosfield 358,679
126,603 Hazlewood Foods 245,798
4,100 Hepworth 17,526
412,844 Hillsdown Holdings 1,286,490
33,000 Hyder Plc 446,868
3,900 ICI 48,167
3,247 Imperial Tobacco Group Plc * 22,514
2,925 Inchcape 12,694
154,277 Kingfisher 1,704,029
31,610 Kwik Save Group 157,552
1,221,791 Ladbroke Group 4,584,710
24,223 Laing (John) 119,745
300 Laird Group 1,760
800 Laporte Plc 8,392
1,052,600 Lasmo 4,138,734
283,675 Legal & General Group 1,809,610
32,590 Lex Service 185,565
262,600 Lloyds TSB Group 2,185,003
141,500 London International 385,532
690,903 Lonrho 1,623,180
120,559 Lucas Variety Plc * 402,235
</TABLE>
28 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
172,276 Marley 348,525
58,600 Meggitt 101,342
16,300 Mercury Asset Management 358,480
52,100 Meyer International 341,705
91,100 MFI Furniture Group 291,314
463 Millennium Chemicals Inc 8,855
315,609 Mirror Group Plc 1,078,749
46,500 National Grid Holdings Plc 157,040
535,593 National Power 4,292,641
55,800 Next 541,674
12,907 NFC Plc 36,219
173,909 Norcros Plc 261,034
91,000 Northern Foods Plc 316,234
40,490 Ocean Group 310,149
321,400 Orange Plc 1,111,652
526,900 Peninsular & Oriental Steam Navigation Co 5,733,781
764,714 Pilkington 1,809,065
11,000 Powell Duffryn 73,222
115,659 Powergen 1,166,152
13,000 Premier Farnell Plc 104,563
192 Racal Electronics 908
67,100 Railtrack Group Plc 495,368
58,573 Reckitt & Colman 761,628
88,710 Redland 503,662
207,700 Rentokil Plc 1,528,270
220,000 Reuters Holdings 2,358,170
27,900 Rexam Plc 147,936
1,200 RMC Group 18,648
143,323 Rolls-Royce 542,489
17,661 Royal & Sun Alliance Insurance 141,764
76,800 Rugby Group 136,576
37,697 Safeway Plc 222,640
16,400 Sainsbury (J) 82,678
400 Salvesen (Christian) 2,092
133,516 Scottish Hydro-Electric Plc 775,501
396,942 Scottish Power Plc 2,266,638
41,200 Scottish & Newcastle Plc 455,065
985,012 Sears 1,301,708
106,400 Securicor Plc 543,342
24,600 Sedgwick Group 50,570
72,061 Severn Trent Plc 838,256
39,007 Shell Transport & Trading (Registered) 661,219
63,700 Siebe Plc 1,006,009
236,085 Signet Group Plc * 123,255
127,020 Simon Engineering 87,038
9,970 Slough Estates 46,196
29,274 Smith & Nephew Plc 92,178
184,464 Smithkline Beecham Plc 2,759,739
</TABLE>
See accompanying notes to the financial statements. 29
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
5,160 Smiths Industries 64,991
83,300 Southern Electric Plc 1,076,359
29,700 Southwest Water 332,405
173,930 Storehouse Plc 777,521
412,195 T & N 1,096,169
1,361,340 Tarmac 2,243,236
21,200 Tate & Lyle 150,976
369,466 Taylor Woodrow Plc 1,151,317
492,464 Tesco 2,715,678
123,700 Thames Water 1,386,480
4,200 Thistle Hotels Plc * 14,116
31,800 TI Group Plc 273,417
203,900 Tomkins Plc 948,089
84,400 Transport Development Group 282,282
14,770 Unigate 110,124
42,788 Unilever 1,100,533
264,052 United Biscuits 1,033,922
17,600 United News & Media Plc 203,298
336,800 United Utilities 3,643,113
28,900 Vendome Luxury Group Plc Units 248,011
37,000 Vickers 162,987
101,630 Vodafone Group Plc 482,505
89,200 Waste Management International * 343,450
90,970 Wessex Water Plc 534,303
251,070 Whitbread Plc Class A 3,219,619
27,300 Willis Corroon Group Plc 68,146
93,635 Wilson (Connolly) Holdings 239,842
412,175 Wimpey (George) 948,174
5,435 Wolseley 41,765
46,200 Yorkshire Electricity Group 673,101
45,656 Yorkshire Water 535,567
----------------
144,007,612
----------------
TOTAL STOCK AND EQUIVALENTS (Cost $526,586,465) 550,480,734
----------------
Par Value ($)/ SHORT-TERM INVESTMENTS - 12.6%
Shares Cash Equivalents - 10.5%
$ 14,400,000 Republic Bank of New York Time Deposit, 5.34% due 3/3/97 14,400,000
46,489,322 The Boston Global Investment Trust (c) 46,489,322
----------------
60,889,322
----------------
U.S. Government - 2.1%
$ 13,000,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 12,405,904
----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $73,296,143) 73,295,226
----------------
TOTAL INVESTMENTS - 107.3%
(Cost $599,882,608) * * 623,775,960
Other Assets and Liabilities (net) - (7.3%) (42,676,875)
----------------
TOTAL NET ASSETS - 100.0% $ 581,099,085
================
</TABLE>
30 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures contracts.
(b) Valued by management (Note 1).
(c) Represents investment of security lending collateral (Note 1).
* Non-income producing security. A dividend has not been declared for
the year ended February 28, 1997.
** The aggregate identified cost for federal income tax purposes is
$601,292,268, resulting in gross unrealized appreciation and
depreciation of $48,651,009 and $26,167,317, respectively, and net
unrealized appreciation of $22,483,692.
See accompanying notes to the financial statements. 31
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, industry sector diversification
of the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
Industry Sector (Unaudited)
<S> <C>
Banking 8.1 %
Utilities 7.0
Services 6.4
Conglomerates 6.0
Oil and Gas 5.5
Construction 5.3
Real Estate 5.2
Consumer Goods 5.0
Telecommunications 4.6
Transportation 4.6
Retail Trade 4.3
Chemicals 4.1
Food and Beverage 3.6
Machinery 3.6
Electronic Equipment 3.4
Health Care 3.0
Automotive 2.7
Paper and Allied Products 2.7
Metals and Mining 2.3
Communications 2.3
Insurance 2.1
Financial Services 1.3
Aerospace 1.1
Computers 0.6
Textiles 0.6
Miscellaneous 4.6
===================
100.0%
===================
</TABLE>
32 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - February 28, 1997
- ----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $599,882,608)(Note 1) $ 623,775,960
Foreign currency, at value (cost $6,188,600)(Note 1) 6,166,261
Cash 72,046
Dividends and interest receivable 507,914
Foreign withholding taxes receivable 327,876
Receivable for investments sold 2,254,352
Receivable for open forward foreign currency contracts (Note 6) 19,815,413
Receivable for expenses waived or borne by Manager (Note 2) 327,064
---------------
Total assets 653,246,886
---------------
Liabilities:
Payable for investments purchased 5,337,815
Payable for open forward foreign currency contracts (Note 6) 18,394,863
Payable upon return of securities loaned (Note 1) 46,489,322
Payable for Fund shares repurchased 707,000
Payable for variation margin on open futures contracts (Notes 1 and 6) 429,744
Payable to affiliate for (Note 2):
Management fee 334,997
Shareholder service fee 66,999
Accrued expenses 387,061
---------------
Total liabilities 72,147,801
---------------
Net assets $ 581,099,085
===============
Net assets consist of:
Paid-in capital $ 510,898,081
Accumulated undistributed net investment income 31,487,338
Accumulated undistributed net realized gain 14,851,199
Net unrealized appreciation 23,862,467
---------------
$ 581,099,085
===============
Net assets attributable to Class III Shares $ 581,099,085
===============
Shares outstanding - Class III 45,811,127
===============
Net asset value per share - Class III $ 12.68
===============
</TABLE>
See accompanying notes to the financial statements. 33
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,353,462) $ 11,592,957
Interest (including securities lending income of $115,347) 3,648,473
---------------
Total income 15,241,430
---------------
Expenses:
Management fee (Note 2) 3,841,815
Custodian fees 1,149,274
Stamp duties and transfer taxes 156,678
Audit fees 67,677
Registration fees 39,892
Legal fees 26,662
Transfer agent fees 25,491
Trustees fee (Note 2) 2,505
Miscellaneous 3,612
Fees waived or borne by Manager (Note 2) (2,218,152)
---------------
3,095,454
Shareholder service fee - Class III (Note 2) 595,691
---------------
Net expenses 3,691,145
---------------
Net investment income 11,550,285
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 23,020,912
Closed futures contracts (845,223)
Closed swap contracts 1,412,223
Foreign currency, forward contracts and foreign currency
related transactions 32,630,755
---------------
Net realized gain 56,218,667
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 13,411,825
Open futures contracts (1,033,373)
Foreign currency, forward contracts and foreign currency
related transactions (798,312)
---------------
Net unrealized gain 11,580,140
---------------
Net realized and unrealized gain 67,798,807
---------------
Net increase in net assets resulting from operations $ 79,349,092
===============
</TABLE>
34 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
Increase (decrease) in net assets: February 28, 1997 February 29, 1996 *
------------------- --------------------
<S> <C> <C>
Operations:
Net investment income $ 11,550,285 2,761,612
Net realized gain 56,218,667 9,472,130
Change in net unrealized appreciation (depreciation) 11,580,140 12,282,327
------------------ ----------------
Net increase in net assets resulting from operations 79,349,092 24,516,069
------------------ ----------------
Distributions to shareholders from:
Net investment income - Class III (12,206,199) (1,491,247)
Net realized gains - Class III (18,177,235) (1,789,497)
------------------ ----------------
(30,383,434) (3,280,744)
------------------ ----------------
Net share transactions - Class III (Note 5) 124,906,849 385,991,253
------------------ ----------------
Total increase in net assets 173,872,507 407,226,578
Net assets:
Beginning of period 407,226,578 -
------------------ ----------------
End of period (including accumulated undistributed
net investment income of $31,487,338 and
$6,114,326, respectively) $ 581,099,085 407,226,578
================== ================
</TABLE>
* Period from June 30, 1995 (commencement of operations) to February 29, 1996.
See accompanying notes to the financial statements. 35
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
February 28, 1997 February 29, 1996*
--------------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.54 $ 10.00
--------------------- ---------------------
Income from investment operations:
Net investment income 0.22 0.23
Net realized and unrealized gain (loss) 1.63 1.44
--------------------- ---------------------
Total from investment operations 1.85 1.67
--------------------- ---------------------
Less distributions to shareholders from:
Net investment income (0.28) (0.06)
Net realized gains (0.43) (0.07)
--------------------- ---------------------
Total distributions (0.71) (0.13)
--------------------- ---------------------
Net asset value, end of period $ 12.68 $ 11.54
===================== =====================
Total Return (a) 16.55% 16.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 581,099 $ 407,227
Net expenses to average
daily net assets 0.72% (c) 0.69% **
Net investment income to average
daily net assets 2.25% 1.89% **
Portfolio turnover rate 84% 7%
Average broker commission rate per equity share (b) $ 0.0067 N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.05
</TABLE>
* Period from June 30, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
(a) Calculation excludes purchase premiums. The total returns would have
been lower had certain expenses not been waived during the periods
shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission
rate will vary depending on the markets in which trades are executed.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .03% of average daily net assets.
36 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28,1997
- --------------------------------------------------------------------------------
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. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers and through management of the Fund's
foreign currency positions.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
37
<PAGE>
GMO Currency Hedged International Core 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 stock and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is subsequently settled. Gains or losses are recognized but
not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
38
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 28, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. There were no open
swap agreements as of February 28, 1997.
39
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At February 28, 1997, the Fund loaned securities having a
market value of $40,234,543 collateralized by cash in the amount of
$46,489,322, which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency and passive foreign investment
company transactions.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
--------------------------- ------------------------ --------------------------
<S> <C> <C>
$26,028,926 ($26,028,905) ($21)
</TABLE>
40
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual
basis and is adjusted for the accretion of discounts. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $266,701 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments 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.
41
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed .54% of average daily net
assets. Prior to June 1, 1996, a similar waiver existed for annual expenses
exceeding .69%; thus, the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997, was $2,505. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 28, 1997, aggregated
$638,371,793 and $370,931,104, respectively.
4. Principal shareholder
At February 28, 1997, 23% of the outstanding shares of the Fund were held
by one shareholder.
42
<PAGE>
GMO Currency Hedged International 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>
Class III: Period from June 30, 1995
Year Ended (commencent of operations) to
February 28, 1997 February 29, 1996
--------------------------------------------- ----------------------------------------------
Shares Amount Shares Amount
--------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Shares sold 16,351,665 $ 195,574,666 35,069,613 $ 383,683,337
Shares issued to
shareholders in
reinvestment of
distributions 2,179,223 26,037,897 253,567 2,801,916
Shares repurchased (7,998,316) (96,705,714) (44,625) (494,000)
--------------------- -------------------- --------------------- ---------------------
Net increase 10,532,572 $ 124,906,849 35,278,555 $ 385,991,253
===================== ==================== ===================== =====================
</TABLE>
43
<PAGE>
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 28, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Buys
3/3/97 ATS 48,800,000 $ 4,107,329 $ 933
5/9/97 ATS 193,909,467 16,381,777 (528,788)
6/13/97 ATS 131,213,831 11,108,054 (204,946)
3/7/97 AUD 3,303,719 2,564,033 (44,914)
5/9/97 AUD 1,263,424 979,229 7,997
7/11/97 AUD 3,303,719 2,559,336 1,498
3/7/97 BEF 561,923,767 16,137,612 (1,937,865)
5/7/97 BEF 390,375,000 11,241,167 (377,552)
5/12/97 BEF 30,761,720 886,055 (39,945)
7/11/97 BEF 561,923,767 16,245,313 (101,151)
3/3/97 CAD 22,586,200 16,523,667 (458,439)
3/7/97 CAD 5,135,450 3,757,979 (4,366)
4/9/97 CAD 682,000 500,069 984
5/9/97 CAD 4,488,290 3,297,638 (64,314)
6/13/97 CAD 3,984,417 2,933,761 (43,239)
7/11/97 CAD 22,586,200 16,659,152 (52,798)
3/7/97 CHF 3,031,802 2,056,072 (307,896)
5/9/97 CHF 20,924,246 14,279,759 (613,701)
7/11/97 CHF 3,031,802 2,083,365 940
3/3/97 DEM 11,000,000 6,516,009 11,751
</TABLE>
44
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
Buys - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
3/7/97 DEM 74,100,618 $ 43,902,706 $ (4,961,990)
5/9/97 DEM 2,257,663 1,342,626 (43,698)
7/11/97 DEM 74,100,618 44,257,768 (20,266)
3/3/97 DKK 19,463,970 3,022,215 4,077
3/7/97 DKK 5,186,232 805,401 (87,930)
7/11/97 DKK 5,186,232 810,601 (965)
3/3/97 ESP 25,500,000 177,886 (23,313)
3/7/97 ESP 285,347,700 1,990,439 (6,257)
5/9/97 ESP 435,133,120 3,030,133 (104,719)
6/13/97 ESP 2,246,913,574 15,641,318 (272,682)
7/11/97 ESP 25,500,000 177,504 (1,117)
3/3/97 FIM 5,500,000 1,092,386 (7,174)
3/7/97 FIM 1,670,108 331,772 (36,906)
5/9/97 FIM 10,125,280 2,018,500 (64,677)
7/11/97 FIM 1,670,108 334,425 (742)
3/7/97 FRF 41,824,000 7,342,375 (8,064)
3/7/97 GBP 3,594,363 5,863,894 108,781
5/9/97 GBP 8,998,008 14,657,214 73,263
7/11/97 GBP 3,594,363 5,848,339 (5,080)
3/3/97 HKD 410,000,000 52,944,215 6,836
3/7/97 HKD 240,621,576 31,071,571 (16,603)
5/9/97 HKD 16,151,933 2,085,014 (2,986)
7/11/97 HKD 84,352,356 10,885,636 (2,614)
3/7/97 IEP 6,081,740 9,630,718 (23,287)
5/9/97 IEP 2,942,405 4,655,267 (51,404)
7/11/97 IEP 869,619 1,375,913 2,436
3/3/97 ITL 11,400,000,000 6,745,562 (522,556)
</TABLE>
45
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
Buys - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
3/7/97 ITL 21,277,125,000 $ 12,587,892 $ (97,451)
6/13/97 ITL 35,064,965,576 20,637,626 (870,374)
7/11/97 ITL 7,500,000,000 4,409,996 (45,008)
3/3/97 JPY 780,764,200 6,469,170 (640,967)
5/9/97 JPY 1,094,192,060 9,150,232 (261,768)
7/11/97 JPY 780,764,200 6,588,620 78,725
3/3/97 MYR 35,300,000 14,216,673 38,828
3/7/97 MYR 10,823,411 4,358,442 8,546
5/9/97 MYR 32,310,630 12,975,740 49,420
3/3/97 NLG 7,850,000 4,134,190 (15,955)
3/7/97 NLG 6,924,341 3,647,376 (469)
5/9/97 NLG 1,727,045 913,168 (33,937)
6/13/97 NLG 4,997,577 2,648,675 (54,325)
3/3/97 NOK 103,800,000 15,403,907 (1,019,165)
3/7/97 NOK 60,878,131 9,035,830 (34,848)
6/13/97 NOK 111,552,121 16,638,467 (568,533)
7/11/97 NOK 86,800,000 12,967,404 (110,794)
3/3/97 NZD 6,250,000 4,323,438 (16,563)
3/7/97 NZD 11,364,915 7,860,053 (34,364)
6/13/97 NZD 20,927,540 14,381,080 99,080
3/3/97 SEK 25,000,000 3,334,200 (453,679)
3/7/97 SEK 53,462,907 7,130,935 (27,710)
6/13/97 SEK 4,671,192 624,984 (9,016)
7/11/97 SEK 25,000,000 3,348,889 (15,170)
3/3/97 SGD 1,400,000 981,767 1,306
3/7/97 SGD 7,070,152 4,957,956 5,829
------------------
$ (14,853,810)
==================
</TABLE>
46
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Sales
3/3/97 ATS 48,800,000 $ 4,107,329 $ 526,477
4/9/97 ATS 364,253,753 30,733,837 1,994,246
7/11/97 ATS 48,800,000 4,142,644 (7,016)
3/7/97 AUD 3,303,719 2,564,033 (2,197)
4/9/97 AUD 33,000,000 25,612,620 (1,320)
5/9/97 AUD 1,360,142 1,055,280 2,720
6/13/97 AUD 6,205,310 4,813,156 (92,156)
3/7/97 BEF 561,923,767 16,137,612 85,873
5/7/97 BEF 245,300,000 7,075,064 188,780
3/3/97 CAD 22,586,200 16,523,667 41,203
3/7/97 CAD 5,135,450 3,757,979 32,021
5/9/97 CAD 12,981,750 9,542,864 191,355
7/11/97 CAD 5,135,450 3,790,016 1,384
3/7/97 CHF 3,031,802 2,056,072 (612)
5/9/97 CHF 70,200,195 47,945,975 1,919,066
3/3/97 DEM 11,000,000 6,516,009 822,217
3/7/97 DEM 74,100,618 43,902,706 21,786
5/9/97 DEM 67,414,061 40,108,843 1,198,840
6/13/97 DEM 65,519,282 39,072,749 425,251
7/11/97 DEM 11,000,000 6,573,039 (16,443)
3/3/97 DKK 19,463,970 3,022,215 361,646
3/7/97 DKK 5,186,232 805,410 791
5/9/97 DKK 13,946,880 2,173,542 68,001
6/13/97 DKK 54,978,323 8,584,192 133,808
7/11/97 DKK 19,463,970 3,043,777 (5,902)
3/3/97 ESP 25,500,000 177,886 936
3/7/97 ESP 285,347,700 1,990,439 224,151
</TABLE>
47
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
Sales - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
7/11/97 ESP 285,347,700 $ 1,987,950 $ 6,052
3/3/97 FIM 5,500,000 1,092,386 128,480
3/7/97 FIM 1,670,108 331,772 482
7/11/97 FIM 5,500,000 1,103,256 5,615
3/7/97 FRF 41,824,000 7,342,375 657,625
5/9/97 FRF 194,159,911 34,223,935 989,807
7/11/97 FRF 41,824,000 7,403,054 157
3/7/97 GBP 3,594,363 5,863,894 3,184
5/9/97 GBP 85,535,240 139,421,585 (1,612,355)
6/13/97 GBP 13,953,245 22,730,201 (49,201)
3/3/97 HKD 410,000,000 52,944,215 54,751
3/7/97 HKD 240,621,576 31,071,571 21,037
7/11/97 HKD 566,269,220 73,092,995 (16,730)
3/7/97 IEP 6,081,740 9,630,718 343,193
5/9/97 IEP 2,060,404 3,262,917 73,083
7/11/97 IEP 5,212,121 8,255,348 (13,108)
3/3/97 ITL 11,400,000,000 6,745,562 319,338
3/7/97 ITL 21,277,125,000 12,587,892 1,240,556
5/9/97 ITL 24,420,593,000 14,403,606 814,968
7/11/97 ITL 25,177,125,000 14,817,090 98,414
3/3/97 JPY 780,764,200 6,469,170 (77,322)
4/9/97 JPY 1,684,985,400 14,038,971 524,114
5/9/97 JPY 10,276,849,990 86,004,502 (514,913)
6/13/97 JPY 428,936,200 3,607,366 (65,366)
3/3/97 MYR 35,300,000 14,216,673 (254,723)
3/7/97 MYR 10,823,411 4,358,442 (82,442)
5/9/97 MYR 19,515,279 7,841,303 (30,756)
6/13/97 MYR 51,400,306 20,630,008 (106,008)
</TABLE>
48
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
Sales - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
7/11/97 MYR 46,123,411 $ 18,496,370 $ (52,567)
3/3/97 NLG 7,850,000 4,134,190 553,777
3/7/97 NLG 6,924,341 3,647,371 405,324
4/9/97 NLG 9,413,880 4,971,887 409,933
5/9/97 NLG 42,674,933 22,584,492 767,725
7/11/97 NLG 14,774,341 7,853,568 6,811
3/3/97 NOK 103,800,000 15,403,907 107,055
3/7/97 NOK 60,878,131 9,035,830 398,020
5/9/97 NOK 41,461,815 6,180,932 211,504
7/11/97 NOK 43,878,131 6,564,203 17,648
3/3/97 NZD 6,250,000 4,323,438 107,813
3/7/97 NZD 11,364,915 7,860,053 25,419
5/9/97 NZD 15,552,181 10,719,495 (30,237)
7/11/97 NZD 17,614,915 12,099,156 110,569
3/3/97 SEK 25,000,000 3,334,200 12,610
3/7/97 SEK 53,462,907 7,130,935 770,066
5/9/97 SEK 376,407,413 50,342,980 1,631,130
7/11/97 SEK 53,462,907 7,169,047 21,660
3/3/97 SGD 1,400,000 981,767 21,314
3/7/97 SGD 7,070,152 4,957,956 56,336
6/13/97 SGD 19,538,218 13,771,938 158,061
7/11/97 SGD 8,470,152 5,981,126 (8,449)
------------------
$ 16,274,360
==================
</TABLE>
49
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Currency Abbreviations
<TABLE>
<S> <C> <C> <C>
ATS Austrian Schilling GBP British Pound
AUD Australian Dollar HKD Hong Kong Dollar
BEF Belgian Franc IEP Irish Pound
CAD Canadian Dollar ITL Italian Lira
CHF Swiss Franc JPY Japanese Yen
DEM German Mark MYR Malaysian Ringgit
DKK Danish Krona NLG Netherlands Guilder
ESP Spanish Peseta NOK Norwegian Kroner
FIM Finnish Markka NZD New Zealand Dollar
FRF French Franc SEK Swedish Krona
SGD Singapore Dollar
</TABLE>
Futures Contracts
<TABLE>
<CAPTION>
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- ---------------------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Buys
2 DAX March 1997 $ 386,329 $ 10,354
2 IBEX 35 March 1997 73,680 (3,707)
241 MIB 30 March 1997 24,733,160 2,131,792
133 OMX STOCK March 1997 3,642,463 (88,134)
186 TOPIX March 1997 21,483,470 (2,426,098)
148 TSE 35 March 1997 17,658,439 703,749
------------------
$ 327,956
==================
Sales
358 ALL ORDS March 1997 $ 16,860,355 $ (305,029)
220 HANG SENG March 1997 18,849,432 297,050
140 MATIF CAC 40 March 1997 12,895,933 (1,713,033)
2 FTSE 100 ID March 1997 349,549 (13,234)
-----------------
$ (1,734,246)
=================
</TABLE>
At February 28, 1997, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
50
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated 3.9%
of distributions as net capital gain dividends.
51
<PAGE>
GMO Currency Hedged International 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. LLC for more
than fifteen years.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the GMO Currency Hedged International Core Fund returned
16.6% for the fiscal year ended February 28, 1997 as compared to 17.9% for the
GMO EAFE-Lite Hedged Index. Consistent with the Fund's investment objective and
policies, the Fund was invested substantially in common stocks throughout the
period.
With the exception of Japan and Singapore, the majority of the EAFE countries
experienced strong performance during the year. The Japanese market declined by
- -8.8% in local terms, while EAFE ex-Japan rose by 25.6%. These returns were
depressed somewhat for U.S. investors as a result of the dollar's rally during
the period, 7.6% versus an EAFE-Lite basket of currencies.
Relative to the GMO EAFE-Lite Index, the impact of the Fund's country weights
negatively impacted performance for the year , in spite of a modest underweight
in Japan. The primary influence was the Fund's underwriting of the Netherlands,
an expensive market which strongly outperformed the index during the year.
Additionally, underweighting in France and Germany and an overweighting in
Singapore contributed negatively as well. These results were partially offset by
the positive impact of the Fund's underweighting of Japan and overweighting of
Canada, Italy and Spain.
Relative to EAFE, country selection added value, primarily due to the Fund's
underweight in Japan.
Effect of Currency weights
The effect of the Fund's currency weights added value to the account's relative
performance, primarily from underweighting the yen, Swiss franc and Dutch
guilder. The Fund also benefited from an overweight position in the pound
sterling, which was the strongest performing currency for the year. The Fund was
modestly hedged back to the U.S. dollar during the year, which added value as
well.
<PAGE>
Effect of stock selection
Stock selection contributed negatively to the Fund's performance for the year.
Growth stocks led the strong performance in many of the developed international
markets, while value-based investing lagged. International small capitalization
stocks outperformed modestly, following on very weak performance in 1995.
Portfolio structure and outlook
Country selection. We modestly favor Canada, Italy, Singapore and Spain and are
underweight in Japan and the major European countries (Germany, the U.K., France
and Switzerland). We also continue to underweight the Netherlands, which
following its strong run this year, looks even more expensive to us than it has
been in the past.
Stock selection. Over time we have gradually broadened the techniques used by
the International Core Fund to select stocks. From the simple value screens we
began using successfully fifteen years ago, today value includes a proprietary
price-to-dividend discount measure. We expect that the use of the dividend
discount model, which focuses on value stocks while giving companies credit for
financial and operating "quality," will enable the portfolio to be most
responsive to opportunities for a valued-based strategy in a more competitive
investing environment.
We have diversified the techniques used to select stocks in the portfolio to
include momentum screens which allow the portfolio to own selected growth
stocks with attractive characteristics. As a result, we expect the portfolio to
be more flexible than it has been previously, weathering those periods when
value investing is out of favor. Further, the Fund's stock selection models
have been customized to add value on a country by country basis.
Today the portfolio is positioned to be flexible to style shifts in the
international markets. Value remains at the heart of our approach, however, as
the staying power of growth and momentum-based techniques tends to be more
limited than value investing and reversals tend to be more severe.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Currency Hedged International Core Fund Class III shares and the
MSCI EAFE Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 06/30/95
<S> <C> <C> <C>
Class III 15.9% N/A 19.8%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Currency Hedged International Core Fund MSCI EAFE Index GMO EAFE-Lite Hedged Index
<S> <C> <C> <C>
06/30/95 9,925 10,000 10,000
02/29/96 11,596 10,324 11,878
02/28/97 13,515 10,745 14,009
</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 60bp on the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Class I shares and
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
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
28, 1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1997 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 22, 1997
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
<C> <C> <S> <C>
DEBT OBLIGATIONS - 89.0%
Argentina - 1.4%
USD 1,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate (3.22%), due 4/01/07 1,030,000
----------------
Brazil - 0.9%
USD 837,030 Brazil Capitalization Bond, PIK, 8.00% due 4/15/14 662,822
----------------
Bulgaria - 0.3%
USD 500,000 Bulgaria FLIRB Series B,
Variable Rate, Step up (2.75%), due 7/28/12 226,250
----------------
Canada - 2.3%
CAD 2,000,000 Government of Canada Real Return, 4.25% due 12/01/21 1,608,867
----------------
Denmark - 5.4%
DKK 15,400,000 Kingdom of Denmark Bullet, 7.00% due 12/15/04 2,538,012
DKK 7,600,000 Kingdom of Denmark, 8.00% due 11/15/01 1,320,143
----------------
3,858,155
----------------
Ecuador - 0.3%
USD 500,000 Republic of Ecuador Par Bond,
Variable Rate, Step up (3.25%), due 2/28/25 225,000
----------------
France - 9.8%
FRF 23,650,000 Credit Foncier, 6.50% due 10/13/08 4,339,964
ECU 1,000,000 Government of France, 8.25% due 4/25/22 1,354,686
ECU 1,000,000 Societe Nationale des Chemins de Fer, 9.38% due 3/12/01 1,326,523
----------------
7,021,173
----------------
Germany - 1.1%
ESP 100,000,000 Deutsche Ausgleichsbank, 8.60% due 5/22/03 758,633
----------------
Greece - 1.4%
GRD 250,000,000 Hellenic Republic,
Variable Rate, 12 mo. GTB + 1.50% (14.20%), due 9/30/03 983,114
----------------
Jordan - 0.5%
USD 500,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up (4.00%), due 12/23/23 144A 332,500
----------------
Mexico - 1.0%
FRF 5,000,000 Mexico Par Bond, 6.63% due 12/31/19 715,251
----------------
New Zealand - 0.5%
NZD 500,000 New Zealand Index Linked Bond, 4.50% due 2/15/16 327,706
----------------
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
<C> <C> <S> <C>
Nigeria - 0.5%
USD 500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up (6.25%), due 11/15/20 338,750
----------------
Spain - 1.6%
ESP 150,000,000 Government of Spain, 10.25% due 11/30/98 1,117,754
----------------
Supranational - 3.9%
JPY 85,000,000 Asian Development Bank, 5.00% due 2/5/03 822,956
GBP 1,000,000 International Bank Recon and Development, 11.50% due 11/09/03 1,982,273
----------------
2,805,229
----------------
Sweden - 7.1%
SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00% due 12/1/20 682,906
SEK 10,200,000 Kingdom of Sweden, 13.00% due 6/15/01 1,740,969
SEK 13,300,000 Kingdom of Sweden, 10.25% due 5/5/03 2,149,292
SEK 4,000,000 Kingdom of Sweden, 6.00% due 2/9/05 517,571
----------------
5,090,738
----------------
United States - 50.4%
Asset Backed Securities - 29.5%
USD 5,000,000 Augusta Funding Series 1996-F2,
Variable Rate, LIBOR + .30% (5.89%), due 4/15/06 144A 4,951,465
USD 438,626 BCI Home Equity Loan 1994-1 Class A1
Variable Rate, 1 mo. LIBOR + .24% (5.99%), due 3/29/44 440,008
USD 4,000,000 Discover Card Master Trust I Series 1996-2A,
Variable Rate, 1 mo. LIBOR +.22% (5.64%), due 7/18/05 4,008,000
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25% (6.00%), due 10/03/01 3,015,000
USD 2,000,000 First Chicago Master Trust II 95-0,
Variable Rate, 1 mo. LIBOR + .23% (5.65%), due 2/15/04 2,007,500
USD 4,000,000 National Premier Finance 95-2, 6.21% due 6/01/99 144A 3,992,000
USD 2,000,000 National Premier Finance IX 96-1A, 7.20% due 7/01/00 2,032,000
USD 651,489 Wilshire Liquidating Trust Series 1996-1 144A Class 1,
Variable Rate, 1 mo. LIBOR + .50% (6.00%), due 9/25/01 649,860
----------------
21,095,833
----------------
Structured Notes - 9.7%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR)(4.18%), due 9/22/03 4,237,500
USD 2,750,000 Federal Home Loan Bank,
Variable Rate, ((.50 * 10YR CMT) + 1.25%)(4.71%), due 3/16/98 2,701,100
----------------
6,938,600
----------------
U.S. Government - 2.9%
USD 1,000,000 U.S. Treasury Note, 6.875% due 8/31/99 (a) 1,016,250
USD 1,000,000 U.S. Treasury Note, 9.25% due 8/15/98 1,045,000
----------------
2,061,250
----------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
<C> <C> <S> <C>
U.S. Government Agency - 8.3%
USD 4,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10% (5.47%), due 2/01/27 4,016,250
USD 1,928,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,929,928
----------------
5,946,178
----------------
Total United States 36,041,861
----------------
Venezuela - 0.6%
USD 500,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81% (6.44%), due 3/31/20 431,250
----------------
TOTAL DEBT OBLIGATIONS (Cost $64,332,821) 63,575,053
----------------
<CAPTION>
Principal Amount CALL OPTIONS PURCHASED - 2.4%
(000's omitted) Cross Currency Options - 1.9%
<S> <C> <C> <C>
DEM 40,600 DEM Call/BEF Put, Expires 4/11/97 Knock Out 20.50, Strike 20.50 158,725
ECU 11,700 ECU Call/DEM Put, Expires 5/14/97 Knock Out 1.894, Strike 1.894 294,536
ECU 39,400 ECU Call/DEM Put, Expires 6/13/97 Knock Out 1.9075, Strike 1.9075 695,206
ECU 20,200 ECU Call/DEM Put, Expires 7/24/97 Knock Out 1.915, Strike 1.92 211,301
----------------
1,359,768
----------------
Options on Bonds - 0.4%
USD 2,000 Brazil Discount Z, Expires 4/25/97 Strike 73.00 177,500
SEK 35,000 Sweden Government Bond 1033, Expires 4/11/97 Strike 117.725 136,161
----------------
313,661
----------------
Options on Currency - 0.1%
USD 4,000 German Mark, Expires 2/9/98 Strike 1.61 102,000
----------------
TOTAL CALL OPTIONS PURCHASED (Cost $1,347,784) 1,775,429
----------------
PUT OPTIONS PURCHASED - 2.7%
Cross Currency Options - 0.5%
DEM 17,400 DEM Put/ITL Call, Expires 1/21/98 Strike 950.00 41,227
DEM 23,400 DEM Put/ITL Call, Expires 3/18/97 Strike 1025.00 311,871
----------------
353,098
----------------
Options on Bonds - 0.0%
USD 500 Venezuela Discount Bond, Expires 7/10/97 Strike 88.25 less DCB offer 1,645
----------------
Options on Currency - 2.2%
USD 16,900 French Franc, Expires 6/30/97 Strike 5.195 1,368,900
USD 4,000 German Mark, Expires 2/9/98 Strike 1.61 190,400
----------------
1,559,300
----------------
TOTAL PUT OPTIONS PURCHASED (Cost $804,908) 1,914,043
----------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value Description Value ($)
<C> <S> <C>
SHORT-TERM INVESTMENTS - 4.6%
Repurchase Agreement - 4.6%
$ 3,253,041 Salomon Brothers Repurchase Agreement, dated 2/28/97,
due 3/3/97 with a maturity value of $3,254,356 and an
effective yield of 4.85%, collateralized by U.S. Treasury
Obligations with rates ranging from 7.25% to 11.88%,
maturity dates ranging from 11/15/03 to 5/15/20 and with
an aggregate market value of $3,321,624 (Cost $3,253,041). 3,253,041
----------------
TOTAL INVESTMENTS - 98.7%
(Cost $69,738,554) * * 70,517,566
Other Assets and Liabilities (net) - 1.3% 896,744
----------------
TOTAL NET ASSETS - 100.0% $ 71,414,310
================
</TABLE>
Notes to the Schedule of Investments:
DCB - Debt Conversion Bond
GTB - Greek Treasury Bill
PIK - Payment In Kind
CMT - Constant Maturity Treasury Index
Knock Out - Option will expire if underlying security
reaches knock out price.
144A - Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
Variable and step up rates - The rates shown on
variable and step up rate notes are the current interest
rates at February 28, 1997, which are subject to change
based on the terms of the security.
(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 $69,748,316, resulting in gross unrealized
appreciation and depreciation of $2,342,385 and $1,573,135,
respectively, and net unrealized appreciation of $769,250.
Currency Abbreviations
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc GRD - Greek Drachma
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone NZD - New Zealand Dollar
ECU - European Currency Unit SEK - Swedish Krona
ESP - Spanish Peseta USD - United States Dollar
FRF - French Franc
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $69,738,554) (Note 1) $ 70,517,566
Cash 7,572
Foreign currency, at value (cost $501,224) (Note 1) 475,101
Interest receivable 1,303,937
Receivable for expenses waived or borne by Manager (Note 2) 24,122
Receivable for open forward foreign currency contracts (Note 6) 2,418,300
---------------
Total assets 74,746,598
---------------
Liabilities:
Written options outstanding, at value (premiums $369,400) (Note 6) 330,400
Payable to brokers for open futures contracts (Notes 1 and 6) 98,292
Payable for open forward foreign currency contracts (Note 6) 2,815,386
Payable to affiliate for (Note 2):
Management fee 19,400
Shareholder service fee 8,379
Accrued expenses 60,431
---------------
Total liabilities 3,332,288
---------------
Net assets $ 71,414,310
===============
Net assets consist of:
Paid-in capital $ 70,139,724
Accumulated undistributed net investment income 1,195,168
Accumulated undistributed net realized gain 60,126
Net unrealized appreciation 19,292
===============
$ 71,414,310
===============
Net assets attributable to:
Class I shares $ 646,038
===============
Class III shares $ 70,768,272
===============
Shares outstanding:
Class I 63,643
===============
Class III 6,963,365
===============
Net asset value per share:
Class I $ 10.15
===============
Class III $ 10.16
===============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Operations - Year Ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends from investment company shares $ 49,248
Interest (including securities lending income of $11,172) 4,139,789
Total income 4,189,037
Expenses:
Management fee (Note 2) 220,921
Audit fees 82,358
Custodian and transfer agent fees 62,010
Registration fees 8,608
Legal fees 2,166
Trustees fee (Note 2) 323
Miscellaneous 628
Fees waived or borne by Manager (Note 2) (237,243)
------------
139,771
Shareholder service fee (Note 2)
Class I 264
Class III 74,110
------------
Net expenses 214,145
------------
Net investment income 3,974,892
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 1,329,551
Realized gain distributions from investment company shares 94,121
Closed futures contracts 1,759,653
Written options 22,586
Foreign currency, forward contracts and foreign
currency related transactions (149,616)
------------
Net realized gain 3,056,295
------------
Change in net unrealized appreciation (depreciation) on:
Investments 1,253,798
Open futures contracts (311,242)
Written options 39,000
Foreign currency, forward contracts and foreign
currency related transactions (617,131)
------------
Net unrealized gain 364,425
------------
Net realized and unrealized gain 3,420,720
------------
Net increase in net assets resulting from operations $ 7,395,612
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Year Ended
February 28, 1997 February 29, 1996 *
------------------ -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,974,892 $ 304,686
Net realized gain (loss) 3,056,295 (414,636)
Change in net unrealized appreciation (depreciation) 364,425 (345,133)
---------------- ------------------
Net increase (decrease) in net assets resulting from operations 7,395,612 (455,083)
---------------- ------------------
Distributions to shareholders from:
Net investment income
Class III (3,484,400) --
Net realized gains
Class III (2,181,543) --
---------------- ------------------
(5,665,943) --
---------------- ------------------
Net share transactions: (Note 5)
Class I 654,817 --
Class III 37,957,406 31,527,501
---------------- ------------------
Net increase in net assets resulting
from Fund share transactions 38,612,223 31,527,501
---------------- ------------------
Total increase in net assets 40,341,892 31,072,418
Net assets:
Beginning of period 31,072,418 --
---------------- ------------------
End of period (including accumulated undistributed
net investment income of $1,195,168 and
$145,359, respectively) $ 71,414,310 $ 31,072,418
================ ==================
</TABLE>
* Period from December 28, 1995 (commencement of operations) to February
29, 1996.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from January 6, 1997
(commencement of operations)
to February 28, 1997
<S> <C>
Net asset value, beginning of period $ 10.29
----------
Income from investment operations:
Net investment income 0.09
Net realized and unrealized gain (loss) (0.23)
----------
Total from investment operations (0.14)
----------
Net asset value, end of period $ 10.15
==========
Total Return (a) (1.36)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 646
Net expenses to average
daily net assets 0.47% *
Net investment income to average
daily net assets 6.05% *
Portfolio turnover rate 72%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01
</TABLE>
* Annualized.
(a) Calculation excludes purchase premiums. The total return would have
been lower had certain expenses not been waived during the period
shown.
See accompanying notes to the financial statements.
8
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28/29,
----------------------------------
1997 1996*
------------- -------------
<S> <C> <C>
Net asset value, beginning of period $ 9.89 $ 10.00
------------- -------------
Income from investment operations:
Net investment income 0.61 0.05
Net realized and unrealized gain (loss) 0.59 (0.16)
------------- -------------
Total from investment operations 1.20 (0.11)
------------- -------------
Less distributions to shareholders:
From net investment income (0.57) 0.00
From net realized gains (0.36) 0.00
------------- -------------
Total distributions (0.93) 0.00
------------- -------------
Net asset value, end of period $ 10.16 $ 9.89
============= =============
Total Return (a) 12.01% (1.10%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 70,768 $ 31,072
Net expenses to average
daily net assets 0.34% 0.34%**
Net investment income to average
daily net assets 6.31% 6.16%**
Portfolio turnover rate 72% 0%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.01
</TABLE>
* Period from December 28, 1995 (commencement of operations) to February 29,
1996.
** Annualized
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24,
1985. The Declaration of Trust permits the Trustees to create an unlimited
number of series ("Funds"), each of which issues a separate series of
shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment
grade bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the global fixed income securities market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets
invested with GMO, as more fully outlined in the Trust's prospectus. Class
III shares are the continuation of the Trust's shares that existed prior
to June 1, 1996, and bear the same total operating expenses (after the
voluntary expense waiver) as those shares.
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.
10
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
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. These prices may
differ from the value that would have been used had a broader market for
the securities existed and the differences could be material to the
financial statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the prevailing
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at prevailing exchange rates when
accrued or incurred. The Fund does not isolate realized and unrealized
gains and losses attributable to changes in exchange rates from gains and
losses that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains and losses on disposition of
foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
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 28, 1997.
11
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. The U.S. dollar value of the currencies the Fund has committed to
buy or sell is shown under Note 6 and represents the currency exposure the
Fund has acquired or hedged through currency contracts as of February 28,
1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There
is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. See Note 6 for all open written option
contracts as of February 28, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
12
<PAGE>
GMO Global Bond 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 and the value of the collateral
declines or if the seller enters insolvency proceedings, realization of
collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 28, 1997, there were no securities on
loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
13
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------------- --------------------------- --------------------
<S> <C> <C>
$559,317 ($559,317) -
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions
for financial statement purposes are classified as distributions in excess
of net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. Effective June 1, 1996, the Manager will reduce such premium
only when any portion of a purchase is offset by a corresponding
redemption occurring on the same day. All purchase premiums are paid to
and recorded as paid-in capital by the Fund. For the year ended February
28, 1997, the Fund received $61,270 in purchase premiums. There is no
premium for cash redemptions, reinvested distributions or in-kind
transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
14
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .35% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .28% for Class I shares, .22% for Class II
shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including
the management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .19% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .34%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997, was $323. 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 28, 1997, 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 $ 7,003,336 $ 998,281
Investments (non-U.S. Government securities) 66,547,596 40,054,116
</TABLE>
4. Principal shareholders
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by one shareholder and 93% of the outstanding Class III shares
of the Fund were held by four shareholders, each holding in excess of 10%
of the outstanding shares of the respective class.
15
<PAGE>
GMO Global 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 January 6, 1997
(commencement of operations)
to February 28, 1997
------------------------------------------------
Class I: Shares Amount
------------------- --------------------
<S> <C> <C>
Shares sold 63,643 $ 654,817
Shares issued to shareholders in reinvestment of
distributions - -
Shares repurchased - -
------------------- --------------------
Net increase 63,643 $ 654,817
=================== ====================
</TABLE>
<TABLE>
<CAPTION>
Period from December 28, 1995
Year Ended (commencent of operations) to
February 28, 1997 February 29, 1996
---------------------------------------- ------------------------------------------
Class III: Shares Amount Shares Amount
----------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 4,047,314 $ 40,339,699 3,143,053 $ 31,527,501
Shares issued to
shareholders in
reinvestment of
distributions 435,009 4,467,251 - -
Shares repurchased (662,011) (6,849,544) - -
----------------- -------------- ------------------- --------------
Net increase 3,820,312 $ 37,957,406 3,143,053 $ 31,527,501
================= ============== =================== ==============
</TABLE>
16
<PAGE>
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 28, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
------------------- ------------------- ---------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Buys
4/24/97 CAD 3,300,000 $ 2,423,308 $ (30,078)
3/7/97 DEM 74,400,000 44.089,377 (2,314,052)
4/18/97 GBP 1,700,000 2,770,988 24,718
4/10/97 JPY 1,500,000,000 12,502,429 (193,718)
---------------------
$ (2,513,130)
=====================
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
------------------- ------------------- ---------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Sales
5/23/97 AUD 2,400,000 $ 1,860,955 $ (25,675)
4/24/97 CAD 6,300,000 4,626,315 67,241
3/7/97 DEM 42,800,000 25,363,244 2,057,815
4/18/97 GBP 1,600,000 2,607,989 31,485
4/10/97 JPY 310,000,000 2,583,835 32,727
3/21/97 NZD 475,000 328,189 5,403
--------------------
$ 2,168,996
====================
</TABLE>
17
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Forward cross currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange for (Depreciation)
--------------- -------------------------------- ------------------------------ -------------------
<S> <C> <C> <C> <C> <C>
3/20/97 ITL 17,759,498,500 DEM 17,800,000 $ 59,961
7/23/97 DEM 8,500,000 ESP 719,325,000 (74,679)
7/23/97 ESP 50,790,000 DEM 600,000 5,173
4/28/97 DEM 77,880,978 ECU 40,200,000 2,684
3/20/97 DEM 13,800,000 ITL 14,027,932,000 106,789
4/25/97 DEM 3,100,000 FRF 10,460,420 (288)
4/25/97 FRF 16,544,703 DEM 4,900,000 (1,393)
3/14/97 NLG 15,928,211 DEM 14,200,000 22,168
5/7/97 DEM 26,600,000 SEK 119,182,450 (144,746)
4/15/97 BEF 74,212,920 DEM 3,600,000 2,136
5/5/97 DEM 6,000,000 CHF 5,191,500 (24,493)
3/14/97 DEM 6,300,000 NLG 7,082,460 (1,549)
5/6/97 DKK 30,177,210 DEM 7,900,000 (2,871)
4/28/97 ECU 15,500,000 DEM 30,027,375 (1,844)
-------------------
$ (52,952)
===================
</TABLE>
18
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
--------------- ----------------------------------- ---------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
Buys
29 Australian Government Bond 3 YR March 1997 $ 2,648,380 $ (11,001)
34 Australian Government Bond 10YR March 1997 3,502,716 (72,854)
51 CAD Government Bond June 1997 5,590,221 (41,619)
19 Italian Government Bond 10 YR June 1997 2,882,127 (54,327)
50 MATIF ECU Bond March 1997 6,042,426 116,711
19 MATIF ECU Bond June 1997 2,096,759 (10,884)
27 U.S. Treasury Bond 10 YR June 1997 2,907,563 (18,859)
58 U.S. Treasury Bond 30 YR June 1997 6,405,375 (46,341)
52 U.K. Gilt March 1997 4,873,653 74,918
67 U.K. Gilt June 1997 6,098,384 (32,614)
----------------
$ (96,870)
================
Sales
15 Euro Dollar September 1997 $ 3,525,000 $ 8,512
47 FRF MATIF Bond March 1997 6,007,354 (184,402)
64 FRF MATIF Bond June 1997 7,366,030 (4,881)
17 German Government Bond June 1997 2,577,311 3,391
4 Japanese Government Bond 10 YR June 1997 4,102,971 (4,952)
36 Spanish Government Bond 10 YR June 1997 2,940,951 53,298
21 Swiss Government Bond March 1997 1,954,317 (95,881)
4 Swiss Government Bond June 1997 326,808 (662)
40 U.S. Treasury Note 5 YR June 1997 4,230,625 25,028
----------------
$ (200,549)
================
</TABLE>
At February 28, 1997, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
19
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Principal
Amount Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
-------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period - $ - - $ -
Option written 4,000 199,000 804,000 192,986
Option exercised - - - -
Option expired - - (800,000) (22,586)
-------------- ---------------- ----------------- ---------------
Outstanding, end of period 4,000 $ 199,000 4,000 $ 170,400
============== ================ ================= ===============
<CAPTION>
Summary of written options outstanding
Principal Amount
of Contracts (000's Exercise Expiration
omitted) Price Date Value
--------------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Japanese Yen Call 4,000 JPY 117 JPY 2/9/98 $ 198,400
Japanese Yen Put 4,000 JPY 117 JPY 2/9/98 132,000
--------------
$ 330,400
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
20
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income, except that the Fund has designated
4.43% of distributions as net capital gain dividends.
21
<PAGE>
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. Each of these individuals has
been a portfolio manager with Grantham, Mayo, Van Otterloo & Co. since 1993.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III share of the Global Bond Fund returned 12.0% for the fiscal year
ended February 28, 1997, compared to 2.7% for the J.P. Morgan Global Government
Bond Index. Consistent with the Fund's investment objectives and policies, the
Fund was substantially invested in investment-grade, foreign and domestic fixed
income instruments throughout the period.
The past year was an exceptional period for the Fund. It outperformed its
benchmark by 9.3% by following a variety of successful strategies. During the
year bond market selection, currency selection and the decision to include
emerging country debt added value above the benchmark return in each quarter.
Although foreign interest rates generally declined during the year, the strength
of the U.S. dollar meant that many foreign bond markets performed poorly. This
was especially true in Japan, the second largest bond market in the world, where
the bond market produced a total return (in U.S. dollars) of -5.1% for the
twelve months ended February 28, 1997. The Fund significantly underweighted the
Japanese market throughout the year and overweighted many of the high yielding
bond markets. The bond markets in Italy, Spain and Sweden rose strongly on
increased confidence in European Monetary Union (EMU). The Fund overweighted the
U.K. pound, one of the few currencies to outperform the U.S. dollar.
During the year the Fund held a position in emerging country sovereign debt,
emphasizing undervalued issues. The strong bull market resulting from improved
country fundamentals and renewed investor confidence produced index returns of
more than 40% and helped the Fund exceed its benchmark's return.
Outlook
- -------
The Fund is structured to benefit from outperformance in the Australian,
Canadian, Danish, U.K., Swedish and emerging bond markets. We expect
underperformance from the French, Japanese, Spanish and Swiss bond markets. Our
strategy maintains a market duration in each country. Strong relative
performance is expected from the U.K. pound, Dutch guilder, Italian lira,
Spanish peseta, Swiss franc and U.S. dollar. The Australian dollar, Belgian
franc, Canadian dollar, French franc, Deutschemark and Swedish krona are
expected to underperform.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Global Bond Fund Class III shares and the
J.P. Morgan Global Government Bond Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 12/28/95
<S> <C> <C> <C>
Class III 11.6% n/a 10.6%
01/06/97
Class I n/a n/a -1.5%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Global Bond Fund J.P. Morgan Global Government Bond Index
<S> <C> <C>
12/28/95 9,985 10,000
02/29/96 9,875 9,971
02/28/97 11,061 10,243
</TABLE>
Performance shown is net of all fees after reinbursement 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 the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single
class of shares that has been offered by the Fund since inception. Performance
for Class I shares may be different due to a higher shareholder service fees.
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Foreign 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 Foreign Fund at February 28,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the period from June 28, 1996 (commencement of
operations) to February 28, 1997, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 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, 1997
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 91.0%
Australia - 4.2%
438,000 Australia and New Zealand Banking Group Ltd 2,733,404
599,044 Boral Ltd 1,627,423
650,000 Burns Philp & Co Ltd 1,009,060
365,000 Burswood Property Trust 407,971
161,500 Caltex Australia Ltd 545,300
94,738 Capral Aluminum Ltd 326,498
850,300 Crown Ltd * 1,551,667
209,000 Dominion Mining Ltd Warrants 12/31/98 * 64,890
438,000 Dominion Mining Ltd * 302,578
411,970 Email Ltd 1,301,468
381,469 Foodland Associated 1,835,797
1,167,029 Goodman Fielder Ltd 1,413,123
2,270,000 Menzies Gold NL * 1,021,945
1,912,349 MIM Holdings Ltd 2,657,014
435,210 National Mutual Holdings 645,217
309,000 Oil Search Ltd 635,591
49,400 Orogen Minerals Ltd GDR 144A * 1,228,578
1,727,335 Pasminco Ltd 3,217,818
462,001 Pioneer International Ltd 1,373,458
350,996 Rothmans Holdings Ltd 2,370,255
826,000 Sydney Harbour Casinos Preferred * 1,506,682
243,000 Westpac Banking Corp 1,376,901
275,206 Wills (WD & HO) Holdings Ltd 536,173
-------------------
29,688,811
-------------------
Austria - 0.4%
37,625 Bank Austria AG (Participating Certificate) 1,108,369
3,763 Oesterreichische Brau Beteiligungs AG 231,205
1,346 Universale Bau AG 53,245
3,932 VA Technologie AG (Bearer) 593,083
2,575 Wienerberger Baustoffindustrie AG 467,484
-------------------
2,453,386
-------------------
Belgium - 3.0%
874 Bekaert SA 535,176
20,827 Cie Francois De Enterprises 4,945,710
8,000 Credit Commercial Dexia 835,008
15,798 Electrabel SA 3,642,622
208 Formosa Fund IDR * 2,224,976
4,473 Generale Banque NPV 1,653,646
13,830 GIB Holdings Ltd 643,330
3,384 Kredietbank NPV 1,224,327
2,183 Petrofina SA Bruxelles 781,971
10,062 Powerfin SA 1,444,610
2,031 Solvay Et Cie 1,246,558
730 UCB Cap NPV 1,976,655
-------------------
21,154,589
-------------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - 1.3%
52,481 Abitibi-Price Inc 865,789
210,528 Air Canada Inc * 1,062,728
30,693 Alliance Forest Preferred (Restricted) (d) * 662,407
10,000 Avenor Inc 172,288
66,649 Cambridge Shopping Centres Ltd 514,410
32,571 Canadian Occidental Petroleum Ltd 550,435
22,700 Canfor Corp 240,800
15,711 Elan Energy Inc * 126,433
81,900 Iamgold (International African Mining Gold) * 371,483
77,600 KAP Resources Ltd Warrants 8/3/00 (Restricted) (d) * 70,963
168,100 KAP Resources Ltd * 350,490
307,411 Markborough Property Inc * 132,689
200,000 Meridian Gold Inc Installment Receipt 144A (Restricted) (d) * 409,686
330,100 Semi-Tech Class A 664,112
29,300 St Laurent Paperboard * 466,219
66,200 Stone Consolidated Corp * 1,077,584
43,000 Suzy Shier (Non Voting) 248,519
99,000 Tembec Inc Class A * 764,101
20,860 Trizec Hahn Corp (Sub-Voting) 488,346
------------------
9,239,482
------------------
Chile - 0.0%
91,751 Five Arrows Chile Investment Trust Ltd 283,969
17,821 Five Arrows Chile Warrants 5/31/99 8,335
------------------
292,304
------------------
France - 7.3%
7,300 Accor SA 1,004,546
27,437 Alcatel Alsthom Cie Generale d'Electricite SA 2,817,237
4,788 Axa SA 318,763
4,788 Axa UAP * 17,144
22,864 Banque Nationale de Paris 1,037,394
10,960 Bertrand Faure SA 546,144
19,505 BIC SA 3,163,362
8,247 Bouygues 787,455
16,095 Casino Guichard-Perrachon 734,506
5,842 CGIP 1,666,272
3,068 Chargeurs International SA 155,088
4,822 Christian Dior 700,791
10,449 Club Mediterranee SA 802,387
37,973 Compagnie de Suez SA 1,855,560
4,990 Credit Local de France SA 498,361
12,345 Credit Lyonnais * 490,784
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
5,929 Dollfus-Mieg and Cie 168,172
84,609 Elf Aquitaine SA 8,093,642
1,752 Elf Gabon 470,497
2,053 Eridania Beghin-Say SA 331,879
16,699 Financiere de Paribas SA 1,136,949
863 Gaz Et Eaux 381,718
10,311 Generale Des Eaux 1,435,175
7,758 Group Axime * 994,039
2,744 Groupe Andre * 231,183
9,188 Groupe Danone 1,393,367
1,035 Guyenne Et Gascogne 356,063
3,404 Labinal SA 773,731
3,321 Lafarge Coppee SA 208,098
23,179 Lagardere Groupe 683,494
18,091 Lyonnaise Des Eaux 1,848,062
15,837 Michelin SA Class B 991,810
5,379 Parisienne de Reescompte (CPR-Cie) 458,942
3,398 Pathe SA 851,692
12,222 Pechiney SA Class A 516,785
4,870 Pernod-Ricard 265,840
13,504 Peugeot SA 1,493,255
1,109 Pinault Printemps Redoute 469,310
42,287 Rhone Poulenc SA Class A 1,484,458
2,921 Saint-Gobain 430,667
45,072 Seita 1,724,623
13,703 Sidel (Bearer) 1,002,958
9,386 Societe Generale Paris 1,087,315
16,245 SPIE Batignolles 855,690
3,446 Strafor Facom 272,182
35,468 Thomson CSF 1,123,686
23,287 Total SA 1,857,712
2,000 TV Francaise 185,351
5,000 Vallourec 295,315
5,445 Worms et Compagnie SA 363,172
------------------
50,832,626
------------------
Germany - 5.6%
89,000 Bankgesellschaft Berlin AG 1,702,820
37,500 BASF AG 1,382,760
30,990 Bayer AG 1,307,924
28,900 Bayerishe Hypotheken und Wechsel-Bank AG 854,229
10,000 Brau und Brunnen * 835,209
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
111,000 Commerzbank AG 2,854,887
95,510 Continental AG 1,861,319
18,600 Daimler-Benz 1,349,111
184,500 Deutsche Telekom AG 3,551,860
116,900 Dresdner Bank 3,877,740
3,391 Dyckerhoff AG (Non Voting) 1,074,627
5,500 Holzmann (Philipp) * 1,664,791
2,600 Kolnische Rueckversicherungs Gesellschaft Preferred 1,694,112
7,595 Kolnische Rueckversicherungs Gesellschaft (Registered) 5,128,717
10,530 Metro AG Preferred Class I 667,403
94,500 Pfeiffer Vacuum Tech Sponsored ADR * 1,582,875
1,400 Rheinmetall Berlin AG 230,956
133 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 17,899
90,160 RWE Preferred 3,276,458
2,600 Thyssen AG 551,510
4,100 Villeroy and Boch AG 553,726
1,800 Volkswagen AG 872,172
2,900 Volkswagen AG Preferred .79% 1,104,549
3,900 Volkswagen AG Warrants 10/27/98 * 873,238
------------------
38,870,892
------------------
Greece - 0.0%
25,760 Greek Progress Fund 247,168
------------------
Hong Kong - 4.4%
1,015,400 Amoy Properties Ltd 1,212,868
749,277 Cathay Pacific Airways Ltd 1,165,908
74,400 Cheung Kong Holdings 708,549
1,130,081 Dairy Farm International 875,813
271,526 Great Eagle Holdings Ltd 1,018,573
1,229,800 Hang Lung Development Co Ltd 2,477,386
46,128 Hang Lung Development Co Ltd Warrants 10/31/97 * 8,220
1,885,499 Hong Kong Land Holdings 5,373,672
360,400 Hong Kong Telecommunications 618,972
589,900 Hysan Development Co Ltd 2,068,154
25,895 Hysan Development Warrants 4/30/98 * 16,719
209,000 Jardine International Motor Holdings Ltd 269,886
288,000 Jardine Strategic Preferred * 317,520
123,000 Jardine Strategic Warrants 5/02/98 * 41,820
624,000 Kumagai Gumi Hong Kong Ltd 713,120
286,000 Lai Sun Garment International Ltd 417,330
928,266 Liu Chong Hing Bank Ltd 1,762,075
1,033,000 National Mutual Asia Ltd 1,127,176
5,236,728 Regal Hotels International Ltd 1,555,330
1,551,288 Semi Tech (Global) Co Ltd 1,802,892
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
132,500 Swire Pacific Ltd Class A 1,137,816
979,000 Swire Pacific Ltd Class B 1,333,736
533,500 Wharf Holdings Ltd 2,369,886
527,000 Wheelock & Co Ltd 1,418,899
169,912 Wing On Co 196,373
683,486 Winsor Industrial Corp Ltd 166,812
356,743 Winsor Properties Holdings Ltd * 661,062
------------------
30,836,567
------------------
Hungary - 0.0%
255,521 Fotex (Registered) * 200,871
------------------
India - 0.2%
57,900 India Fund Class A * 243,717
21,000 India Liberalisation * 138,390
59,007 Mahindra & Mahindra GDR 144A 728,736
11,000 Morgan Stanley India Fund Inc * 121,000
------------------
1,231,843
------------------
Indonesia - 0.1%
271,485 Bank Dagang Nasional Ind (Foreign Registered) 280,261
203,613 Bank Dagang Rights 3/24/97 * 101,913
274,000 Dharmal Sakit Sejatera (Foreign Registered) 322,857
190,637 Dharmala Intiland (Foreign Registered) 284,266
------------------
989,297
------------------
Italy - 3.0%
22,682 Assicurazioni Generali SPA 412,034
331,317 Banca Commerciale Italiana SPA 670,476
30,000 Banca di Legano SPA 116,272
177,058 Banca Toscana 335,258
353,473 Banco Ambrosiano Veneto SPA (Non Convertible) 650,474
150,000 Comau Finanziaria SPA 457,101
875,424 Credito Italiano 1,196,585
76,062 Danieli and Co SPA (Non Convertible) 289,846
187,072 ENI SPA 923,737
18,852 Ericsson SPA 242,064
81,255 Falck Acciaierie and Ferriere Lombarde 360,359
232,045 Fiat SPA 716,731
282,668 Fiat SPA Preferred 475,016
21,031 Fiat SPA (Non Convertible) 35,591
194,000 Gilardini SPA 260,006
24,455 IFI Istituto Finanziario Preferred 2.46% 300,261
97,737 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 187,956
427,954 Industriali Riunite SPA * 284,627
42,393 Istituto Mobilaire Italiano 370,249
101,115 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 245,907
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
157,655 Italgas SPA 562,054
74,642 Mediaset SPA 314,689
385,124 Montedison SPA (Non Convertible) * 259,788
1,176,127 Montedison SPA * 849,038
185,947 Montefibre SPA 114,319
487,586 Olivetti and Co SPA * 178,878
421,888 Pirelli SPA 835,039
63,321 RAS SPA 571,013
42,600 Rinascente per l'Esercizio di Grandi Magazzini SPA 213,504
87,207 SAI di Risp 318,641
506,680 Seat SPA di Risp * 117,226
610,947 Seat SPA * 220,519
78,657 Sirti SPA 487,301
441,615 STET di Risp (Non Convertible) 1,544,346
581,157 STET SPA 2,493,129
1,111,885 Telecom Italia Mobile SPA (Non Convertible) 1,700,724
153,564 Telecom Italia SPA di Risp (Non Convertible) 308,945
31,053 Toro Assicurazioni 385,866
97,123 Unione Cementi Marchino Emiliane e di Augusta-Casale
(Non Convertible) 255,163
36,561 Unione Cementi Marchino Emiliane e di Augusta-Casale 220,448
------------------
20,481,180
------------------
Japan - 22.3%
23,000 Advantest Corp 1,299,693
44,000 Aisin Seiki Co Ltd 616,124
41,300 AJL Peps Trust Exchange 609,175
34,300 Akita Bank 187,856
63,000 Bank of Fukuoka Ltd 330,425
45,000 Banyu Pharmaceutical Co Ltd 656,227
268,000 Bridgestone Corp 4,796,421
32,000 Calsonic Corp 176,585
158,000 Canon Inc 3,299,031
67,124 Chubu Electric Power Co Inc 1,184,639
4,000 Chudenko Corp 114,343
33,258 Chugoku Electric Power Co Inc 575,932
21,500 Circle K Japan Co Ltd 1,095,575
25,000 Credit Saison Co 532,356
12,000 Daiichi Corp 219,737
45,000 Daiichi Seiyaku Co Ltd 734,526
88,000 Daikin Industries Ltd 689,767
124,000 Dainippon Printing Co Ltd 2,065,126
106,000 Daiwa House Industry Co Ltd 1,176,899
590 East Japan Railway Co 2,512,719
25,600 Exedy Corp 318,171
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
30,000 Ezaki Glico Co Ltd 248,571
46 Fuji International Finance Preferred .25% 144A 1,026,224
158,000 Fuji Photo Film Co Ltd 5,288,922
40,000 Fujitec Co 367,885
302,000 Fujitsu Ltd 2,977,711
35,000 Gunma Bank Ltd 270,859
59,000 Hitachi Cable Ltd 398,906
39,000 Hitachi Credit Corp 571,961
633,000 Hitachi Ltd 5,454,636
37,412 Hokkaido Electric Power 638,568
181,000 Honda Motor Co Ltd 5,593,918
21,000 House Foods Corp 292,319
41,000 Hoya Corp 1,746,126
407,000 Ishikawajima Harima Heavy Industries 1,456,823
210,000 Isuzu Motors Ltd 948,297
129 Japan Tobacco Inc 865,772
80,000 Jusco Co 2,266,965
71,850 Kansai Electric Power 1,303,766
206,000 Kao Corp 2,253,045
173,000 Kawasaki Heavy Industry 716,712
18,000 Kirin Beverage 244,594
42,400 Kurita Water Industries Ltd 895,849
16,000 Kyudenko Corp 121,965
57,833 Kyushu Electric Power Co Inc 1,001,499
136,000 Marubeni Corp 531,875
78,000 Marui Co Ltd 1,118,071
37,000 Maruichi Steel Tube 579,418
453,000 Matsushita Electric Industrial Co Ltd 6,981,357
110,000 Matsushita Electric Works Ltd 966,112
267,000 Minebea Co Ltd 2,207,855
237,000 Minolta Co Ltd 1,462,963
467,000 Mitsubishi Heavy Industries 3,362,524
379,000 Mitsui & Co 2,807,407
23,000 Murata Manufacturing Co Ltd 806,115
21,500 Namco Ltd 607,465
179,000 NEC Corp 2,076,394
15,000 Nichicon Corp 172,757
28,350 Nichido Fire & Marine Insurance Co Ltd 157,852
58,700 Nippon Electric Glass Co 807,374
146,000 Nippon Express Co Ltd 939,945
104,000 Nippon Meat Packers Inc 1,042,671
125 Nippon Telegraph & Telephone 889,676
101,000 Nishimatsu Construction 753,169
149,000 Nissho Iwai Corp 561,728
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
759,000 NKK Corp 1,628,809
181,000 Obayashi Corp 1,117,284
77,000 Okumura Corp 407,043
34,000 Omron Corp 535,256
64,000 Onward Kashiyama Co Ltd 784,821
26,700 Orix Corp 1,128,262
22,110 Paris Miki Inc 556,918
216,000 Ricoh Co Ltd 2,541,387
33,000 Rinnai Corp 596,073
55,000 Rohm Co Ltd 3,941,917
8 Sakura Finance Preferred .75% 144A 371,106
59,000 Sanden Corp 474,190
55,900 Sankyo Co Ltd 1,556,252
138,000 Sekisui Chemical Co Ltd 1,429,282
10,000 Shikoku Electric Power 173,171
21,000 Shimachu Co 487,199
123,750 Shin-Etsu Chemical Co Ltd 2,389,075
120,000 Shiseido Co Ltd 1,401,939
28,400 Sho Bond Construction Co 764,769
59,000 Showa Corp 462,946
21,500 SMC 1,462,549
42,900 Sony Corp 3,096,023
90,000 Sumitomo Electric 1,245,339
94,000 Sumitomo Trust & Banking Co Ltd 767,172
37,000 Tachi-S Co Ltd 334,162
46,000 Taisho Pharmaceutical Co Ltd 1,059,574
143,000 Taiyo Yuden Co Ltd 1,670,644
244,000 Takeda Chemical Industries Ltd 4,892,535
90,000 Tanabe Seiyaku Co Ltd 652,498
66,000 TDK Corp 4,418,593
116,000 Teijin Ltd 461,347
60,000 Terumo Corp 874,969
38,450 Toagosei Chemical Industry Co Ltd 135,719
61,000 Toda Corp 350,261
22,414 Tohoku Electric Power Co Inc 384,431
20,000 Tokyo Broadcasting System Inc 289,999
23,660 Tokyo Electric Power 439,128
53,000 Tokyo Electron 1,853,178
59,000 Toppan Printing Co Ltd 679,509
177,000 Toray Industries Inc 1,023,664
25,000 Tostem Corp 579,998
376,000 Toyota Motor Corp 9,626,647
25,500 Tsubaki Nakashima Co Ltd 204,947
62,000 UNY Co Ltd 1,094,208
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
37,000 Wacoal Corp 374,016
301 West Japan Railway Co 982,633
8,500 Xebio Co 177,479
13,000 Yahagi Construction 65,706
81,000 Yamanouchi Pharmaceutical Co Ltd 1,691,275
70,000 Yamatake Honeywell 1,009,197
81,000 Yamato Kogyo Co 731,544
153,000 Yasuda Trust and Banking Co Ltd 415,809
45,000 Yokogawa Electric Corp 344,892
19,800 Yoshitomi Pharmaceutical Industries Ltd 134,855
------------------
155,248,147
------------------
Korea - 1.1%
104,050 Bank of Pusan 793,301
390 Daehan Flour Mill 30,547
114,350 Daewoo Corp 787,161
22,000 Daewoo Securities Ltd Preferred 15.98% 124,718
829 Daewoo Securities 9,591
30,131 Hana Bank Sponsored GDR 391,703
51,300 Hanshin Securities Co Preferred 261,144
147,376 Hanwha Corp 1,875,555
159,000 Korea First Bank 643,836
59 Korea Trust * 194,700
16,000 Kyungki Bank 92,370
67,280 Kyungnam Bank 584,570
30,000 LG Securities Co Preferred * 145,774
100,000 Samsung Corp 1,136,114
23,036 Samsung Heavy Industries Co Ltd 205,215
72,000 Seoul Bank * 307,375
2,740 Shinhan Bank 40,774
1,040 Shinyoung Securities Preferred 6,437
6,300 Ssangyong Investment Securities Co Preferred 59.90% * 28,790
------------------
7,659,675
------------------
Mexico - 0.2%
179,000 Cifra SA De Class C 274,003
15,000 Grupo Financiero Banamex Class B 35,119
2,348 Grupo Financiero Banamex Class L 4,949
55,562 Grupo Financiero Bancomer SA Class B 21,611
4,419 Grupo Financiero Bancomer SA Class L 1,397
1,496 Grupo Mexico Desarollo Class B ADR * 3,179
1,496 Grupo Mexico Desarollo Class L ADR * 4,114
26,000 Grupo Televisa 313,501
54,333 Mexico Fund 896,495
------------------
1,554,368
------------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Netherlands - 6.5%
34,760 ABN Amro Holdings NV 2,495,149
38,452 Aegon NV 2,549,561
6,551 Akzo Nobel NV 943,595
490,013 ASM International NV 6,676,427
12,329 De Boer Winkelbedrijven NV 941,492
12,527 Dordtsche Petroleum 2,302,466
2,849 DSM NV (Bearer) 285,080
82,040 Elsevier NV 1,313,470
25,000 Endemol Entertainment * 770,223
23,439 Fugro NV 496,233
24,668 Gist Brocades NV 835,345
54,225 Hal Trust Class B 851,014
53,774 Hal Trust (Participating Certificate) 843,936
29,649 Heidemij Holdings NV 293,554
18,513 Hunter Douglas 1,399,102
19,554 ING Groep NV 756,909
11,500 Internatio-Muller 347,641
36,154 Kon Bolswessanen 634,047
12,577 Kondor Wessels 513,333
11,822 Koninklijke Bam Groep NV 722,220
14,067 Koninklijke NV 321,523
9,298 Koninklijke Pakhoed 291,358
43,697 Koninklijke PTT Nederland 1,564,881
82 Moeara Enim Petroleum 1,727,407
16,545 Nedlloyd 486,208
9,554 Nutricia Ver Bedrijven 1,449,100
6,641 Oce Van Der Grinten NV 829,251
87,862 Philips Electronics 3,965,543
18,278 Philips NV ADR 822,510
13,917 Roto Smeets D Boer 641,320
12,367 Royal Dutch Petroleum (Bearer) 2,140,192
8,501 Unilever NV 1,619,792
12,462 Van Ommeren (Koninklijke) (Participating Certificate) 531,610
14,882 Vendex International 687,356
9,891 Volker Stevin 974,098
24,294 Wereldhave NV 1,568,593
------------------
45,591,539
------------------
New Zealand - 2.3%
324 Air New Zealand Ltd Class B 845
1,092,000 Brierley Investment Ltd 1,050,069
766,651 Carter Holt Harvey Ltd 1,734,307
155,000 DB Group Ltd 107,229
247,096 Fisher and Paykel Industries Ltd 947,013
264,800 Fletcher Challenge Buildings 795,039
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New Zealand - continued
264,836 Fletcher Challenge Energy 679,722
1,075,388 Fletcher Challenge Forestry 1,532,544
496,671 Fletcher Challenge Paper 979,251
279,000 Lion Nathan Ltd 687,123
1,430,285 Progressive Enterprise 1,464,417
2,057,000 Sovereign Assurance * 3,272,975
5,509,000 Trans Tasman Properties 2,820,233
281,051 Wrightson Ltd 208,041
------------------
16,278,808
------------------
Norway - 1.1%
7,907 Bolig OG Naeringsk 191,262
121,700 Den Norske Bank AS Class A 541,804
19,100 Dyno Industrier AS 453,507
21,100 Elkem AS Class A 338,171
18,800 Fokus Bank 145,075
7,070 Hafslund ASA B Shares 46,688
11,050 Kvaerner Industrier AS 542,776
11,395 Leif Hoegh and Co AS 219,831
30,000 Norsk Data AS Class B ADR (a) * 300
27,800 Norsk Hydro AS 1,392,352
4,700 Norske Skogindustrier AS Class A 144,377
22,070 Nycomed ASA B Shares 327,516
12,400 Orkla-Borregaard AS Class A 988,158
8,300 Orkla-Borregaard AS Class B (Non Voting) 612,776
17,200 Saga Petroleum AS Class A 289,704
30,800 Schibsted AS 603,330
12,100 Storli ASA 238,818
62,300 Uni Storebrand AS * 416,961
20,000 Unitor AS 258,214
------------------
7,751,620
------------------
Russia - 0.8%
10,000,000 Irkutskenergo * 2,700,000
63,978 Mosenergo AO Sponsored ADR 144A 2,655,087
------------------
5,355,087
------------------
Singapore - 0.3%
168,400 Jardine Matheson Holdings Ltd 1,018,820
317,000 Jardine Strategic Holdings Ltd 1,039,760
------------------
2,058,580
------------------
South Africa - 0.6%
61,000 Barlow Ltd 643,144
74,656 Malbak 144A 359,828
755,908 NSA International Inc * 2,875,874
151,244 NSA Investments Ltd Warrants 9/27/97 * 354,359
------------------
4,233,205
------------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Spain - 4.5%
3,530 Acerinox SA 490,777
9,600 Argentaria Corporacion Bancaria de Espana SA 384,402
72,627 Banco Bilbao Vizcaya SA 4,281,117
3,217 Banco Central Hispanoamericano SA 85,278
42,710 Banco De Santander (Registered) 2,890,038
8,960 Banco Popular (Registered) 1,628,239
9,992 Bankinter SA 1,334,822
16,000 Ebro Agricolas Compania de Alimentacion SA 280,153
44,137 Empresa Nacional de Electricidad SA 2,694,097
214,317 FENOSA SA 1,696,894
16,345 General Aguas de Barcelona SA 627,119
37,991 Hidroelec Cantabrico 1,295,961
348,299 Iberdrola SA 3,802,497
8,735 Inmobilana Metropolitana Vasco Central SA 293,706
41,944 Midesa 526,677
39,766 Repsol SA 1,511,857
73,147 Sevillana de Electricidad 663,349
283,733 Telefonica de Espana SA 6,531,698
25,628 Vallehermoso SA 536,338
------------------
31,555,019
------------------
Switzerland - 3.1%
895 Ascom Holding AG (Bearer) 937,475
125 Baloise Holdings 245,763
1,586 Banque Cantonale Vaudoise (Bearer) 390,317
2,186 Belimo Automation AG 438,682
5,765 Biber Holdings AG * 1,173
320 Bobst SA (Bearer) 433,031
42,320 CS Holdings (Registered) 4,511,742
7,000 Feldschloesschen Huerlimann Warrants 12/15/98 * 9,966
3,500 Feldschloesschen Huerlimann (Participating Certificates) 267,542
305 Fischer (George) AG (Bearer) 311,203
1,819 Forbo Holdings AG (Registered) 736,233
993 Hero AG (Bearer) 457,790
702 Holderbank Financiere Glarus AG (Bearer) 522,574
3,274 Jelmoli (Registered) 346,267
675 Liechtenstein Global Trust AG 334,068
320 Lindt & Spruengli AG 485,966
2,048 Merkur Holding AG (Registered) 431,816
1,420 Nestle AG (Registered) 1,546,115
3,127 Novartis AG (Registered) 3,574,320
3,127 Novartis Rights 3/12/97 * 197,902
5,335 Oerlikon-Buhrle (Registered) 513,607
81 Roche Holdings (Participating Certificate) 681,773
1,945 SMH AG (Bearer) 1,107,661
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland - continued
695 Sulzer AG (Participating Certificate) 414,644
1,962 Swiss Bank Corp (Registered) 372,447
141 Swiss Insurance Co 263,837
565 Union Bank of Switzerland (Bearer) 507,925
1,300 Winterthur Schweizerische Versicherunggesellschaft (Registered) 790,576
3,240 Zurich Vericher Namen (Registered) 964,312
------------------
21,796,727
------------------
Taiwan - 0.1%
22,526 Baring Taiwan Fund Ltd * 264,681
15,700 R O C Taiwan Fund * 188,400
18,316 Tuntex Distinct Corp GDR 144A * 135,538
------------------
588,619
------------------
United Kingdom - 18.6%
87,220 Allied Domecq Plc 619,714
417,287 Allied Irish Banks Plc 2,995,536
239,630 Amstrad Plc 746,727
257,076 Anglian Water Plc 2,717,838
1,832,931 ASDA Group 3,349,278
363,950 BAA 3,147,057
367,867 Bank of Scotland 2,049,598
79,112 Barclays Bank Plc 1,430,109
300,000 BAT Industries 2,628,347
476,651 Berkley Group 5,739,102
415,127 BG Plc 1,154,762
305,153 BPB Industries Plc 1,702,671
481,791 British Airways 4,955,995
694,753 British Petroleum 7,702,061
100,000 British Sky Broadcasting Plc 977,269
521,650 British Steel 1,276,608
1,535,530 British Telecom Plc 10,661,954
572,000 BTR 2,244,389
589,437 Capital Shopping Centres 3,760,116
100,000 Caradon 445,400
415,127 Centrica Plc * 443,618
149,003 Commercial Union Plc 1,657,931
302,817 Costain Group (b) 222,321
110,292 Energy Group Plc * 939,294
121,300 First Russian Frontiers Trust Plc * 2,503,447
25,400 First Russian Frontiers Warrants 2001 * 279,721
63,027 Flextech Plc * 789,723
69,713 General Accident 950,839
350,000 General Electric 2,129,923
327,167 Glaxo Wellcome Plc 5,545,901
384,467 Grand Metropolitan 2,854,023
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
22,454 Great Portland Estates 76,931
140,340 Great Portland Estates Plc 483,116
202,079 Great Universal Stores Plc 2,146,294
157,100 Guardian Royal 712,538
83,636 Hanson Plc Warrants 9/30/97 1,307
137,865 Hanson Plc 618,549
647,867 Hillsdown Holdings 2,018,860
68,742 HSBC Holdings 1,772,011
73,918 Hyder Plc 1,000,957
148,539 Hyder Plc Cumulative Redemption Preferred Shares 261,123
240,271 ICI 2,967,456
110,292 Imperial Tobacco Group Plc * 764,751
381,292 Ladbroke Group 1,430,779
2,121 Lloyds TSB Group 17,648
698,561 Marley 1,413,231
343,140 Mirror Group Plc 1,172,850
193,700 National Power 1,552,456
182,000 National Westminster Bank 2,252,237
176,246 Peninsular & Oriental Steam Navigation Co 1,917,927
71,700 Powergen 722,927
2,148,935 Raglan Property Plc 841,437
297,600 Railtrack Group Plc 2,197,043
569,847 Royal & Sun Alliance Insurance 4,574,150
223,562 Safeway Plc 1,320,364
500,000 Scottish Power Plc 2,855,125
1,005,847 Sears 1,329,242
203,554 Severn Trent Plc 2,367,861
100,000 Smith (WH) Group 742,333
211,470 Standard Chartered 2,908,462
438,000 Sun Life & Province Holding 2,058,039
694,766 T & N 1,847,622
100,000 Tarmac 164,782
200,000 Tate & Lyle 1,424,300
200,225 Taylor Woodrow Plc 623,934
188,228 TC Group Plc 359,300
166,250 Thames Water 1,863,397
------------------
129,402,611
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $593,446,085) 635,593,021
------------------
Par Value CONVERTIBLE BONDS - 0.2%
Hong Kong - 0.1%
HKD 702,000 Sino Land Co, 5.00% due 2/26/01 144A 737,100
------------------
Italy - 0.0%
ITL280,300,000 Mediobanca (Banc Credito Finanz), 4.00% due 12/31/97 162,707
------------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mexico - 0.0%
$ 630,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 233,100
------------------
New Zealand - 0.1%
NZD 753,000 Brierley Investment, 9.00% due 6/30/98 671,994
------------------
TOTAL CONVERTIBLE BONDS (Cost $1,741,392) 1,804,901
------------------
SHORT-TERM INVESTMENTS - 15.5%
Cash Equivalents - 15.5%
$ 30,000,000 First National Bank of Chicago Time Deposit, 5.44% due 3/3/97 30,000,000
$ 27,300,000 Republic Bank of New York Time Deposit, 5.34% due 3/3/97 27,300,000
51,008,420 The Boston Global Investment Trust (c) 51,008,420
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $108,308,420) 108,308,420
------------------
TOTAL INVESTMENTS - 106.7%
(Cost $703,495,897) * * 745,706,342
Other Assets and Liabilities (net) - (6.7%) (47,029,617)
------------------
TOTAL NET ASSETS - 100.0% $ 698,676,725
==================
Notes to the Schedule of Investments:
ADR American Depository Receipt
GDR Global Depository Receipt
HKD Hong Kong Dollar
ITL Italian Lira
NZD New Zealand Dollar
(a) Bankrupt security.
(b) Valued by management (Note 1).
(c) Represents investment of security lending collateral
(Note 1).
(d) Security is restricted as to resale. The aggregate
market value of restricted securities is $1,143,056 or
.16% of total assets.
144A Securities exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may
be resold in transactions exempt from registration,
normally to qualified institutional buyers.
* Non-income producing security. A dividend has not been
declared for the year ended February 28, 1997.
** The aggregate identified cost for federal income tax
purposes is $706,578,106, resulting in gross unrealized
appreciation and depreciation of $69,760,211 and
$30,631,975, respectively, and net unrealized
appreciation of $39,128,236.
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At February 28, 1997, industry sector diversification of the
Fund's equity investments was as follows:
Industry Sector (Unaudited)
<S> <C>
Banking 10.9%
Consumer Goods 8.0
Electronic Equipment 6.2
Construction 5.9
Oil and Gas 5.6
Machinery 5.5
Conglomerates 5.2
Retail Trade 5.1
Utilities 5.0
Insurance 4.7
Telecommunications 4.7
Services 4.4
Health Care 3.6
Chemicals 3.6
Automotive 3.6
Transportation 2.6
Real Estate 2.5
Metals and Mining 2.3
Computers 1.8
Paper and Allied Products 1.6
Food and Beverage 1.4
Communications 1.0
Financial Services 0.8
Textiles 0.5
Aerospace 0.3
Miscellaneous 3.2
--------
100.0%
========
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $703,495,897) (Note 1) $ 745,706,342
Foreign currency, at value (cost $6,498,934) (Note 1) 6,555,992
Cash 28,266
Receivable for investments sold 1,855,676
Dividends and interest receivable 552,544
Foreign withholding taxes receivable 172,112
Receivable for expenses waived or borne by Manager (Note 2) 125,632
-----------------
Total assets 754,996,564
-----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 51,008,420
Payable for investments purchased 4,552,487
Payable to affiliate for (Note 2):
Management fee 390,054
Shareholder service fee 79,561
Accrued expenses 289,317
-----------------
Total liabilities 56,319,839
-----------------
Net assets $ 698,676,725
=================
Net assets consist of:
Paid-in capital $ 659,398,781
Distributions in excess of net investment income (76,274)
Accumulated net realized loss (2,863,625)
Net unrealized appreciation 42,217,843
-----------------
$ 698,676,725
=================
Net assets attributable to:
Class I Shares $ 4,890,763
=================
Class II Shares $ 21,956,554
=================
Class III Shares $ 671,829,408
=================
Shares outstanding:
Class I 459,112
=================
Class II 2,061,100
=================
Class III 63,052,464
=================
Net asset value per share:
Class I $ 10.65
=================
Class II $ 10.65
=================
Class III $ 10.66
=================
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Operations - Period from June 28, 1996
(commencement of operations) to February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $768,535) $ 6,259,532
Interest (including security lending income of $91,837) 1,830,178
-------------
Total income 8,089,710
-------------
Expenses:
Management fee (Note 2) 3,034,381
Custodian fees 393,371
Registration fees 140,767
Audit fees 65,234
Stamp duties and transfer taxes 49,325
Transfer agent fees 29,086
Legal fees 26,846
Trustees fee (Note 2) 2,162
Miscellaneous 3,629
Fees waived or borne by Manager (Note 2) (1,267,971)
-------------
2,476,830
Shareholder service fee (Note 2)
Class I 7,690
Class II 11,884
Class III 594,714
-------------
Net expenses 3,091,118
-------------
Net investment income 4,998,592
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (2,845,646)
Foreign currency, forward contracts and foreign currency
related transactions (533,774)
-------------
Net realized loss (3,379,420)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 42,210,445
Foreign currency, forward contracts and foreign currency
related transactions 7,398
-------------
Net unrealized gain 42,217,843
-------------
Net realized and unrealized gain 38,838,423
-------------
Net increase in net assets resulting from operations $ 43,837,015
=============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets - Period from June 28, 1996 (commencement of
operations) to February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (decrease) in net assets:
Operations:
<S> <C>
Net investment income $ 4,998,592
Net realized loss (3,379,420)
Change in net unrealized appreciation (depreciation) 42,217,843
---------------------
Net increase in net assets resulting from operations 43,837,015
---------------------
Distributions to shareholders from:
Net investment income
Class I (32,692)
Class II (86,399)
Class III (4,439,981)
---------------------
Total distributions from net investment income (4,559,072)
---------------------
Net share transactions: (Note 5)
Class I 4,554,323
Class II 21,186,399
Class III 633,658,060
---------------------
Increase in net assets resulting from net share transactions 659,398,782
---------------------
Total increase in net assets 698,676,725
Net assets:
Beginning of period -
---------------------
End of period (including distributions in excess of
net investment income of $76,274) $ 698,676,725
=====================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 10, 1996
(commencement of operations)
to February 28, 1997
--------------------
<S> <C>
Net asset value, beginning of period $ 9.88
--------------------
Income from investment operations:
Net investment income 0.06
Net realized and unrealized gain 0.78
--------------------
Total from investment operations 0.84
--------------------
Less distributions to shareholders from:
Net investment income (0.07)
--------------------
Net asset value, end of period $ 10.65
====================
Total Return (a) 8.53%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,891
Net expenses to average
daily net assets 0.89%* (b)
Net investment income to average
daily net assets 0.98%*
Portfolio turnover rate 13%
Average broker commission rate per equity share (c) $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.02
</TABLE>
* Annualized.
(a) The total return would have been lower had certain expenses not been
waived during the period shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
20 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 30, 1996
(commencement of operations)
to February 28, 1997
---------------------
<S> <C>
Net asset value, beginning of period $ 10.02
---------------------
Income from investment operations:
Net investment income 0.06
Net realized and unrealized gain 0.65
---------------------
Total from investment operations 0.71
---------------------
Less distributions to shareholders from:
Net investment income (0.08)
---------------------
Net asset value, end of period $ 10.65
=====================
Total Return (a) 7.08%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 21,957
Net expenses to average
daily net assets 0.84%* (b)
Net investment income to average
daily net assets 0.83%*
Portfolio turnover rate 13%
Average broker commission rate per equity share (c) $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.02
</TABLE>
* Annualized.
(a) The total return would have been lower had certain expenses not been waived
during the period shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .02% of average daily net assets.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
See accompanying notes to the financial statements. 21
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from June 28, 1996
(commencement of operations)
to February 28, 1997
---------------------
<S> <C>
Net asset value, beginning of period $ 10.00
---------------------
Income from investment operations:
Net investment income 0.08
Net realized and unrealized gain 0.66
---------------------
Total from investment operations 0.74
---------------------
Less distributions to shareholders from:
Net investment income (0.08)
---------------------
Net asset value, end of period $ 10.66
=====================
Total Return (a) 7.37%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 671,829
Net expenses to average
daily net assets 0.76%* (b)
Net investment income to average
daily net assets 1.24%*
Portfolio turnover rate 13%
Average broker commission rate per equity share (c) $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.02
</TABLE>
* Annualized.
(a) The total return would have been lower had certain expenses not been
waived during the period shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
(c) The average broker commission rate will vary depending on the
markets in which trades are executed.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
The GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as amended,
as an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager"
or "GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund commenced operations on June 28, 1996 subsequent to a transaction
involving the reorganization of the GMO International Equities Pool of The
Common Fund for Nonprofit Organizations (the "GMO Pool"). The GMO Pool was
discontinued and its net assets distributed pro rata to the unitholders of
the GMO Pool as a liquidating distribution. Such net assets were immediately
thereafter transferred by the unitholders to the Fund in exchange for shares
of the Fund. The portfolio of the Fund on June 28, 1996 was the same as the
portfolio of the GMO Pool prior to the transfer.
The Fund seeks maximum total return through investment primarily in equity
securities of non-U.S. issuers.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference between the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
23
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Securities
which are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates market value.
Other assets and securities for which no quotations are readily available
are valued at fair value as determined in good faith by the Trustees.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are unable
to meet the terms of the contracts or if the value of the currency changes
unfavorably to the U.S. dollar. There were no open
24
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
forward currency contracts as of February 28, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its securities.
At February 28, 1997, the Fund loaned securities having a market value of
$41,167,234 collateralized by cash in the amount of $51,008,420, which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryover for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency and passive foreign investment
company transactions.
The following reclassification represents the cumulative amount necessary to
report the stated components of net assets on a tax basis, excluding certain
temporary differences, as of February 28, 1997. 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. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
25
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------------ --------------------------- ------------------
($515,794) $515,795 ($1)
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual basis
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based on
the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares, and .15% for Class III shares.
26
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed .60% of average daily net
assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the period ended February 28, 1997, was $2,162. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments and in-kind transactions, for the period ended
February 28, 1997 aggregated $157,513,987 and $73,997,402, respectively.
4. Principal shareholders
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by two shareholders, 100% of the outstanding Class II shares of
the Fund were held by one shareholder and 30% of the outstanding Class III
shares were held by two shareholders, each holding in excess of 10% of the
outstanding shares of the respective class.
27
<PAGE>
GMO Foreign 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 July 10, 1996
(commencement of operations)
to February 28, 1997
Class I: -------------------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 455,993 $ 4,521,631
Shares issued to shareholders in
reinvestment of distributions 3,119 32,692
Shares repurchased - -
--------------- ---------------
Net increase 459,112 $ 4,554,323
=============== ===============
<CAPTION>
Period from September 30, 1996
(commencement of operations)
Class II: to February 28, 1997
-------------------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 2,052,856 $ 21,100,000
Shares issued to shareholders in
reinvestment of distributions 8,244 86,399
Shares repurchased - -
--------------- ---------------
Net increase 2,061,100 $ 21,186,399
=============== ===============
<CAPTION>
Period from June 28, 1996
(commencement of operations)
Class III: to February 28, 1997
-------------------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 64,118,750 $ 644,703,588
Shares issued to shareholders in
reinvestment of distributions 167,499 1,757,065
Shares repurchased (1,233,785) (12,802,593)
--------------- ---------------
Net increase 63,052,464 $ 633,658,060
=============== ===============
</TABLE>
28
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Federal Income Tax Information on Distributions - (Unaudited)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all the Fund's distributions are
from investment company taxable income.
At February 28, 1997, the Fund had a capital loss carryforward available to
offset future capital gains, if any, of the following amount:
Year of Expiration Amount
------------------ ------
2005 $ 649,423
The Fund has also elected to defer to March 1, 1997 post-October losses of
$2,104,551.
29
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr. Jui Lai and Ms. Ann Spruill are responsible for the management of the GMO
International Active Division. Mr. Jui and Ms. Spruill have been portfolio
managers with GMO for nine and seven years, respectively. The GMO Foreign Fund
is managed on a geographic basis by Ms. Spruill, Mr. Lai, Mr. Hoyt Ludington,
Mr. Richard Mattione and Mr. Joshua Rosenthal, Ms. Margaret McGetrick is
currently on a leave of absence.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
For the fiscal year ended February 28, 1997, the Class III shares of the GMO
Foreign Fund returned 11.8%, outperforming its EAFE benchmark by 8.6% after
fees. This outperformance resulted from good country and stock selection
combined with a small boost from hedging.
Nearly all global equity markets posted positive returns over the past twelve
months. However, while the S&P 500 returned 26.2%, the Morgan Stanley Capital
International Europe Australasia and Far East (EAFE) Index returned only 3.2%.
EAFE's lower return was the result of two major influences -- the strong dollar
and a weak Japanese stock market. Stripping out the effect of the strong dollar
and a weak Japan, the EAFE ex-Japan index returned 25.6% in local terms over
this period nearly matching the return of the S&P.
Eleven out of the twenty EAFE markets outperformed the S&P 500 in local terms.
However, once adjusted into U.S. dollars, only seven countries posted a greater
return than the S&P. The dollar strengthened 9.2% against an EAFE-weighted
basket of currencies, thus significantly impacting returns for U.S. investors.
The other major influence on EAFE's return was the decline in the Japanese stock
market. Japan returned -20.5% over the past fiscal year -- far and away the
worst performance of any developed market. This decline severely impacted EAFE's
return as Japan comprised over 39% of the EAFE index as of February 29, 1996.
Our country selection benefited as we were underweight in Japan throughout the
year.
We are currently at a weight of 22% in Japan. This is 8% underweight relative
to the benchmark. Our view on Japan is less negative than it has been in
the past due to the long-term underperformace of the market and the currency as
well as its recent attractiveness on parameters such as price-to-book. We are
most overweight in Spain, New Zealand, the Netherlands, and Belgium.
<PAGE>
Currency Hedging
Currency hedging added 50 basis points to our total return over the past fiscal
year. We began the year 5.5% hedged primarily against the D-Mark and Swiss
franc. During the year we unwound our hedges until we were completely unhedged
as of mid December.
Our policy is to hedge up to 30% of the portfolio in order to protect the
underlying dollar-based assets of our clients. However, we will not speculate
on short-term movements in currencies. We will only hedge when we believe the
dollar to be considerably under or overvalued relative to foreign currencies.
We are currently unhedged as we do not believe the dollar to be undervalued
enough on a long-term basis to merit hedging.
Emerging Markets
Emerging markets have grown considerably in the past three years in terms of
capitalization, the number of investable markets, and the number of stocks
listed. We have hired an additional portfolio manager, Josh Rosenthal, to
increase our focus on these markets in response to their growing size,
complexity, and importance.
Past investments have been on an opportunistic stock picking basis using GMO's
traditional long-term value investment philosophy. Our policy is to invest from
0% to 10% of the portfolio in emerging markets, subject to stock selection
opportunities and attractive valuations relative to the developed markets.
Currently 3.9% of the GMO Foreign Fund is invested in emerging markets, with
Russia and Korea comprising the majority of the emerging exposure.
Outlook
The Foreign Fund is managed with a long-term investment horizon and consequent
low turnover. We typically buy company stocks at relatively low
price-to-earnings, low price-to-cash flow, and low price-to-book or asset
ratios. Currently the Foreign Fund stands at a discount to the market on all of
these ratios as well as a premium on yield.
Like the U.S., the valuations of many foreign markets are beginning to appear a
bit stretched after having posted another strong year. However, we believe that
investment opportunities still exist abroad given the variety of stocks
available in foreign markets and the relative inefficiency of these markets
compared to the U.S. stock market.
The views expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co LLC Management. They are not meant as investment advice.
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Foreign Fund Class III Shares and the MSCI EAFE Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year 10 Year Inception
<S> <C> <C> <C> <C>
Class 8/31/84
III 11.8% 17.9% 11.5% 19.0%
Class 9/30/96
II n/a n/a n/a 7.1%
Class 7/10/96
I n/a n/a n/a 8.5%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Foreign Fund MSCI EAFE Index
<S> <C> <C>
08/31/84 10,000 10,000
02/28/85 10,870 10,574
02/28/86 20,472 18,498
02/28/87 29,752 31,363
02/29/88 30,894 37,249
02/28/89 38,201 45,012
02/28/90 45,598 43,565
02/28/91 47,667 42,561
02/29/92 48,911 39,400
02/28/93 47,199 37,774
02/28/94 68,182 52,575
02/28/95 66,181 50,235
02/29/96 78,948 58,702
06/28/96 78,948 58,702
02/28/97 88,293 60,604
</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. The Fund commenced
operations on June 28, 1996 subsequent to a transaction involving, in essence,
the reorganization of the GMO International Equities Pool of the Common Fund for
Non-Profit Organizations (the "GMO Pool") as the Foreign Fund. All information
relating to the time periods prior to June 28, 1996 relates to the GMO Pool.
Class III shares are a redesignation of the single class of shares that has been
offered by the Fund since inception. Performance for Class I shares and Class II
shares may be different due to higher shareholder service fees. Past performance
is not indicative of future performance. Information is unaudited.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Annual Report
February 28, 1997
<PAGE>
Report of Independent Accountants
To the Trustees of GMO Trust and the Shareholders of
GMO Global Properties 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 Properties Fund at
February 28, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the period from December 20, 1996 (commencement
of operations) to February 28, 1997, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 22, 1997
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
February 28, 1997
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS - 35.2%
Canada - 0.5%
2,000 Trizec Hahn Corp 46,750
----------------------------
Netherlands - 9.5%
9,500 German City Estates NV (Bearer) 146,593
2,500 Nagron 266,221
5,700 Vastned (Offices) NV 228,442
5,550 VIB NV 157,837
1,600 Wereldhave NV 103,307
----------------------------
902,400
----------------------------
New Zealand - 9.6%
500,000 Trans Tasman Properties 255,966
1,136,363 Trans Tasman Properties Ltd (Convertible) 652,493
----------------------------
908,459
----------------------------
United States - 15.6%
4,000 Arden Realty Group Inc 110,500
2,500 Avalon Properties 69,688
2,500 Bedford Properties Investments Inc 46,875
2,000 Developers Diversified Realty Co 73,250
3,000 Eastgroup Properties SBI 85,500
4,000 Felcor Suite Hotels Inc 135,500
2,000 Glimcher Realty Trust 41,750
1,000 HRE Properties 16,375
2,000 Lexington Corporate Properties 25,750
2,500 MGI Properties 54,375
2,000 Mills Corp 47,000
4,000 Patriot American Hospitality 181,000
3,000 Prentiss Properties Trust 81,000
3,000 Reckson Associates Realty Corp 137,250
2,500 Security Capital Atlantic Inc 58,750
2,500 Security Capital Pacific Trust 58,750
4,000 Shurgard Storage Centers Class A 112,000
2,000 Simon DeBartolo Group Inc 60,250
2,500 Urban Shopping Centers Inc 78,438
----------------------------
1,474,001
----------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $3,375,695) 3,331,610
----------------------------
Par Value SHORT-TERM INVESTMENTS - 64.5%
Cash Equivalents - 64.5%
$ 6,100,000 First National Bank of Chicago Time Deposit, 5.44% due 3/3/97 6,100,000
----------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,100,000) 6,100,000
----------------------------
TOTAL INVESTMENTS - 99.7%
(Cost $9,475,695) * * 9,431,610
Other Assets and Liabilities (net) - 0.3% 32,745
----------------------------
TOTAL NET ASSETS - 100.0% $ 9,464,355
============================
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
February 28, 1997
- --------------------------------------------------------------------------------
Note to the Schedule of Investments:
** The aggregate identified cost for federal income tax
purposes is $9,475,695, resulting in gross unrealized
appreciation and depreciation of $66,289 and $110,374
respectively, and net unrealized depreciation of $44,085.
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $9,475,695) (Note 1) $ 9,431,610
Cash 95,095
Dividends and interest receivable 2,961
--------------
Total assets 9,529,666
--------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 5,449
Shareholder service fee 1,090
Accrued expenses 58,772
--------------
Total liabilities 65,311
--------------
Net assets $ 9,464,355
==============
Net assets consist of:
Paid-in capital $ 9,468,089
Accumulated undistributed net investment income 40,351
Net unrealized depreciation (44,085)
--------------
$ 9,464,355
==============
Net assets attributable to Class III Shares $ 9,464,355
==============
Shares outstanding - Class III 940,343
==============
Net asset value per share - Class III $ 10.06
==============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Operations - Period from December 20, 1996
(commencement of operations) to February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends $ 2,040
Interest 75,199
------------
Total income 77,239
------------
Expenses:
Management fee (Note 2) 13,266
Audit fees 28,372
Custodian fees 21,705
Registration fees 4,990
Transfer agent fees 4,970
Legal fees 2,915
Trustees fee (Note 2) 50
Miscellaneous 1,495
Fees waived or borne by Manager (Note 2) (45,480)
------------
32,283
Shareholder service fee - Class III (Note 2) 2,653
------------
Net expenses 34,936
------------
Net investment income 42,303
------------
Realized and unrealized gain (loss):
Net realized loss on foreign currency and foreign currency
related transactions (1,952)
Change in net unrealized appreciation (depreciation) on investments (44,085)
------------
Net realized and unrealized loss (46,037)
------------
Net decrease in net assets resulting from operations $ (3,734)
============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets - Period from December 20, 1996
(commencement of operations) to February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 42,303
Net realized loss (1,952)
Change in net unrealized appreciation (depreciation) (44,085)
------------
Net decrease in net assets resulting from operations (3,734)
------------
Net share transactions - Class III (Note 5) 9,468,089
------------
Total increase in net assets 9,464,355
Net assets:
Beginning of period -
------------
End of period (including accumulated undistributed
net investment income of $40,351) $ 9,464,355
============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from December 20, 1996
(commencement of operations)
to February 28, 1997
--------------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------------------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gain
on investments 0.02(c)
--------------------
Total from investment operations 0.06
--------------------
Net asset value, end of period $ 10.06
====================
Total Return (a) 0.60%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 9,464
Net expenses to average
daily net assets 1.98%*
Net investment income to average
daily net assets 2.39%*
Portfolio turnover rate 0%
Average broker commission rate (b) $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.05
</TABLE>
* Annualized.
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived
during the period shown.
(b) The average broker commission rate will vary depending on the markets
in which trades are executed.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for
the period ended February 28, 1997 due to the timing of purchases and
redemptions of Fund shares in relation to fluctuating market values of
the investments of the Fund.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 28, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
The GMO Global Properties Fund (the "Fund"), which commenced operations on
December 20, 1996, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
Prior to April 7, 1997, the offering of shares for the Fund was not
registered under the Securities Act of 1933, as amended (the "Act"), but
rather was made privately by the Fund pursuant to the private placement
exemption from registration provided by Section 4(2) of the Act and
Regulation D thereunder.
The Fund seeks long-term capital growth primarily through investment in
securities of issuers throughout the world which are engaged in or related
to the real estate industry or which own significant real estate assets.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference between the classes of shares is the
level of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At February 28, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
7
<PAGE>
GMO Global Properties 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.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss carryover
for federal income tax purposes. Therefore, no provision for federal income
or excise tax is necessary. Taxes on foreign interest and dividend income
have been withheld in accordance with the applicable country's tax treaty
with the United States. Dividends received by shareholders of the Fund
which are derived from foreign source income and foreign taxes paid by the
Fund are to be treated, to the extent allowable under the Code, as if
received and paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatments for foreign currency transactions.
8
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
- --------------------------------------------------------------------------------
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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.
The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------------------- ------------------------- ---------------
<S> <C> <C>
($1,952) $1,952 -
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of its interest in the REIT's earnings.
The excess amount cannot be determined by the Fund at the time of receipt.
If the Fund distributes amounts which are subsequently determined to exceed
REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual
basis and is adjusted for the accretion of discounts. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis. Dividends representing a return of capital
are reflected as a reduction of cost.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
9
<PAGE>
GMO Global Properties 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 .60% of the amount
invested. In the case of cash redemptions, the fee is .30% of the amount
redeemed. The Manager may waive such premiums to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums and redemption fees are paid to and recorded as
paid-in capital by the Fund. For the period ended February 28, 1997, the
Fund received $56,808 in purchase premiums and no redemption fees. There is
no premium for reinvested distributions.
Investment risks
There are certain additional risks involved in investing in real-estate
related securities rather than a more diversified portfolio of investments.
Since the Fund's investments are concentrated in real-estate related
securities, the value of its shares can be expected to change in light of
factors affecting the real estate industry, including local or regional
economic conditions, changes in zoning laws, changes in real estate values
and property taxes, and changes in interest rates. The value of the Fund's
shares may fluctuate more widely than the value of shares of a portfolio
that invests in a broader range of industries. Additionally, there are
certain additional risks involved in investing in foreign securities that
are not inherent in investments in domestic securities. These risks may
involve adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental
laws or restrictions. In addition, the securities of some foreign companies
and securities markets are less liquid and at times more volatile than
securities of comparable U.S. companies and U.S. securities markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),
shareholder service fees and extraordinary expenses) exceed .60% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended February 28, 1997, was $50. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
10
<PAGE>
GMO Global Properties 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 period ended February 28, 1997, aggregated
$3,375,695 and $0, respectively.
4. Principal shareholders
At February 28, 1997, 73% of the outstanding shares of the Fund were held
by one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from December 20, 1996
(commencement of operations)
to February 28, 1997
------------------------------------------
Class III: Shares Amount
------------- -------------
<S> <C> <C>
Shares sold 940,343 $ 9,468,089
Shares issued to shareholders in reinvestment
of distributions 0 0
Shares repurchased 0 0
------------- -------------
Net increase 940,343 $ 9,468,089
============= =============
</TABLE>
11
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Portfolio Managers
- ------------------
Mr Eyk Van Otterloo and Mr Wilson Magee are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Van Otterloo has been with
GMO since its founding in 1977. Mr. Magee joined GMO in 1997 following 15 years
of experience in the real estate industry.
Management Discussion and Analysis of Fund Performance
- ------------------------------------------------------
The Class III shares of the Global Properties Fund (GPF) were launched December
20, 1996, to provide global diversification within the real estate asset class.
The total return for the Fund since inception was 0.6%. (For the period
beginning January 1, 1997, and ending February 28, 1997, GPF returned -0.1%,
outperforming its benchmark, the GPR LIFE Global Property Index, which returned
- -1.1%, but underperforming the MSCI World Equity Index 2.3%)/1/. Fiscal year
performance reflects only two months of performance for the Fund during which
the Fund was not fully invested in property stocks.
Most singificant in terms of value-added was the absence of Fund holdings in
Hong Kong and Germany, both of which performed poorly in local currencies and
U.S. dollars. Due to the short time since inception and the fact that most of
GPF's assets were cash equivalents during this period, these are not
particularly meaningful.
Security Selection. Property stocks are selected using a three tier process.
First, country weightings are established utilizing our country models of
relative (real estate) securities index values. Second, property markets are
analyzed to identify prospective trends that affect each property type and, to
the extent meaningful, regional trends within countries. Finally, fundamental
property and securities analysis are used to select securities of undervalued
companies.
Outlook. The outlook for property stocks varies by country. Hong Kong, which has
had two years of phenomental property stock performance, appears likely to
suffer from increasing supply of luxury residential and office properties.
Thailand and Indonesia likewise are excepted to suffer from oversupplies of
office and luxury residential properties. Elsewhere in the Pacific Rim, the
outlook appears to favor Australia, Malaysia, Philippines, Singapore and,
perhaps eventually, Japan. We remain bullish on property stocks in the
Netherlands, Portugal, and Spain. The prospects for North American companies
continue to be good, led by a strong US economy and positive cyclical property
trends for most product types.
The view expressed here are exclusively those of Grantham, Mayo, Van Otterloo &
Co. LLC Management. They are not meant as investment advice.
- ----------------
/1/ The returns for this period are for comparative purpose only since the GPR
index is only available on a monthly basis.
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL (U.S.+) EQUITY 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
Global (U.S.+) Equity Allocation Fund at February 28, 1997, the results of
its operations, the changes in its net assets and the financial highlights
for the period from November 25, 1996 (commencement of operations) to
February 28, 1997, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 22, 1997
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
437,684 GMO Core Fund (Class III Shares) 8,806,197
130,166 GMO Currency Hedged International Bond Fund
(Class III Shares) 1,582,813
176,768 GMO Currency Hedged International Core Fund
(Class III Shares) 2,243,181
62,659 GMO Emerging Country Debt Fund (Class III
Shares) 882,868
231,361 GMO Emerging Markets Fund (Class III Shares) 2,889,694
69,812 GMO Growth Fund (Class III Shares) 361,628
32,020 GMO International Bond Fund (Class III Shares) 345,170
187,981 GMO International Core Fund (Class III Shares) 4,582,973
29,620 GMO International Small Companies Fund (Class
III Shares) 398,689
219,395 GMO REIT Fund (Class III Shares) 2,768,763
127,025 GMO Small Cap Growth Fund (Class III Shares) 1,247,387
150,731 GMO Small Cap Value Fund (Class III Shares) 2,395,114
154,023 GMO Value Fund (Class III Shares) 2,287,237
-----------
TOTAL MUTUAL FUNDS (COST $30,414,082) 30,791,714
-----------
SHORT-TERM INVESTMENT -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 1,470 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $1,470 and an
effective yield of 4.85%, collateralized by
U.S. Treasury Obligations with rates ranging
from 7.25% to 11.88%, with maturity dates
ranging from 11/15/03 to 5/15/20 and with an
aggregate
market value of $1,501. 1,470
-----------
TOTAL SHORT-TERM INVESTMENT (COST $1,470) 1,470
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $30,415,552) * 30,793,184
Other Assets and Liabilities (net) (6,605)
-----------
TOTAL NET ASSETS -- 100% $30,786,579
===========
NOTES TO THE SCHEDULE OF INVESTMENTS:
* The aggregate identified cost for federal income tax
purposes is $30,538,666, resulting in gross unrealized
appreciation and depreciation of $594,909 and $340,391,
respectively, and net unrealized appreciation of
$254,518.
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $30,415,552) (Note 1) $30,793,184
Receivable for expenses waived or borne by Manager (Note 2) 6,119
-----------
Total assets 30,799,303
-----------
LIABILITIES:
Accrued expenses 12,724
-----------
Total liabilities 12,724
-----------
NET ASSETS $30,786,579
===========
NET ASSETS CONSIST OF:
Paid-in-capital $29,871,668
Accumulated undistributed net investment loss (8)
Accumulated undistributed net realized gain 537,287
Net unrealized appreciation 377,632
-----------
$30,786,579
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $30,786,579
===========
SHARES OUTSTANDING:
Class III 2,988,868
===========
NET ASSET VALUE PER SHARE:
Class III $ 10.30
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS --
PERIOD FROM NOVEMBER 25, 1996 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY
28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 202,100
Interest 269
----------
Total income 202,369
----------
EXPENSES:
Audit fees 14,179
Registration fees 2,495
Custodian and transfer agent fees 1,509
Legal fees 125
Miscellaneous 803
Fees waived or borne by Manager (Note 2) (19,111)
----------
Net expenses --
----------
Net investment income 202,369
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (121,668)
Realized gain distributions from investment company shares 793,873
----------
Net realized gain 672,205
----------
Change in net unrealized appreciation (depreciation) on
investments 377,632
----------
Net realized and unrealized gain 1,049,837
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,252,206
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 25, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 202,369
Net realized gain 672,205
Change in net unrealized appreciation
(depreciation) 377,632
-----------
Net increase in net assets resulting from
operations 1,252,206
-----------
Distributions to shareholders from:
Net investment income
Class III (202,377)
-----------
Net realized gains
Class III (134,918)
-----------
(337,295)
-----------
Net share transactions: (Note 5)
Class III 29,871,668
-----------
Increase in net assets resulting from net share
transactions 29,871,668
-----------
Total increase in net assets 30,786,579
NET ASSETS:
Beginning of period --
-----------
End of period (including accumulated
undistributed net investment loss of ($8)) $30,786,579
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 25, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized gain 0.38
-------
Total from investment operations 0.50
-------
Less distributions to shareholders:
From net investment income (0.12)
From net realized gains (0.08)
-------
Total distributions (0.20)
-------
NET ASSET VALUE, END OF PERIOD $ 10.30
=======
TOTAL RETURN(A) 5.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $30,787
Net expenses to average daily net assets 0.00%*
Net investment income to average daily net
assets 3.21%*
Portfolio turnover rate 10%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
* Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Global (U.S.+) Equity Allocation Fund (the "Fund"), which commenced
operations on November 25, 1996, is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO Global (U.S.+) Equity Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
shares of domestic equity, international equity, and fixed income funds of
the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At February 28, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
6
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .42% of the amount
invested. In the case of cash redemptions, the fee is .05% of the amount
redeemed. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the period ended February 28,
1997, the Fund received $102,341 in purchase premiums and $325 in
redemption fees. There is no premium for reinvested distributions or in-
kind transactions.
7
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses).
For the period ended February 28, 1997, the Fund incurred no Trustees'
fees. 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 28, 1997, aggregated
$32,862,850 and $2,327,100, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 51% 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 November 25, 1996
(commencement of operations)
to February 28, 1997
Class III: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 3,086,368 $ 30,859,765
Shares issued to shareholders in
reinvestment
of distributions -- --
Shares repurchased (97,500) (988,097)
------------- ---------------
Net increase 2,988,868 $ 29,871,668
============= ===============
</TABLE>
8
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
portfolio manager at Grantham, Mayo, Ban Otterloo & Co. LLC for more than
fifteen years. Mr. Inker has been with the firm for five years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the Global (U.S.+) Equity Allocation Fund returned
5.1% for three months from its inception (November 25, 1996) to February
28, 1997. During that period the Fund's benchmark (75% S&P 500/25% GMO
EAFE-Lite Extended) returned 3.8%. During this period, the U.S. equity
market performed strongly, although the market paused for breath in
December following Federal Reserve Chairman Greenspan's concerns of
"irrational exuberance" in the market. The underweighting of U.S. equities
in the Global (U.S.+) Equity Allocation Fund therefore contributed
negatively to performance for the year, but was more than offset by the
strong performance of emerging equities, emerging debt, and real estate
investment trusts (REITs).
We use GMO's long-term asset class forecasts to allocate the Global (U.S.+)
Equity Allocation Fund among various GMO mutual funds. From the inception
of the Fund we have felt that the U.S. stock market is significantly
overvalued. The market's subsequent climb has only made this situation more
extreme. Our research suggests that from the market's current valuation
level, prospective returns for large capitalization U.S. stocks over the
next 10 years will be very disappointing, with a forecasted average annual
return of only 3% per year.
The Fund is underweight in U.S. stocks in the portfolio by approximately
15% relative to the benchmark, which negatively impacted the Fund's overall
performance due to the continuing rally of U.S. equities relative to the
international markets during the period. Within U.S. stocks, we have tilted
the portfolio towards the most attractively valued sectors: small stocks,
where we have a 6% overweighting, and real estate investment trusts
(REITs), where our overweighting is 5%. Since the Fund's inception, the
allocation to REITs has helped performance, as the GMO REIT Fund
outperformed the aggregate U.S. market by 6% over the period. Small stocks,
on the other hand, lagged by approximately 2%.
Within the international equity portion of the portfolio, we have
overweighted emerging equities significantly. This has been a real boost to
the portfolio, as the last three months have been strong for emerging
stocks, with the GMO Emerging Markets Fund up over 16% in the period.
In December we allocated 9% of the Fund to fixed income of which 6% was to
international bonds and 3% to emerging country debt. Due to the strong
performance of emerging country debt, the fixed income portion of the
portfolio outperformed U.S. equities during this period. Because of our
very bearish view of the U.S. equity market, we feel a reasonably sized
fixed income position is excellent protection against future weakness in
the U.S. equity market.
9
<PAGE>
GMO GLOBAL (U.S.+) EQUITY ALLOCATION FUND FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
Until we see a significant correction in U.S. equities, it is likely that
the Fund will maintain its bearish stance. The moderately sized fixed
income position should provide a degree of protection in a bear market, and
we believe that international stocks, particularly in emerging markets,
will perform better than those in the U.S. In addition, REITs should do
well in the current market environment, providing more attractive yields
and valuations than those available from the high valuation levels of U.S.
equities.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
10
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO INTERNATIONAL EQUITY 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
International Equity Allocation Fund at February 28, 1997, the results of
its operations, the changes in its net assets and the financial highlights
for the period from October 11, 1996 (commencement of operations) to
February 28, 1997, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 22, 1997
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.0%
63,365 GMO Emerging Country Debt Fund (Class III
Shares) 892,813
740,649 GMO Emerging Markets Fund (Class III Shares) 9,250,711
112,516 GMO International Bond Fund (Class III Shares) 1,212,927
1,347,477 GMO International Core Fund (Class III Shares) 32,851,479
130,012 GMO International Small Companies Fund (Class
III Shares) 1,749,966
------------
TOTAL MUTUAL FUNDS (COST $45,402,045) 45,957,896
------------
SHORT-TERM INVESTMENT -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 1,461 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $1,462 and an
effective yield of 4.85%, collateralized by
U.S. Treasury Obligations with rates ranging
from 7.25% to 11.88%, with maturity dates
ranging from 11/15/03 to 5/15/20 and with an
aggregate
market value of $1,492. 1,461
------------
TOTAL SHORT-TERM INVESTMENT (COST $1,461) 1,461
------------
TOTAL INVESTMENTS -- 100.0%
(Cost $45,403,506) * 45,959,357
Other Assets and Liabilities (net) (10,455)
------------
TOTAL NET ASSETS -- 100% $ 45,948,902
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
* The aggregate identified cost for federal income tax
purposes is $45,404,996, resulting in gross unrealized
appreciation and depreciation of $1,165,661 and
$611,300, respectively, and net unrealized appreciation
of $554,361.
</TABLE>
1
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES--FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $45,403,506) (Note 1) $45,959,357
Receivable for expenses waived or borne by Manager (Note 2) 4,162
-----------
Total assets 45,963,519
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Shareholder service fee 829
Accrued expenses 13,788
-----------
Total liabilities 14,617
-----------
NET ASSETS $45,948,902
===========
NET ASSETS CONSIST OF:
Paid-in-capital $44,676,974
Accumulated undistributed net realized gain 716,077
Net unrealized appreciation 555,851
-----------
$45,948,902
===========
NET ASSETS ATTRIBUTABLE TO:
Class II shares $15,489,842
===========
Class III shares $30,459,060
===========
SHARES OUTSTANDING:
Class II 1,487,501
===========
Class III 2,925,208
===========
NET ASSET VALUE PER SHARE:
Class II $ 10.41
===========
Class III $ 10.41
===========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
See accompanying notes to the financial statements.
STATEMENT OF OPERATIONS --
PERIOD FROM OCTOBER 11, 1996 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY
28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 260,527
Interest 123
----------
Total income 260,650
----------
EXPENSES:
Audit fees 14,049
Custodian and transfer agent fees 4,528
Registration fees 2,346
Legal fees 301
Trustees fees (Note 2) 42
Miscellaneous 558
Fees waived or borne by Manager (Note 2) (21,198)
----------
626
Shareholder service fee (Note 2)
Class II 1,962
----------
Net expenses 2,588
----------
Net investment income 258,062
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Investments (1,487)
Realized gain distributions from investment
company shares 833,034
----------
Net realized gain 831,547
----------
Change in net unrealized appreciation
(depreciation) on investments 555,851
----------
Net realized and unrealized gain 1,387,398
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,645,460
==========
</TABLE>
3
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 11, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 258,062
Net realized gain 831,547
Change in net unrealized appreciation
(depreciation) 555,851
-----------
Net increase in net assets resulting from
operations 1,645,460
-----------
Distributions to shareholders from:
Net investment income
Class II (98,709)
Class III (159,298)
-----------
Total distributions from net investment income (258,007)
-----------
Net realized gains
Class II (44,198)
Class III (71,327)
-----------
Total distributions from net realized gains (115,525)
-----------
(373,532)
-----------
Net share transactions: (Note 5)
Class II 15,022,907
Class III 29,654,067
-----------
Increase in net assets resulting from net share
transactions 44,676,974
-----------
Total increase in net assets 45,948,902
NET ASSETS:
Beginning of period --
-----------
End of period $45,948,902
===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 23, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10
-------
Income from investment operations:
Net investment income -- (b)
Net realized and unrealized gain 0.41
-------
Total from investment operations 0.41
-------
Less distributions to shareholders:
From net investment income (0.07)
From net realized gains (0.03)
-------
Total distributions (0.10)
-------
NET ASSET VALUE, END OF PERIOD $ 10.41
=======
TOTAL RETURN(A) 4.07 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $15,490
Net expenses to average daily net assets 0.07 %*
Net investment income to average daily net
assets (0.07)%*(b)
Portfolio turnover rate 0 %
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: (c)
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
(c) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
See accompanying notes to the financial statements.
5
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 11, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from investment operations:
Net investment income 0.10 (b)
Net realized and unrealized gain 0.41
-------
Total from investment operations 0.51
-------
Less distributions to shareholders:
From net investment income (0.07)
From net realized gains (0.03)
-------
Total distributions (0.10)
-------
NET ASSET VALUE, END OF PERIOD $ 10.41
=======
TOTAL RETURN(A) 5.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $30,459
Net expenses to average daily net assets 0.01%*
Net investment income to average daily net assets 3.60%*(b)
Portfolio turnover rate 0%
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
* Annualized.
See accompanying notes to the financial statements.
6
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO International Equity Allocation Fund (the "Fund"), which commenced
operations on October 11, 1996, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the Morgan Stanley Capital International Europe, Australia and Far East
Index. The Fund will pursue its objective by investing primarily in Class
III shares of international equity and fixed income funds of the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
7
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
($55) $55 --
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
8
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .80% of the amount
invested. In the case of cash redemptions, the fee is .10% of the amount
redeemed. Prior to October 16, 1996, the Fund did not charge a premium on
cash purchases or a fee on redemptions. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the period ended February 28, 1997, the Fund received $248,112 in
purchase premiums and no redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended February 28, 1997 was $42. 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 28, 1997, aggregated
$45,486,622 and $83,090, respectively.
9
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 100% of the outstanding Class II shares of the Fund
were held by one shareholder and 78% of the outstanding Class III shares of
the Fund were held by five shareholders, each holding in excess of 10% of
the outstanding shares of the respective class.
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 December 23, 1996
(commencement of operations)
to February 28, 1997
Class II: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 1,473,267 $ 14,880,000
Shares issued to shareholders in
reinvestment
of distributions 14,234 142,907
Shares repurchased -- --
------------- ---------------
Net increase 1,487,501 $ 15,022,907
============= ===============
<CAPTION>
Period from October 11, 1996
(commencement of operations)
to February 28, 1997
Class III: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 2,910,529 $ 29,506,688
Shares issued to shareholders in
reinvestment
of distributions 14,679 147,379
Shares repurchased -- --
------------- ---------------
Net increase 2,925,208 $ 29,654,067
============= ===============
</TABLE>
10
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION--(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
11.78% of distributions as net capital gain dividends.
11
<PAGE>
GMO INTERNATIONAL EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
portfolio manager at Grantham, Mayo, Van Otterloo & Co., LLC for more than
fifteen years. Mr. Inker has been with the firm for five years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the International Equity Allocation Fund returned
5.1% from its inception (October 11, 1996) to February 28, 1997. During
that period the benchmark (GMO EAFE-Lite Extended) returned 3.8%.
We use GMO's long-term asset class forecasts to allocate the International
Equity Allocation Fund among various GMO mutual funds. Our research
suggests that the next several years will be difficult ones for the
developed international stock markets, with returns of only 5% to 6% per
year, well down from the 15% average of the last 20 years. Our forecast for
emerging equities is somewhat better, although even they will be unlikely
to provide a double-digit average return over the next 10 years.
The Fund's overweight in emerging markets (approximately 9%) has added
value as the emerging markets outperformed the benchmark on an indexed
basis by 5% during the period. In December we added fixed income exposure
to the portfolio, and the current allocation to fixed income allocation is
4.5% of the total portfolio. Of this amount, 2.7% was allocated to
international bonds and 1.8% to emerging country debt. Due to the strong
performance of emerging country debt, the fixed income portion of the
portfolio has outperformed international equities over this period, adding
value to the Fund's relative performance.
Because of our bearish view on international equities, particularly those
in developed countries, we feel that a moderate allocation to fixed income
should provide an important degree of protection against a market
correction. In addition, the better values and higher growth prospects
provided by emerging equities should help them hold value better than
developed markets in the event of a global equity market downturn.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co. LLC Management. They are not meant as investment advice.
12
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO SMALL CAP GROWTH 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
Small Cap Growth Fund at February 28, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the period
from December 31, 1996 (commencement of operations) to February 28, 1997,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------
COMMON STOCKS -- 90.3%
AEROSPACE -- 0.7%
<S> <C> <C>
6,100 AAR Corp 155,550
16,200 Gencorp Inc 305,775
5,300 Logicon Inc 200,075
4,100 OEA, Inc 190,138
13,500 Rohr Industries Inc * 244,688
------------
1,096,226
------------
AUTOMOTIVE -- 2.1%
22,000 Arvin Industries Inc 517,000
7,000 Breed Technologies Inc 153,125
18,600 Coachmen Industries Inc 376,650
27,500 Mascotech Industries Inc 522,500
5,900 Simpson Industries Inc 57,525
22,500 SPX Corp 1,032,187
11,500 Standard Products Corp 270,250
14,400 Thor Industries 370,800
------------
3,300,037
------------
BANKING AND FINANCIAL SERVICES -- 6.5%
4,150 Alex Brown Inc 241,219
8,200 Astoria Financial Corp 352,600
9,400 Bancorp Hawaii Inc 413,600
15,500 Banponce Corp 558,000
5,560 California Federal Bancorp, Inc. SCLP 104,250
6,300 City National Corp 152,775
12,300 Cityscape Financial Corp 336,713
13,100 Comdisco Inc 407,738
7,500 Credit Acceptance Corp * 159,375
29,900 Dime Bancorp Inc * 523,250
3,100 Donaldson Lufkin & Jenrette 133,300
8,400 Downey Financial Corp 198,450
5,600 Eaton Vance Corp 247,800
7,500 Finova Group Inc 572,813
1,100 First Empire State Corp 355,850
18,500 First Federal Financial Corp * 481,000
2,500 Firstmerit Corp 100,625
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
<S> <C> <C>
1,000 Fund American Enterprises Inc 106,500
7,300 Glendale Federal Savings Bank 194,363
2,100 Great Financial Corp 68,513
5,700 Greenpoint Financial Corp 342,000
3,500 Interra Financial Inc 143,063
6,700 Jefferies Group Inc 295,638
5,500 Legg Mason Inc 244,750
25,500 Money Store Inc 659,813
3,600 Northfork Bancorp 146,250
2,310 Old National Bancorp 85,470
10,800 Provident Bancorp Inc 402,300
17,000 Riggs National Corp 338,938
9,500 St. Paul Bancorp Inc 251,750
7,800 Standard Federal Bancorp 449,475
4,000 Student Loan Group 161,500
1,300 UMB Financial Corp 55,250
21,100 United Asset Management Corp 569,700
7,920 Washington Federal Inc 201,960
2,800 Zions Bancorporation 348,600
------------
10,405,191
------------
CHEMICALS -- 1.4%
2,700 Betzdearborn Inc 175,163
9,400 Crompton & Knowles Corp 178,600
11,200 Dexter Corp 330,400
6,000 Fuller (HB) Co 292,500
14,900 Hanna (MA) Co 309,175
6,600 Lilly Industrial Coating Inc, Class A 127,875
4,600 Macdermid Inc 154,100
59,300 Schuller Corp 704,187
------------
2,272,000
------------
COMPUTER AND OFFICE EQUIPMENT -- 3.6%
42,200 Amdahl Corp * 416,725
2,300 Analogic Corp 81,363
22,000 Banctec Inc * 561,000
18,300 Comverse Technology Inc * 798,337
15,700 Concord EFS Inc 371,894
18,100 Dynatech Corp * 506,800
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------
COMPUTER AND OFFICE EQUIPMENT -- CONTINUED
<S> <C> <C>
13,900 Exabyte Corp 152,031
9,000 HMT Technology Corp 172,125
4,800 Lexmark International Group Inc 133,800
43,700 Micron Electronics Inc * 846,687
5,000 Quantum Corp * 198,750
10,600 Rational Software Corp 274,275
17,400 Unisys Corp * 117,450
11,000 Western Digital Corp 649,000
21,600 Xircom Inc 429,300
------------
5,709,537
------------
CONSTRUCTION -- 0.6%
19,300 Centex Corp 779,237
3,300 Kaufman & Broad Home Corp 46,613
2,500 Texas Industries Inc 145,625
------------
971,475
------------
CONSUMER GOODS -- 6.3%
14,181 Block Drug Co Inc, Class A 659,417
12,000 Burlington Industries Inc 154,500
5,200 Carter Wallace Inc 74,750
2,300 CDW Computer Centers Inc 120,894
3,800 Church & Dwight Co Inc 101,175
16,600 Furniture Brands International Inc * 244,850
9,000 Genesco Inc * 85,500
8,700 Golden Books Family Entertainment Inc 81,563
20,200 Hon Industries Inc 772,649
9,500 Huffy Corp 124,688
26,200 Jones Apparel Group Inc 972,674
11,400 Kimball International, Class B 450,300
15,300 Miller Herman Inc 1,005,974
6,100 O'Sullivan Industries Holdings Inc 65,575
19,700 Paragon Trade Brands Inc 359,525
4,600 Pittston Brinks Group 118,450
14,200 Russ Berrie and Co 307,075
13,600 Russell Corp 511,700
4,900 Safeguard Scientifics Inc 118,825
18,300 Standard Register Co 597,038
58,000 Tech Data Corp * 1,391,999
19,500 Tiffany & Co 677,625
49,000 Tultex Corp * 392,000
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------
CONSUMER GOODS -- CONTINUED
9,800 US Industries Inc 358,925
11,300 Vans Inc 153,963
6,100 Wallace Computer Services 206,638
------------
10,108,272
------------
ELECTRONIC EQUIPMENT -- 5.7%
18,000 Amati Communications Corp 249,750
6,100 American Power Conversion Corp * 127,338
5,300 Applied Magnetics Corp * 206,038
42,200 Aspect Telecommunications Corp 1,049,724
3,300 C-Cube Microsystems Inc* 96,113
22,700 Checkpoint Systems Inc * 462,513
5,500 Chips & Technologies Inc 70,125
2,000 Chyron Corp 11,500
18,400 Computer Products Inc * 315,100
18,500 Digital Microwave Corp 462,500
14,200 DSP Communications Inc 165,963
7,900 Jabil Circuit Inc 261,688
33,700 Magnetek Inc 560,263
14,500 Microchip Technology Inc 541,938
10,900 Oak Industries Inc * 220,725
19,200 Octel Communications Corp 350,400
9,800 Read Rite Corp 300,738
3,400 Sanmina Corp 157,250
27,300 SCI Systems Inc * 1,460,549
6,000 Symbol Technologies Inc 301,500
7,700 Symmetricom Inc * 124,163
4,200 Technitrol Inc 187,950
4,600 Telco Systems Inc 71,300
1,400 Valmont Inds Inc 59,150
6,400 Vitesse Semiconductor Corp 268,400
8,400 VLSI Technology 156,975
88,200 Zenith Electronics Corp * 848,924
------------
9,088,577
------------
FOOD AND BEVERAGE -- 4.6%
7,700 Coors (Adolph) Co 164,588
24,800 Dean Foods Co 809,099
8,000 Dekalb Genetics Corp 522,000
18,000 Dimon Inc 423,000
27,900 Flowers Industries Inc 645,188
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------------
FOOD AND BEVERAGE -- CONTINUED
15,900 Great Atlantic & Pacific Tea Co 473,025
20,200 Hudson Foods Inc 353,500
2,400 Imperial Holly Corp * 28,800
25,400 Interstate Bakeries Corp 1,187,449
9,700 Quality Food Centers Inc * 355,263
5,600 Riser Foods Inc, Class A 175,000
23,800 Ryans Family Steak House * 175,525
10,400 Savannah Foods and Industries Inc 152,100
30,400 Showbiz Pizza Time 638,400
14,700 Smith Food and Drug Center, Class B 483,263
24,500 Universal Corporation 771,749
------------
7,357,949
------------
HEALTH CARE -- 5.3%
11,000 Acuson Corp * 305,250
6,000 Advanced Technology Labs Inc * 213,000
4,800 Air & Water Technologies Corp 27,300
68,700 Bio Technology General Corp * 1,116,374
9,700 Columbia Laboratories Inc * 147,925
18,200 Curative Health Services Inc 459,550
3,700 Dionex Corp * 166,500
33,200 Herbalife International Inc 697,199
1,800 Labone Inc 33,975
34,400 Lincare Holdings Inc * 1,483,499
6,400 MTS Systems Inc 139,200
18,600 NBTY Inc * 334,800
62,000 Novacare Corp * 774,999
32,200 Prime Medical Service Inc * 358,225
8,800 Rexall Sundown Inc 229,900
5,200 Safeskin Corp 96,200
3,000 Sybron International Corp * 89,250
18,630 Tenet Healthcare Corp * 505,339
24,500 Universal Health Services, Class B 836,062
29,400 US Bioscience Inc 415,275
------------
8,429,822
------------
INSURANCE -- 5.1%
4,600 American Bankers Insurance Group 253,575
6,700 Capital Re Corp 289,775
3,300 Capitol American Financial Corp 120,038
8,700 CMAC Investment Corp 304,500
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------
INSURANCE -- CONTINUED
600 Conseco Inc 23,550
7,900 Crawford and Co 177,750
23,760 Delphi Financial Group Inc 807,839
24,700 Enhance Financial Services Group Inc 852,149
17,800 Everest Re Holdings Inc 560,700
12,600 First American Financial Corp 516,600
23,700 Fremont General Corp 684,337
17,359 Frontier Insurance Group Inc 750,776
10,500 Guaranty National Corp 187,688
6,100 HCC Insurance Holdings Inc 150,213
5,800 Life Re Corp 249,400
1,300 Markel Corp * 141,700
6,400 Orion Capital 409,600
3,400 Penncorp Financial Group Inc 119,000
10,000 Presidential Life Corp 150,000
13,800 Provident Cos Inc 752,099
10,800 United Wisconsin Services 287,550
9,300 Zenith National Insurance Corp 246,450
3,400 Zurich Reinsurance Centre Inc 130,475
------------
8,165,764
------------
MACHINERY -- 2.7%
5,800 Camco International Inc 224,025
12,300 Cooper Cameron Corp 805,649
4,300 Donaldson Co Inc 144,588
1,700 ETEC Systems Inc 61,625
5,500 Fairchild Corp, Class A * 77,000
2,300 Goulds Pumps Inc 54,194
5,800 Graco Inc 180,525
12,300 Kaydon Corp 531,975
3,800 Lindsay Manufacturing Co 176,700
15,800 Mohawk Industries Inc * 416,725
20,400 Smith International Inc * 828,749
13,100 US Filter Corp 458,500
14,200 Varco International Inc * 319,500
------------
4,279,755
------------
MANUFACTURING -- 3.2%
19,200 ACX Technologies Inc * 367,200
3,400 Applied Power Inc, Class A 133,025
2,200 Barnes Group Inc 146,575
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------
MANUFACTURING -- CONTINUED
12,200 BMC Industries Inc 349,225
21,700 Champion Enterprises Inc 420,438
4,600 Crane Co 150,075
28,800 Gentex Corp 532,800
11,600 Global Industrial Technologies Inc 205,900
13,000 Hexcel Corp * 250,250
12,050 Manitowoc Co Inc 405,181
9,200 Robbins & Myers Inc 253,000
7,100 Sequa Corp, Class A * 278,675
10,800 Skyline Corp 260,550
900 SPS Technologies, Inc * 57,600
4,700 Synetic Inc * 228,538
13,900 Tredegar Industries 557,738
8,700 Watts Industries Inc, Class A 225,113
20,200 Wyman-Gordon Co. * 361,075
------------
5,182,958
------------
METALS AND MINING -- 0.3%
19,400 Oregon Metallurgical Corp * 426,800
7,200 Sturm Ruger & Co Inc 125,100
------------
551,900
------------
OIL AND GAS -- 12.1%
6,900 Atwood Oceanics Inc * 362,250
4,000 Benton Oil & Gas Co * 61,000
14,800 Berry Petroleum, Class A 218,300
17,500 BJ Services Co 695,624
7,400 Brown (Tom) Inc * 136,900
9,100 Cabot Oil & Gas Corp, Class A 144,463
9,900 Chesapeake Energy Corp 205,425
8,800 Devon Energy Corp 275,000
23,600 El Paso Natural Gas Co 1,265,549
17,200 Energy Ventures Inc * 877,199
24,400 Falcon Drilling Co Inc 826,549
13,600 Flores & Rucks Inc 612,000
8,900 Giant Industries Inc 123,488
38,100 Harken Energy Corp * 185,738
19,800 Helmerich & Payne Inc 836,549
10,300 KCS Energy Inc 370,800
7,200 Laclede Gas Co 166,500
33,000 Marine Drilling Co Inc * 499,125
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------
OIL AND GAS -- CONTINUED
47,500 Mesa Inc 290,938
23,800 Mitchell Energy, Class B 511,700
36,000 Nabors Industries Inc * 553,500
16,300 National Fuel Gas Co 700,899
18,900 Newfield Exploration Co 375,638
30,700 Noble Drilling Corp 544,925
29,900 Noram Energy Corp 448,500
5,050 North Carolina Natural Gas 162,231
2,900 Nuevo Energy Co 120,350
22,400 Oneok Inc 638,400
13,900 Oryx Energy Co * 278,000
22,600 Parker & Parsley Petroleum Co 666,700
14,700 Peoples Energy Corp 497,963
8,100 Piedmont Natural Gas Co 191,363
10,900 Pogo Producing Co 374,688
17,600 Pool Funds Energy Services Co 244,200
45,300 Reading & Bates Corp * 1,098,524
49,200 Rowan Cos Inc * 977,849
5,100 RPC Inc 75,225
43,900 Santa Fe Energy Resources Inc * 565,213
32,100 Seagull Energy Corp * 589,838
27,700 Southwestern Energy Co 373,950
12,900 Transocean Offshore Inc 720,787
7,500 Union Texas Petroleum Holdings Inc 138,750
8,000 United Meridian Corp 241,000
3,200 Vintage Petroleum Inc 96,400
------------
19,339,990
------------
PAPER AND ALLIED PRODUCTS -- 1.5%
6,400 Caraustar Industries Inc 190,400
18,200 Fort Howard Corp 541,450
1,900 Glatfelter (PH) Co 32,538
3,600 Mosinee Paper Corp 119,700
2,800 Pentair Inc 87,850
22,500 Pope And Talbot Inc 348,750
5,200 Shorewood Packaging Corp * 91,000
8,800 TJ International Inc 178,200
25,400 US Office Products Co 812,799
------------
2,402,687
------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
PHARMACEUTICALS -- 1.7%
1,000 Alliance Pharmaceutical Corp * 12,500
2,700 Dura Pharmaceuticals Inc 90,788
32,900 General Nutrition Cos Inc * 592,200
9,100 ICN Pharmaceuticals Inc 229,775
10,100 International Specialty Products Inc * 135,088
9,100 Jones Medical Industries Inc 275,275
13,400 Medpartners Inc 294,800
7,500 Nexstar Pharmaceuticals Inc 111,563
2,800 Quintiles Transnational Corp * 183,050
51,200 Sequus Pharmaceuticals Inc * 588,800
3,100 Watson Pharmaceutical, Inc 135,238
------------
2,649,077
------------
PRIMARY MATERIALS -- 1.4%
5,800 Carlisle Cos Inc 189,950
5,600 Kuhlman Corp 131,600
6,100 Medusa Corp 243,238
26,700 Premark International Inc 630,788
5,900 Schulman A Inc 114,313
7,100 Sealed Air Corp * 291,988
14,600 Southdown, Inc 521,950
4,500 USG Corp 158,625
------------
2,282,452
------------
PRIMARY PROCESSING -- 1.2%
6,300 Intermet Corp 95,288
11,700 Lone Star Technologies Inc 184,275
5,300 Mueller Industries Inc * 228,563
5,900 National Steel Corp, Class B 49,413
16,700 Oregon Steel Mills Inc 283,900
5,400 Petrolite Corp 313,200
9,000 Precision Castparts Corp 441,000
8,500 Quanex Corp 227,375
2,000 Tremont Corp * 67,750
------------
1,890,764
------------
PRINTING AND PUBLISHING -- 1.4%
16,600 Central Newspapers, Class A 763,599
15,700 Harland (JH) Co 474,925
3,200 Harte Hanks Communications 82,800
23,975 McClatchy Newspapers Inc 572,403
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------
PRINTING AND PUBLISHING -- CONTINUED
2,700 Media General Inc, Class A 81,000
10,500 Playboy Enterprises Inc, Class B 160,125
------------
2,134,852
------------
REAL ESTATE -- 0.1%
600 Penn Virginia Corp 26,700
100 Security Capital Corp 8,675
9,200 Sothebys Holdings Inc 156,400
------------
191,775
------------
REFINING -- 0.6%
18,100 Tesoro Petroleum Corp * 212,675
4,500 Tosco Corp 125,438
17,700 Valero Energy Corp 557,550
------------
895,663
------------
RETAIL TRADE -- 8.5%
7,200 AnnTaylor Stores Corp 144,000
29,000 Apogee Enterprises Inc 576,375
6,700 Arbor Drugs Inc 128,975
7,600 Bed, Bath & Beyond Inc 197,600
9,800 Brown Group Inc 159,250
10,300 Buckle (The) Inc 260,075
19,300 Cash American Investments Inc 183,350
70,100 Charming Shoppes Inc * 311,069
44,550 Claire's Stores Inc 629,269
22,800 CompUSA Inc 456,000
3,800 Consolidated Stores Corp 133,475
15,500 Dress Barn Inc * 265,438
5,900 Duty Free International Inc 84,075
35,800 Eagle Hardware & Garden Inc * 698,099
7,000 Family Dollar Stores Inc 165,375
38,200 Finish Line Inc 821,299
6,800 Goodys Family Clothing Inc * 123,250
8,300 Gymboree Corp * 204,388
13,600 Heilig Meyers Co 192,100
11,900 Ingles Markets Inc 178,500
30,500 Lands End Inc * 846,374
13,100 Macfrugals Bargains Close Outs Inc * 355,338
20,800 Meyer Fred Inc * 824,199
37,400 Neiman Marcus Group Inc * 1,005,124
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------
RETAIL TRADE -- CONTINUED
19,500 Pier 1 Imports Inc 338,813
12,200 Proffitts Inc 394,975
13,700 Richfood Holdings Inc 289,413
31,100 Ross Stores Inc 1,492,799
7,100 Ruddick Corp 113,600
9,000 Shopko Stores Inc 140,625
7,900 Stein Mart Inc * 187,625
26,300 Value City Department Stores Inc * 213,688
27,400 Wet Seal Inc 544,575
9,500 Williams-Sonoma Inc * 239,281
36,500 Zale Corp 675,250
------------
13,573,641
------------
SERVICES -- 4.7%
6,600 ABM Industries Inc 123,750
33,000 Accustaff Inc 684,749
9,900 AMC Entertainment Inc * 164,588
4,400 Amerco 119,900
41,000 American Media Inc, Class A * 225,500
5,400 Apac Teleservices Inc 160,650
1,300 Apollo Group, Inc 35,100
2,500 Berlitz International Inc 50,625
4,500 Catalina Marketing Corp 226,125
11,700 CDI Corp * 383,175
8,800 Corestaff Inc 207,900
5,000 Cytogen Corp 25,625
3,200 Devry Inc 63,600
17,000 Jenny Craig Inc * 150,875
5,600 Lee Enterprises Inc 131,600
13,100 Mcgrath Rentcorp 352,063
7,200 Meredith Corp 352,800
8,000 Morningstar Group Inc * 184,000
45,000 National Education Corp * 579,375
18,800 Oakwood Homes Corp 371,300
21,600 Oceaneering International Inc * 342,900
9,400 PHH Corp 450,025
15,700 Prime Hospitality Corp 259,050
5,300 Promus Hotel Corp 187,488
14,200 Regis Corp 232,525
6,500 Rollins Truck Leasing Corp 91,000
16,000 Technology Solutions Co 474,000
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------
SERVICES -- CONTINUED
8,500 Volt Information Sciences Inc * 380,375
18,900 Wackenhut Corp 330,750
4,200 Wolverine World Wide 149,100
------------
7,490,513
------------
TECHNOLOGY -- 2.9%
21,400 3DO Company (The) 86,938
16,000 American Management Systems Inc * 280,000
4,900 Citrix Systems Inc 61,863
500 Compuware Corp 31,125
400 Data General Corp * 7,750
5,300 Electronic Arts * 165,625
24,000 Electronics For Imaging Inc 923,999
12,900 Genrad Inc * 256,388
6,100 Keane Inc 215,025
1,900 Mcafee Associates Inc 87,163
4,700 National Data Corp 165,088
3,700 Network Appliance Inc 148,000
8,600 Remedy Corp 330,025
17,600 Structural Dynamics Research Corp * 349,800
100,500 Tandem Computers Inc * 1,256,249
4,100 Vantive Corp 91,225
1,100 Viasoft Inc 39,600
6,600 Visio Corp 278,850
------------
4,774,713
------------
TELECOMMUNICATIONS -- 0.4%
4,600 Atlantic Telecommunication Network Inc * 57,500
4,500 C-Tec Corp * 128,250
8,900 Heritage Media Corp 100,125
22,400 International Family Entertainment Inc * 428,400
------------
714,275
------------
TRANSPORTATION -- 2.6%
5,300 Alaska Air Group Inc * 125,875
8,200 Alexander & Baldwin Inc 219,350
26,300 Comair Holdings Inc 542,438
13,300 Expeditors International Washington Inc 332,500
24,900 Fleetwood Enterprises Inc 647,400
1,400 Florida East Coast Industries Inc 136,675
13,100 Hunt (JB) Transportation Services Inc 181,763
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------
TRANSPORTATION -- CONTINUED
18,700 Mesa Airline Group Inc * 119,213
12,200 OMI Corp * 109,800
9,400 Swift Transportation Co * 250,275
8,300 US Freightways Corp 200,238
29,600 USAir Group Inc * 584,600
12,200 Werner Enterprises Inc 213,500
8,200 Wisconsin Central Transport 294,175
16,100 Yellow Corp * 251,563
------------
4,209,365
------------
UTILITIES -- 3.1%
6,000 Aquila Gas Pipeline Corp 78,750
3,700 Atmos Energy Corp 90,650
20,600 Calenergy Inc * 687,524
13,500 Centerior Energy Corp 140,063
8,900 Commonwealth Energy Systems 199,138
10,000 Destec Energy Inc 207,500
9,200 Eastern Enterprises 309,350
5,100 Idaho Power Co 157,463
18,400 Midamerican Energy Holding Co 303,600
13,700 Nicor Inc 458,950
800 Northwestern Public Service Co 30,000
7,300 NUI Corporation 153,300
7,800 Public Services Co of New Mexico 143,325
12,100 TNP Enterprises Inc 316,113
22,500 Tucson Electric Power Co 337,500
3,200 UGI Corp 79,600
17,000 Washington Gas Light Co 376,125
11,800 Washington Water Power 216,825
22,900 Western Gas Resources Inc 426,513
5,800 Wicor Inc 203,725
------------
4,916,014
------------
TOTAL COMMON STOCKS (COST $147,504,142) 144,385,244
------------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 18.7%
CASH EQUIVALENTS -- 9.1%(B)
5,000,000 American AAdvantage Money Market Fund 5,000,000
$4,501,593 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 4,501,593
$5,000,000 Harris Bank and Trust Eurodollar Time
Deposit, 5.25% due 3/03/97 5,000,000
-------------
14,501,593
-------------
U.S. GOVERNMENT -- 0.3%
$ 500,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 493,873
-------------
REPURCHASE AGREEMENTS -- 9.3%
$8,027,962 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97, with a maturity value of
$8,031,207 and an effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25% to 11.88%, with
maturity dates ranging from 11/15/03 to
5/15/20 and with an aggregate market value of
$8,197,215. 8,027,962
$6,908,554 Prudential Securities, Inc Repurchase
Agreement, dated 2/28/97, due 3/3/97, with a
maturity value of $6,911,301 and an effective
yield of 4.77%, collateralized by U.S.
Government Agency Obligations with rates
ranging from 6.11% to 6.59%, with maturity
dates ranging from 2/25/00 to 5/24/01 and
with an aggregate market value of $7,046,802. 6,908,554
-------------
14,936,516
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$29,931,739) 29,931,982
-------------
TOTAL INVESTMENTS -- 109.0%
(Cost $177,435,881) ** 174,317,226
Other Assets and Liabilities (net) -- (9.0)% (14,419,125)
-------------
TOTAL NET ASSETS -- 100% $ 159,898,101
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
* Non-income producing security.
** The aggregate identified cost for federal income tax
purposes is $177,435,881, resulting in gross unrealized
appreciation and depreciation of $6,145,961 and
$9,264,616, respectively, and net unrealized
depreciation of $3,118,655.
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $177,435,881) (Note 1) $174,317,226
Dividends and interest receivable 114,021
Receivable for variation margin on open futures contracts (Notes
1 and 6) 59,500
Receivable for expenses waived or borne by Manager (Note 2) 48,432
------------
Total assets 174,539,179
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 14,501,593
Payable to affiliate for (Note 2):
Management fee 61,773
Shareholder service fee 18,532
Accrued expenses 59,180
------------
Total liabilities 14,641,078
------------
NET ASSETS $159,898,101
============
NET ASSETS CONSIST OF:
Paid-in-capital $163,108,546
Accumulated undistributed net investment income 173,151
Accumulated undistributed net realized gain 18,414
Net unrealized depreciation (3,402,010)
------------
$159,898,101
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $159,898,101
============
SHARES OUTSTANDING:
Class III 16,278,745
============
NET ASSET VALUE PER SHARE:
Class III $ 9.82
============
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS --
PERIOD FROM DECEMBER 31, 1996 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 200,679
Interest (including securities lending income of $4,823) 91,604
-----------
Total income 292,283
-----------
EXPENSES:
Management fee (Note 2) 124,256
Audit fees 45,892
Custodian and transfer agent fees 10,089
Registration fees 3,780
Legal fees 1,160
Trustees fees (Note 2) 116
Miscellaneous 1,972
Fees waived or borne by Manager (Note 2) (105,410)
-----------
81,855
Shareholder service fee (Note 2)
Class III 37,277
-----------
Net expenses 119,132
-----------
Net investment income 173,151
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 64,492
Closed futures contracts (46,078)
-----------
Net realized gain 18,414
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (3,118,655)
Open futures contracts (283,355)
-----------
Net unrealized loss (3,402,010)
-----------
Net realized and unrealized loss (3,383,596)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,210,445)
===========
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 173,151
Net realized gain 18,414
Change in net unrealized appreciation
(depreciation) (3,402,010)
------------
Net decrease in net assets resulting from
operations (3,210,445)
------------
Net share transactions: (Note 5)
Class III 163,108,546
------------
Increase in net assets resulting from net share
transactions 163,108,546
------------
Total increase in net assets 159,898,101
NET ASSETS:
Beginning of period --
------------
End of period (including accumulated
undistributed net investment income of
$173,151.) $159,898,101
============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain (loss) (0.19)
--------
Total from investment operations (0.18)
--------
NET ASSET VALUE, END OF PERIOD $ 9.82
========
TOTAL RETURN(A) (1.80)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $159,898
Net expenses to average daily net assets 0.48%*
Net investment income to average daily net
assets 0.70%*
Portfolio turnover rate 13%
Average broker commission rate per equity share $ .0344
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
* Annualized.
18 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Small Cap Growth Fund (the "Fund"), which commenced operations on
December 31, 1996, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At February 28, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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
19
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
account in the name of the futures broker, an amount of cash or U.S.
government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund.
The payable or receivable is liquidated on the following business day.
Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary
market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts held as of February 28,
1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $13,902,969, collateralized by
cash in the amount of $14,501,593, which was invested in short-term
instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
20
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. All purchase premiums and redemption
fees are paid to and recorded as paid-in capital by the Fund. For the
period ended February 28, 1997, the Fund received $37,665 in purchase
premiums and no redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended February 28, 1997 was $116. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
21
<PAGE>
GMO SMALL CAP GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the period ended February 28, 1997, aggregated
$31,064,708 and $18,876,410, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 42% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5.SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
December 31, 1996
(commencement of operations)
to February 28, 1997
Class III: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 16,278,745 $ 163,108,546
Shares issued to shareholders in
reinvestment of distributions -- --
Shares repurchased -- --
------------- ---------------
Net increase (decrease) 16,278,745 $ 163,108,546
============= ===============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
70 Russell 2000 March 1997 $12,593,000 $(283,355)
</TABLE>
At February 28, 1997, the Fund had sufficient cash and/or securities to
cover any commitments or margin on open future contracts.
22
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO CORE FUND (A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Core Fund at February 28, 1997, the results of its operations, the changes
in its net assets and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at February 28, 1997
by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------------
COMMON STOCKS -- 95.8%
AEROSPACE -- 0.8%
297,400 Raytheon Co 14,014,975
208,400 TRW Inc 10,914,950
--------------
24,929,925
--------------
AUTOMOTIVE -- 3.2%
9,800 Bandag Inc 477,750
734,800 Chrysler Corp 24,891,349
983,700 Ford Motor Co 32,339,137
552,500 General Motors Corp 31,975,937
89,000 Goodyear Tire & Rubber Co 4,694,750
189,600 Harley Davidson Inc 7,086,300
--------------
101,465,223
--------------
BANKING AND FINANCIAL SERVICES -- 12.6%
308,400 Ahmanson (HF) & Co 12,682,950
28,000 American General Corp 1,214,500
99,300 Amsouth Bancorp 5,089,125
384,500 Bank of Boston Corp 28,981,687
385,900 Bank of New York Inc 14,953,625
164,600 Bankers Trust New York Corp 14,937,450
345,600 Barnett Banks Inc 15,984,000
266,157 Bear Stearns Inc 7,984,715
75,000 Beneficial Corp 5,184,375
631,808 Chase Manhattan Corp 63,259,775
88,300 Citicorp 10,309,025
41,100 Comdisco Inc 1,279,238
110,000 Countrywide Credit Industry Inc 3,203,750
494,842 Dean Witter Discover & Co 18,989,562
2,100 Donaldson Lufkin & Jenrette 90,300
41,800 Edwards (AG) Inc 1,483,900
40,500 First Chicago NBD Corp 2,369,250
184,400 Fleet Financial Group Inc 11,248,400
67,900 Golden West Financial Corp 4,600,225
399,400 Great Western Financial Corp 17,523,675
64,000 Greenpoint Financial Corp 3,840,000
55,900 Household International Inc 5,415,313
106,600 Lehman Brothers Holding Inc 3,584,425
189,500 Mellon Bank Corp 15,231,063
127,100 Merrill Lynch 12,201,600
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
82,300 Morgan Stanley Group Inc 5,195,188
40,400 Paine Webber Group Inc 1,318,050
662,600 PNC Bank Corp 28,077,674
294,200 Salomon Inc 16,364,875
96,000 Southern National Corp 3,732,000
99,300 Student Loan Marketing Association 10,513,388
131,800 Summit Bancorp 6,293,450
58,400 Sunamerica Inc 2,679,100
86,600 Synovus Financial Corp 3,020,175
475,043 Travelers Group Inc 25,474,180
167,700 US Bancorp 8,280,188
--------------
392,590,196
--------------
CHEMICALS -- 1.0%
77,900 Eastman Chemical Co 4,294,238
3,500 Great Lakes Chemical Corp 162,313
356,700 Monsanto Co 12,974,963
27,100 Praxair Inc 1,317,738
241,400 Union Carbide Corp 11,406,150
--------------
30,155,402
--------------
COMPUTER AND OFFICE EQUIPMENT -- 2.2%
505,800 Compaq Computer Corp * 40,084,649
335,850 Computer Associates International Inc 14,609,475
55,500 HBO & Co 3,198,188
1 NCR Corp 17
72,100 Pitney Bowes Inc 4,479,213
48,000 Reynolds & Reynolds Inc, Class A 1,344,000
77,600 Sterling Software Inc 2,221,300
45,300 Western Digital Corp 2,672,700
--------------
68,609,542
--------------
CONSTRUCTION -- 0.3%
148,800 Home Depot Inc 8,109,600
--------------
CONSUMER GOODS -- 3.6%
340,400 Callaway Golf Co 10,850,250
122,900 Clorox Co 14,686,550
253,400 CVS Corp 11,719,750
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------
CONSUMER GOODS -- CONTINUED
36,400 Hasbro Inc 1,556,100
144,400 Liz Claiborne Inc 5,848,200
62,100 Newell Co 2,305,463
142,700 Nike Inc, Class B 10,256,563
302,800 Procter and Gamble Co 36,373,849
174,000 Reebok International Ltd 8,134,500
132,300 VF Corp 9,194,850
--------------
110,926,075
--------------
ELECTRONIC EQUIPMENT -- 0.6%
37,000 3 Com Corp * 1,225,044
55,000 Cooper Industries Inc 2,433,750
5,100 Hubbell Inc, Class B 216,113
43,000 Litton Industries * 1,849,000
15,300 Northern Telecom Ltd 1,099,688
35,400 Raychem Corp 3,013,425
217,900 Tellabs Inc 8,688,763
--------------
18,525,783
--------------
ENVIRONMENTAL CONTROL -- 0.1%
207,700 Wheelabrator Technology Inc 2,959,725
--------------
FOOD AND BEVERAGE -- 8.9%
955,900 Anheuser Busch Cos Inc 42,537,549
1,088,895 Archer Daniels Midland Co 20,144,558
1,358,800 Coca Cola Co 82,886,799
146,500 Coca Cola Enterprises Inc 9,046,375
417,900 CPC International Inc 35,155,837
43,950 Dean Foods Co 1,433,869
52,800 Hormel (Geo A) and Co 1,386,000
196,400 IBP Inc 4,566,300
319,200 Pepsico Inc 10,493,700
43,700 RJR Nabisco Holdings Corp 1,600,513
711,300 Sara Lee Corp 27,562,874
146,600 Seagrams Co Ltd 5,717,400
158,300 Unilever NV ADR 30,156,149
13,800 Universal Foods Corp 476,100
192,200 Whitman Corp 4,516,700
19,800 Wrigley (William Jr) Co 1,185,525
--------------
278,866,248
--------------
HEALTH CARE -- 2.1%
20,900 Becton Dickinson & Co 1,029,325
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------------
HEALTH CARE -- CONTINUED
14,700 Cardinal Health Inc 904,050
31,000 Columbia HCA Healthcare Corp 1,302,000
59,000 Hillenbrand Industries Inc 2,219,875
235,600 Johnson & Johnson 13,576,450
4,700 McKesson Corp 311,375
517,300 Pharmacia & Upjohn Inc 19,075,438
664,050 Tenet Healthcare Corp * 18,012,356
182,300 United States Surgical Corp 7,770,538
33,200 Wellpoint Health Network 1,423,459
--------------
65,624,866
--------------
INSURANCE -- 5.0%
95,800 Aetna Life and Casualty Co 7,939,425
97,550 AFLAC Corp 3,938,581
204,800 Allstate Corp 12,979,200
60,200 AMBAC Inc 4,018,350
35,700 Cigna Corp 5,457,638
20,700 CNA Financial Corp * 2,302,875
604,200 Conseco Inc 23,714,850
134,200 Lincoln National Corp 7,800,375
212,400 Loews Corp 21,691,350
84,000 MBIA Inc 8,200,500
97,800 Old Republic International Corp 2,652,825
58,900 Progressive Corp 3,894,763
26,700 Provident Cos Inc 1,455,150
171,300 Providian Corp 9,571,388
4,100 Reliastar Financial Corp 254,200
229,000 Safeco Corp 9,560,750
212,900 Saint Paul Cos Inc 14,370,750
96,750 Torchmark Corp 5,696,156
114,009 Transamerica Corp 9,990,039
9,400 USLIFE Corp 447,675
--------------
155,936,840
--------------
MACHINERY -- 0.3%
131,400 Baker Hughes Inc 4,664,700
51,800 FMC Corp * 3,561,250
--------------
8,225,950
--------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------
MANUFACTURING -- 4.5%
223,500 Corning Inc 8,409,188
625,100 General Electric Co 64,307,162
118,500 Gillette Co 9,376,313
213,300 IBM Corp 30,661,874
231,600 International Game Technology 4,053,000
91,500 Leggett & Platt Inc 3,282,563
1 Quest Diagnostics Inc 8
146,300 Temple Inland Inc 8,064,788
164,900 Tyco International Ltd 9,729,100
39,700 United Technologies Corp 2,987,425
--------------
140,871,421
--------------
METALS AND MINING -- 0.3%
131,600 Allegheny Teledyne Inc 3,355,800
83,600 Phelps Dodge Corp 5,977,400
--------------
9,333,200
--------------
OIL AND GAS -- 7.7%
215,500 Apache Corp 6,976,813
149,000 Atlantic Richfield Co 18,625,000
114,000 Burlington Resources Inc 5,001,750
189,800 Chevron Corp 12,242,100
202,200 Columbia Gas Systems Inc 11,879,250
67,700 Ensco International Inc * 2,936,488
251,500 Exxon Corp 25,118,562
2,000 FINA Inc, Class A 124,750
409,100 Global Marine Inc * 7,619,488
28,800 Mobil Corp 3,535,200
45,800 Noble Affiliates Inc 1,786,200
203,000 Noble Drilling Corp 3,603,250
20,200 Noram Energy Corp 303,000
153,000 Occidental Petroleum Corp 3,901,500
78,800 Oryx Energy Co * 1,576,000
68,200 Pennzoil Co 3,912,975
499,700 Phillips Petroleum Co 20,675,088
113,800 Royal Dutch Petroleum Co ADR 19,687,400
170,900 Schlumberger Ltd 17,196,813
357,800 Sonat Inc 16,458,800
367,500 Texaco Inc 36,336,562
536,700 Unocal Corp 20,730,038
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------
OIL AND GAS -- CONTINUED
49,000 USX -- Marathon Group 1,304,625
--------------
241,531,652
--------------
PAPER AND ALLIED PRODUCTS -- 0.9%
69,300 Champion International Corp 3,057,863
306,200 International Paper Co 12,783,850
95,300 Mead Corp 5,551,225
86,500 Sonoco Products Co 2,270,625
188,600 Westvaco Corp 5,563,700
1,000 Willamette Industries Inc 64,000
--------------
29,291,263
--------------
PHARMACEUTICALS -- 10.0%
1,303,800 Abbott Laboratories 73,338,749
18,300 Allergan Inc 622,200
476,140 American Home Products Corp 30,472,959
644,600 Bristol Myers Squibb Co 84,120,299
172,500 Lilly (Eli) & Co 15,072,188
460,600 Merck & Co Inc 42,375,199
164,000 Pfizer Inc 15,026,500
188,000 Schering Plough Corp 14,405,500
437,900 Warner Lambert Co 36,783,599
--------------
312,217,193
--------------
PRIMARY MATERIALS -- 0.0%
8,200 Vulcan Materials Co 530,950
--------------
PRIMARY PROCESSING -- 0.1%
132,200 USX -- US Steel Group Inc 4,147,775
--------------
REFINING -- 0.2%
24,000 Murphy Oil Corp 1,113,000
131,600 Tosco Corp 3,668,350
--------------
4,781,350
--------------
RETAIL TRADE -- 5.2%
551,100 Albertsons Inc 19,426,275
304,800 American Stores Co 13,639,800
581,000 Dayton Hudson Corp 24,402,000
309,200 Dillard Department Stores Inc 9,314,650
168,200 Fruit of the Loom Inc * 6,875,175
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------------
RETAIL TRADE -- CONTINUED
295,900 Gap Inc 9,764,700
1,188,200 Kmart Corp * 14,852,500
130,300 May Department Stores Co 6,075,238
250,900 Penney (JC) Co Inc 12,356,825
263,100 Safeway Inc * 12,661,688
101,200 TJX Cos Inc 4,225,100
590,300 Toys R Us Inc * 15,347,800
556,400 Wal Mart Stores Inc 14,675,050
--------------
163,616,801
--------------
SERVICES -- 0.3%
16,300 BHC Communications Inc, Class A 1,662,600
11,000 Circus Circus Enterprises Inc * 343,750
28,400 Equifax Inc 844,900
4,500 Fleming Cos Inc 78,750
16,900 Robert Half International Inc 703,463
138,300 Supervalu Inc 4,287,300
--------------
7,920,763
--------------
TECHNOLOGY -- 9.0%
131,200 Advanced Micro Devices Inc * 4,706,800
106,000 Avnet Inc 6,625,000
66,600 Cabletron Systems Inc 1,998,000
400,500 Cisco Systems Inc * 22,277,813
299,700 Dell Computer Corp 21,316,163
34,200 Grainger (WW) Inc 2,710,350
640,300 Intel Corp 90,842,562
824,200 Microsoft Corp 80,359,499
309,500 Oracle Corp 12,147,875
11,300 Seagate Technology Corp 533,925
411,300 Storage Technology Corp * 17,171,775
333,100 Xerox Corp 20,818,750
--------------
281,508,512
--------------
TELECOMMUNICATIONS -- 5.5%
1,158,900 AT & T Corp 46,211,137
113,900 Bell Atlantic Corp 7,873,338
18,600 Bellsouth Corp 871,875
37,000 Cincinnati Bell Inc 2,294,000
265,600 GTE Corp 12,416,800
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------------
TELECOMMUNICATIONS -- CONTINUED
328,300 MCI Communications Corp 11,736,725
248,700 NYNEX Corp 12,808,050
829,100 Pacific Telesis Group 33,785,824
873,600 Sprint Corp 39,748,799
143,500 US West Inc 5,166,000
--------------
172,912,548
--------------
TOBACCO -- 1.1%
253,000 Philip Morris Cos Inc 34,186,624
--------------
TRANSPORTATION -- 1.6%
449,100 Burlington Northern Santa Fe Railroad Co 37,387,574
163,900 CSX Corp 7,559,888
207,100 Ryder System Inc 6,523,650
--------------
51,471,112
--------------
UTILITIES -- 8.7%
109,100 AES Corp * 7,132,413
213,400 Allegheny Power System Inc 6,535,375
334,900 American Electric Power Inc 13,982,075
298,500 Baltimore Gas and Electric Co 8,208,750
157,000 Carolina Power and Light Co 5,828,625
519,200 Central & South West Corp 12,655,500
434,000 Cinergy Corp 14,973,000
66,600 Citizens Utilities, Class B 790,875
195,600 CMS Energy Corp 6,405,900
144,400 Coastal Corp 6,570,200
61,700 Dominion Resources Inc 2,483,425
215,200 DPL Inc 5,299,300
166,200 DQE Inc 4,923,675
346,300 Duke Power Co 15,323,775
809,300 Edison International 17,399,950
133,800 Enova Corp 2,993,775
800,100 Entergy Corp 21,102,638
504,600 Houston Industries Inc 11,731,950
224,000 Illinova Corp 5,600,000
102,000 LG&E Energy Corp 2,524,500
253,400 Long Island Lighting Co 5,828,200
177,000 New York State Electric and Gas Corp 4,115,250
80,400 Northern States Power Co 3,829,050
444,500 Pacificorp 9,167,813
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------------------
UTILITIES -- CONTINUED
140,000 Portland General Electric Co 5,477,500
155,900 Potomac Electric Power Co 3,955,963
107,500 PP & L Resources Inc 2,459,063
79,900 Public Service of Colorado 3,116,100
112,100 Scana Corp 2,928,613
1,571,800 Southern Co 34,186,649
147,600 Teco Energy Inc 3,597,750
391,300 Texas Utilities Co 15,798,738
245,700 Wisconsin Energy Corp 6,296,063
--------------
273,222,453
--------------
TOTAL COMMON STOCKS (COST $2,585,240,194) 2,994,468,992
--------------
SHORT-TERM INVESTMENTS -- 8.0%
CASH EQUIVALENTS -- 5.2%(B)
$43,791,203 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 43,791,203
81,518,797 Merrimac Cash Fund Premium Class 81,518,797
$38,500,000 Prudential Securities Group Inc Master Note,
5.60% due 3/3/97 38,500,000
--------------
163,810,000
--------------
U.S. GOVERNMENT -- 0.3%
$ 8,500,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 8,395,841
--------------
REPURCHASE AGREEMENT -- 2.5%
$77,434,694 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $77,465,991 and an
effective yield of 4.85%, collateralized by
U.S. Treasury Obligations with rates ranging
from
7.25% to 11.88%, with maturity dates ranging
from 11/15/03 to
5/15/20 and with an aggregate market value of
$79,067,242. 77,434,694
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $249,636,404) 249,640,535
--------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.8%
(Cost $2,834,876,598) ** 3,244,109,527
Other Assets and Liabilities (net) -- (3.8)% (118,897,912)
--------------
TOTAL NET ASSETS -- 100% $3,125,211,615
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
** The aggregate identified cost for federal income tax
purposes is $2,837,449,352, resulting in gross
unrealized appreciation and depreciation of
$437,437,721 and $30,777,546, respectively, and net
unrealized appreciation of $406,660,175.
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $2,834,876,598) (Note 1) $3,244,109,527
Receivable for investments sold 81,903,947
Dividends and interest receivable 6,849,615
Receivable for expenses waived or borne by Manager (Note 2) 549,329
Receivable for Fund shares sold 76,650
--------------
Total assets 3,333,489,068
--------------
LIABILITIES:
Payable for investments purchased 29,603,864
Payable upon return of securities loaned (Note 1) 163,810,000
Payable for Fund shares repurchased 6,822,493
Payable to affiliate for (Note 2):
Management fee 1,277,604
Shareholder service fee 369,423
Accrued expenses 243,556
Payable for open swap contracts (Notes 1 and 6) 5,927,436
Payable for variation margin on open futures contracts (Notes 1
and 6) 223,077
--------------
Total liabilities 208,277,453
--------------
NET ASSETS $3,125,211,615
==============
NET ASSETS CONSIST OF:
Paid-in-capital $2,143,345,946
Accumulated undistributed net investment income 5,378,592
Accumulated undistributed net realized gain 574,552,558
Net unrealized appreciation 401,934,519
--------------
$3,125,211,615
==============
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 9,103,927
==============
Class II shares $ 64,763,264
==============
Class III shares $3,051,344,424
==============
SHARES OUTSTANDING:
Class I 452,508
==============
Class II 3,221,403
==============
Class III 151,675,682
==============
NET ASSET VALUE PER SHARE:
Class I $ 20.12
==============
Class II $ 20.10
==============
Class III $ 20.12
==============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $297,453) $ 63,282,950
Interest (including securities lending income of $115,499) 8,583,128
------------
Total income 71,866,078
------------
EXPENSES:
Management fee (Note 2) 16,712,773
Custodian and transfer agent fees 469,265
Legal fees 160,879
Audit fees 60,649
Trustees fees (Note 2) 15,848
Registration fees 3,608
Miscellaneous 26,824
Fees waived or borne by Manager (Note 2) (5,742,268)
------------
11,707,578
Shareholder service fee (Note 2)
Class I 12,632
Class II 62,244
Class III 3,523,024
------------
Net expenses 15,305,478
------------
Net investment income 56,560,600
------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 863,014,379
Closed futures contracts 19,853,859
Closed swap contracts (25,706,067)
------------
Net realized gain 857,162,171
------------
Change in net unrealized appreciation (depreciation) on:
Investments (269,802,109)
Open futures contracts (589,190)
Open swap contracts (2,108,548)
------------
Net unrealized loss (272,499,847)
------------
Net realized and unrealized gain 584,662,324
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $641,222,924
============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 56,560,600 $ 64,146,217
Net realized gain 857,162,171 403,829,023
Change in net unrealized appreciation
(depreciation) (272,499,847) 457,594,296
-------------- --------------
Net increase in net assets resulting from
operations 641,222,924 925,569,536
-------------- --------------
Distributions to shareholders from:
Net investment income
Class I (60,981) --
Class II (622,038) --
Class III (60,383,941) (64,258,886)
-------------- --------------
Total distributions from net investment
income (61,066,960) (64,258,886)
-------------- --------------
Net realized gains
Class I (574,148) --
Class II (6,542,685) --
Class III (430,596,024) (221,987,205)
-------------- --------------
Total distributions from net realized
gains (437,712,857) (221,987,205)
-------------- --------------
(498,779,817) (286,246,091)
-------------- --------------
Net share transactions: (Note 5)
Class I 8,598,090 --
Class II 65,659,589 --
Class III (270,803,491) 230,742,937
-------------- --------------
Increase (decrease) in net assets
resulting from net share transactions (196,545,812) 230,742,937
-------------- --------------
Total increase (decrease) in net assets (54,102,705) 870,066,382
NET ASSETS:
Beginning of period 3,179,314,320 2,309,247,938
-------------- --------------
End of period (including accumulated
undistributed net investment income of
$5,378,592 and $9,884,952, respectively) $3,125,211,615 $3,179,314,320
============== ==============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JULY 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.97
------
Income from investment operations:
Net investment income 0.20
Net realized and unrealized gain 2.88
------
Total from investment operations 3.08
------
Less distributions to shareholders:
From net investment income (0.19)
From net realized gains (1.74)
------
Total distributions (1.93)
------
NET ASSET VALUE, END OF PERIOD $20.12
======
TOTAL RETURN(A) 16.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $9,104
Net expenses to average daily net assets 0.61%*
Net investment income to average daily net assets 1.55%*
Portfolio turnover rate 107%
Average broker commission rate per equity share $.0297
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per share
amount: $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
*Annualized.
14 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 7, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.12
-------
Income from investment operations:
Net investment income 0.25
Net realized and unrealized gain 2.92
-------
Total from investment operations 3.17
-------
Less distributions to shareholders:
From net investment income (0.30)
From net realized gains (2.89)
-------
Total distributions (3.19)
-------
NET ASSET VALUE, END OF PERIOD $ 20.10
=======
TOTAL RETURN(A) 17.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $64,763
Net expenses to average daily net assets 0.55%*
Net investment income to average daily net assets 1.63%*
Portfolio turnover rate 107%
Average broker commission rate per equity share $ .0297
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per share
amount: $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
* Annualized.
See accompanying notes to the financial statements. 15
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 19.46 $ 15.45 $ 15.78 $ 15.73 $ 15.96
---------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income 0.36 0.41 0.41 0.42 0.45
Net realized and
unrealized gain 3.58 5.49 0.66 1.59 1.13
---------- ---------- ---------- ---------- ----------
Total from investment
operations 3.94 5.90 1.07 2.01 1.58
---------- ---------- ---------- ---------- ----------
Less distributions to
shareholders:
From net investment
income (0.39) (0.42) (0.39) (0.43) (0.46)
From net realized gains (2.89) (1.47) (1.01) (1.53) (1.35)
---------- ---------- ---------- ---------- ----------
Total distributions (3.28) (1.89) (1.40) (1.96) (1.81)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73
========== ========== ========== ========== ==========
TOTAL RETURN(A) 22.05% 39.08% 7.45% 13.36% 10.57%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's) $3,051,344 $3,179,314 $2,309,248 $1,942,005 $1,892,955
Net expenses to average
daily net assets 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income
to average daily net
assets 1.78% 2.25% 2.63% 2.56% 2.79%
Portfolio turnover rate 107% 77% 99% 40% 54%
Average broker
commission rate per
equity share(b) $ .0297 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.04 $ 0.01 $ 0.01 $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
16 See accompanying notes to the financial statements.
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II, and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus. Class III
shares are the continuation of the Trust's shares that existed prior to
June 1, 1996, and bear the same total operating expenses (after the
voluntary expense waiver) as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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
17
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
account in the name of the futures broker, an amount of cash or U.S.
government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $158,087,263, collateralized by
cash in the amount of $163,810,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts
18
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for redemptions in-kind. Gains associated with such
in-kind transactions amounted to $26,353,758.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
-- $(25,005,025) $25,005,025
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
19
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $416,600 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .525% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $15,848. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
20
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and in-kind transactions, for the year ended February 28,
1997, aggregated $3,206,085,811 and $3,762,968,473, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 97% of the outstanding Class I shares of the Fund
were held by two shareholders and 100% of the outstanding Class II shares
of the Fund were held by two shareholders, each holding in excess of 10% of
the outstanding shares of the respective class.
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 July 2, 1996
(commencement of operations)
to February 28, 1997
Class I: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 422,178 $ 8,023,942
Shares issued to shareholders in reinvest-
ment of distributions 30,330 574,148
Shares repurchased -- --
------------- ---------------
Net increase 452,508 $ 8,598,090
============= ===============
<CAPTION>
Period from June 7, 1996
(commencement of operations)
to February 28, 1997
Class II: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 2,843,284 $ 58,494,866
Shares issued to shareholders in reinvest-
ment of distributions 378,119 7,164,723
Shares repurchased -- --
------------- ---------------
Net increase 3,221,403 $ 65,659,589
============= ===============
</TABLE>
21
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: ---------------------------- --------------------------
Shares Amount Shares Amount
----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 15,209,862 $ 294,136,127 25,285,500 $ 453,992,902
Shares issued to
shareholders in
reinvestment of
distributions 24,657,273 468,161,533 14,052,401 260,120,885
Shares repurchased (51,595,821) (1,033,101,151) (25,442,869) (483,370,850)
----------- --------------- ----------- -------------
Net increase (decrease) (11,728,686) $ (270,803,491) 13,895,032 $ 230,742,937
=========== =============== =========== =============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
27 Russell 2000 March 1997 $ 4,857,300 $ (27,595)
200 S&P 500 March 1997 79,040,000 (1,343,379)
-----------
$(1,370,974)
===========
</TABLE>
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- --------------------------------- --------------
<S> <C> <C> <C>
$99,139,177/ 5/16/97 Agreement with Morgan Stanley $ 281,051
95,053,839 Capital Services, Inc. dated May
20, 1996 to pay (receive) the
notional amount multiplied by the
return on the Standard & Poor's
500 Index (including dividends)
less the notional
</TABLE>
22
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
amount multiplied by 6 month
LIBOR adjusted by a specified
spread and to receive (pay) the
change in market value of a
basket of selected securities
(including dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
$87,702,060/ 9/11/97 Agreement with Morgan Stanley $(4,990,423)
87,862,184 Capital Services, Inc. dated
September 9, 1996 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and to receive
(pay) the change in market value
of a basket of selected
securities (including dividends)
less the counterparty's notional
amount multiplied by 6 month
LIBOR adjusted by a specified
spread.
27,887,480/ 10/07/97 Agreement with Morgan Stanley (1,218,064)
25,734,919 Capital Services, Inc. dated
December 30, 1996 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and to receive
(pay) the counterparty's notional
amount multiplied by the return
on the Russell 2000 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread.
-----------
Net unrealized depreciation $(5,927,436)
===========
</TABLE>
23
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
74.96% of distributions as net capital gain dividends.
24
<PAGE>
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. LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Core Fund returned 22.1% for the fiscal
year ended February 28, 1997, as compared to 26.1% 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.
The majority of the Fund's performance shortfall was due to three sector
strategies which underperformed for the year. The first of these strategies
involved underweighting banks and overweighting utilities, a bet which was
based upon our view that utility stocks are significantly undervalued
relative to their historical levels, and that banks, which are in the sixth
year of a rally off their 1990 lows, are overvalued. Historically both
sectors have underperformed in periods of rising interest rates and the bet
was expected to have a neutral impact if rates did in fact increase. This
year, however, banks moved up and utilities moved down relative to the
market in an environment of rising interest rates. Therefore, rather than
having the neutralizing effect that was intended, both bets hurt the
performance of the Fund.
The second sector strategy, overweighting defensive stocks and
underweighting cyclical stocks, also impacted performance negatively,
primarily during the rally of cyclical stocks in the early part of the
year. Last, our underweight position in the largest 100 industrials hurt
relative performance in an environment where the largest capitalization
stocks carried the market, significantly outperforming smaller industrial
stocks for the year.
In addition to the aforementioned sector bets, the three GMO stock
selection parameters -- value, momentum and neglect -- had mixed results
for the year. Relative to the S&P 500, our dividend discount model provided
positive contributions to return while the momentum and neglect models both
experienced negative value-added versus the index.
OUTLOOK
The Fund's overweight in utility stocks, which is in companies with good
fundamental prospects in the continuing deregulatory environment, remains
unchanged. We are also overweight in small-cap stocks, which appear very
attractive relative to their historical levels and to the valuations for
large capitalization stocks.
With large-cap value stocks approaching more attractive valuation levels
following the rally of large-cap growth stocks, we have increased the
weight of the value stream in the portfolio. The weight of the momentum and
neglect streams have been reduced somewhat.
25
<PAGE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
We believe that growth of the derivatives markets and increased
participation of hedge funds has made stock and sector moves sharper and
less predictable. As a result, we have enhanced our risk controls to
accommodate a more volatile and difficult market environment. We are
confident that with stricter risk parameters in place, the Core Fund's
volatility will resume the well-controlled behavior that has been the
cornerstone of our long-term performance.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co. LLC Management. They are not meant as investment advice.
26
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Core Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 09/18/85
<S> <C> <C> <C>
Class III 21.9% 17.9% 17.7%
06/07/96
Class II n/a n/a 17.3%
07/02/96
Class I n/a n/a 16.6%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Core Fund S & P 500 Index
<S> <C> <C>
09/18/85 9,986 10,000
02/28/86 12,609 12,577
02/28/87 16,256 16,288
02/29/88 15,736 15,851
02/28/89 17,546 17,736
02/28/90 21,262 21,088
02/28/91 24,776 24,181
02/29/92 28,137 28,046
02/28/93 31,121 31,035
02/28/94 35,278 33,620
02/28/95 37,910 36,095
02/29/96 52,725 48,620
02/28/97 64,351 61,339
</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 14 bp on the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Performance for
Class I and Class II shares will be different due to higher shareholder fees.
Past performance is not indicative of future performance. Information is
unaudited.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO GROWTH 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 Fund (formerly GMO Growth Allocation Fund) at February 28, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Trust's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------
COMMON STOCKS -- 91.4%
AEROSPACE -- 0.9%
5,700 Allied Signal Inc 411,825
24,600 Raytheon Co 1,159,275
5,700 Thiokol Corp 317,775
4,400 TRW Inc 230,450
------------
2,119,325
------------
AUTOMOTIVE -- 0.6%
1,200 Bandag Inc 58,500
800 Breed Technologies Inc 17,500
1,000 Electronic Data Systems Corp 45,125
5,400 Genuine Parts Co 252,450
23,000 Harley Davidson Inc 859,625
3,600 Lear Corp 140,400
------------
1,373,600
------------
BANKING AND FINANCIAL SERVICES -- 6.3%
1,100 Advanta Corp, Class A 45,513
6,900 Ahmanson (HF) & Co 283,763
2,100 Alex Brown Inc 122,063
3,300 Alliance Capital Management 92,400
1,700 Amsouth Bancorp 87,125
11,500 Bank of Boston Corp 866,813
3,800 Bank of New York Inc 147,250
3,000 Bankers Trust New York Corp 272,250
1,000 Banponce Corp 36,000
12,600 Barnett Banks Inc 582,750
9,096 Bear Stearns Inc 272,885
6,500 Beneficial Corp 449,313
12,500 Chase Manhattan Corp 1,251,563
8,901 Comdisco Inc 277,028
1,000 Credit Acceptance Corp * 21,250
55,800 Dean Witter Discover & Co 2,141,324
19,800 Dime Bancorp Inc * 346,500
10,800 Edwards (AG) Inc 383,400
1,100 Fleet Financial Group Inc 67,100
7,300 Franklin Resources Inc 427,050
1,100 Glendale Federal Savings Bank 29,288
300 Golden West Financial Corp 20,325
13,000 Great Western Financial Corp 570,375
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
3,400 Household International Inc 329,375
200 Huntington Bancshares Inc 5,700
2,500 John Nuveen and Co Inc, Class A 75,938
4,300 MGIC Investment Corp 338,088
2,000 Morgan Stanley Group Inc 126,250
22,500 PNC Bank Corp 953,438
9,200 Rowe (T) & Price Associates Inc 405,950
7,700 Student Loan Marketing Association 815,238
5,900 Sunamerica Inc 270,663
59,197 Travelers Group Inc 3,174,438
1,980 Washington Federal Inc 50,490
------------
15,338,896
------------
CHEMICALS -- 1.4%
2,700 Cytec Industries Inc 106,988
36,300 Monsanto Co 1,320,412
24,900 Praxair Inc 1,210,763
4,400 Scherer (RP) Corp 254,100
7,200 Sherwin Williams Co 404,100
10,800 Wellman Inc 189,000
------------
3,485,363
------------
COMPUTER AND OFFICE EQUIPMENT -- 5.5%
4,000 Apple Computer Inc * 65,000
48,000 Compaq Computer Corp * 3,803,999
58,400 Computer Associates International Inc 2,540,399
14,600 EMC Corp * 525,600
12,600 Gateway 2000 Inc 740,250
12,400 HBO & Co 714,550
37,900 Hewlett Packard Co 2,122,399
23,400 Iomega Corp 362,700
6,200 Lexmark International Group Inc 172,825
1 NCR Corp 8
12,100 Pitney Bowes Inc 751,713
12,400 Quantum Corp * 492,900
6,000 Rational Software Corp 155,250
3,300 Silicon Graphics Inc * 79,613
6,400 Verifone Inc 222,400
11,800 Western Digital Corp 696,200
------------
13,445,806
------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------
CONSTRUCTION -- 0.3%
12,100 Home Depot Inc 659,450
------------
CONSUMER GOODS -- 5.8%
3,500 Acclaim Entertainment Inc * 18,594
18,400 Avon Products Inc 1,071,800
1,700 Block Drug Co Inc, Class A 79,050
24,900 Callaway Golf Co 793,688
7,400 Clorox Co 884,300
1,600 Colgate-Palmolive Co 165,600
5,400 CVS Corp 249,750
4,300 Department 56 Inc 77,400
3,000 First Brands Corp 74,625
6,800 Hasbro Inc 290,700
2,400 Hon Industries Inc 91,800
5,800 Jones Apparel Group Inc 215,325
2,800 Kinetic Concepts Inc 41,650
9,300 Kohls Corp 427,800
7,100 Lancaster Colony Corp 324,825
14,800 Liz Claiborne Inc 599,400
2,500 Miller Herman Inc 164,375
14,500 Newell Co 538,313
37,200 Nike Inc, Class B 2,673,749
23,500 Procter and Gamble Co 2,822,937
19,400 Reebok International Ltd 906,950
4,300 Russell Corp 161,788
2,900 Sunbeam Corp 79,388
10,200 Technology Data Corp * 244,800
7,200 Terra Industries Inc 98,100
11,000 Unifi Inc 350,625
11,100 VF Corp 771,450
------------
14,218,782
------------
ELECTRONIC EQUIPMENT -- 2.8%
15,300 3 Com Corp * 506,572
16,200 Adaptec Inc 616,613
23,000 ADC Telecommunications Inc 621,000
37,700 American Power Conversion Corp * 786,988
8,400 Andrew Corp 462,000
6,000 Aspect Telecommunications Corp 149,250
10,900 Atmel Corp * 407,388
3,400 Diebold Inc 142,800
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------
ELECTRONIC EQUIPMENT -- CONTINUED
1,000 Hubbell Inc, Class B 42,375
3,000 Lattice Semiconductor Corp * 143,250
4,000 Litton Industries * 172,000
3,900 Maxim Intergrated Products Inc * 193,538
1,700 Motorola Inc 94,988
6,600 Octel Communications Corp 120,450
8,200 Perkin Elmer Corp 582,200
3,300 Picturetel Corp * 51,975
12,000 Read Rite Corp 368,250
800 SCI Systems Inc * 42,800
700 Symbol Technologies Inc 35,175
28,500 Tellabs Inc 1,136,438
1,100 U.S. Robotics Corp 61,394
1,300 Vicor Corp * 21,288
------------
6,758,732
------------
ENVIRONMENTAL CONTROL -- 0.1%
19,500 Wheelabrator Technology Inc 277,875
------------
FOOD AND BEVERAGE -- 10.0%
78,700 Anheuser Busch Cos Inc 3,502,149
80,615 Archer Daniels Midland Co 1,491,377
217,500 Coca Cola Co 13,267,499
18,400 Coca Cola Enterprises Inc 1,136,200
17,100 CPC International Inc 1,438,537
14,300 Darden Restaurants Inc 103,675
6,300 Flowers Industries Inc 145,688
7,700 IBP Inc 179,025
25,600 Pepsico Inc 841,600
19,700 RJR Nabisco Holdings Corp 721,513
8,900 Sara Lee Corp 344,875
4,100 Smith Food and Drug Center, Class B 134,788
1,500 Unilever ADR 285,750
32,300 Whitman Corp 759,050
1,900 Wrigley (William Jr) Co 113,763
------------
24,465,489
------------
HEALTH CARE -- 4.9%
8,000 Bard (CR) 219,000
3,300 Beckman Instruments Inc 136,950
5,300 Becton Dickinson & Co 261,025
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------------
HEALTH CARE -- CONTINUED
1,700 Bergen Brunswig Corp, Class A 54,613
17,600 BioMet Inc 268,400
21,350 Cardinal Health Inc 1,313,025
11,000 Centocor Inc* 416,625
66,600 Columbia HCA Healthcare Corp 2,797,199
2,000 Forest Laboratories Inc * 76,250
1,400 Foundation Health Corp * 52,850
5,500 Guidant Corp 368,500
10,500 Health Management Associates Inc 278,250
4,600 Hillenbrand Industries Inc 173,075
7,500 Johnson & Johnson 432,188
3,300 KLA Instruments Corp * 137,569
4,100 Laboratory Corporation America Holdings 15,375
11,300 Lincare Holdings Inc* 487,313
3,600 Mallinckrodt Inc 153,000
2,900 Marquette Medical Systems, Class A 55,100
7,600 Mckesson Corp 503,500
8,400 Nellcor Puritan Bennet Inc 145,950
11,200 Novacare Corp * 140,000
7,500 Perrigo Co* 90,938
6,800 Rhone Poulenc Rorer Inc 482,800
4,300 Tencor Instruments * 172,269
58,995 Tenet Healthcare Corp * 1,600,238
2,000 Teradyne, Inc * 54,500
21,900 United States Surgical Corp 933,488
4,400 Wellpoint Health Network 188,650
------------
12,008,640
------------
INSURANCE -- 3.9%
19,500 AFLAC Corp 787,313
4,000 AMBAC Inc 267,000
5,100 American Bankers Insurance Group 281,138
600 American International Group Inc 72,600
2,200 American National Insurance Co 181,500
1,400 Argonaut Group Inc 40,250
1,400 Chubb Corp 82,075
32,600 Conseco Inc 1,279,550
1,500 Health Systems International Inc, Class A 44,063
1,000 Home Beneficial Corp, Class B 38,000
4,000 Horace Mann Educators Corp 171,500
14,900 Loews Corp 1,521,662
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------
INSURANCE -- CONTINUED
6,600 MBIA Inc 644,325
400 Mercury General Corp 24,550
600 Ohio Casualty Corp 23,775
8,100 Old Republic International Corp 219,713
5,900 Oxford Health Plans Inc 328,925
1 Pacificare Health Systems, Class A * 64
2,596 Pacificare Health Systems, Class B 217,415
4,500 Progressive Corp 297,563
1,600 Protective Life Corp 68,800
10,200 Providian Corp 569,925
3,500 Reliastar Financial Corp 217,000
19,100 Saint Paul Cos Inc 1,289,250
7,200 Torchmark Corp 423,900
3,100 Transatlantic Holdings Inc 261,563
5,800 USLIFE Corp 276,225
------------
9,629,644
------------
MACHINERY -- 0.6%
5,600 Baker Hughes Inc 198,800
200 Case Corp 10,375
1,400 Lam Research Corp * 53,375
1,100 Nordson Corp 61,600
5,400 Novellus System Inc * 441,450
18,300 Oakley Inc 162,413
2,600 Smith International Inc * 105,625
1,300 Tecumseh Products Co, Class B 71,825
13,300 US Filter Corp 465,500
------------
1,570,963
------------
MANUFACTURING -- 3.2%
4,200 American Greetings Corp 130,200
4,000 Corning Inc 150,500
1,500 General Electric Co 154,313
59,546 Gillette Co 4,711,576
25,000 International Game Technology 437,500
10,900 Leggett & Platt Inc 391,038
600 Sequa Corp, Class A * 23,550
9,300 Trinity Industries Inc 299,925
25,400 Tyco International Ltd 1,498,599
------------
7,797,201
------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------
OIL AND GAS -- 3.8%
11,900 Apache Corp 385,263
3,800 Atlantic Richfield Co 475,000
800 Barrett Resources Corp * 26,300
3,100 BJ Services Co 123,225
4,800 Burlington Resources Inc 210,600
13,900 Columbia Gas Systems Inc 816,625
7,900 El Paso Natural Gas Co 423,638
900 Energy Ventures Inc * 45,900
5,700 Enron Corp 227,288
400 Ensco International Inc * 17,350
6,500 Enserch Corp 136,500
100 FINA Inc, Class A 6,238
19,200 Global Marine Inc * 357,600
800 Louisiana Conservation Land & Exploration Co 38,200
2,700 National Fuel Natural Gas Co 116,100
900 Noble Affiliates Inc 35,100
8,400 Noble Drilling Corp 149,100
29,200 Noram Energy Corp 438,000
7,100 Panenergy Corp 302,638
4,500 Parker & Parsley Petroleum Co 132,750
2,300 Pennzoil Co 131,963
1,300 Peoples Energy Corp 44,038
15,600 Phillips Petroleum Co 645,450
17,800 Santa Fe Energy Resources Inc * 229,175
5,700 Schlumberger Ltd 573,563
18,200 Sonat Inc 837,200
10,300 Texaco Inc 1,018,413
3,100 Union Texas Petroleum Holdings Inc 57,350
34,300 Unocal Corp 1,324,837
------------
9,325,404
------------
PAPER AND ALLIED PRODUCTS -- 0.1%
7,600 Sonoco Products Co 199,500
500 Willamette Industries Inc 32,000
------------
231,500
------------
PHARMACEUTICALS -- 8.2%
114,504 Abbott Laboratories 6,440,849
7,400 Allergan Inc 251,600
6,700 Biogen, Inc 329,975
1,700 Bristol Myers Squibb Co 221,850
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------
PHARMACEUTICALS -- CONTINUED
13,000 Dura Pharmaceuticals Inc 437,125
5,100 Mark IV Industries Inc 118,575
30,500 Merck & Co Inc 2,805,999
50,656 Pfizer Inc 4,641,355
18,200 Schering Plough Corp 1,394,574
41,200 Warner Lambert Co 3,460,799
------------
20,102,701
------------
PRIMARY MATERIALS -- 0.2%
11,500 Premark International Inc 271,688
2,400 Tupperware Corp 107,400
3,300 Vulcan Materials Co 213,675
------------
592,763
------------
PRINTING AND PUBLISHING -- 0.1%
1,800 Central Newspapers, Class A 82,800
1,000 Tribune Co 39,250
300 Washington Post Co Class B 103,950
------------
226,000
------------
REAL ESTATE -- 0.0%
2,900 Lennar Corp 73,225
------------
REFINING -- 0.4%
28,800 Tosco Corp 802,800
1,700 Valero Energy Corp 53,550
------------
856,350
------------
RETAIL TRADE -- 7.0%
39,200 Albertsons Inc 1,381,799
30,000 American Stores Co 1,342,499
23,100 Autozone Inc * 571,725
10,100 Bed, Bath & Beyond Inc 262,600
1,100 Blair Corp 19,938
5,200 Brinker International Inc * 61,750
1,800 Circuit City Stores Inc 56,250
10,000 Claire's Stores Inc 141,250
10,300 CompUSA Inc 206,000
8,950 Consolidated Stores Corp 314,369
11,600 Dayton Hudson Corp 487,200
11,175 DG Corp 317,091
21,400 Dillard Department Stores Inc 644,675
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------
RETAIL TRADE -- CONTINUED
26,800 Food Products Lion Inc 222,775
14,800 Fruit of the Loom Inc 604,950
51,300 Gap Inc 1,692,899
3,800 Hannaford Brothers Co 135,375
2,000 Kroger Co * 106,000
10,300 Limited Inc 195,700
800 Macfrugals Bargains Close Outs Inc * 21,700
5,600 May Department Stores Co 261,100
1,700 Meyer Fred Inc * 67,363
3,300 Pep Boys, Manny, Moe & Jack 107,663
900 Ross Stores Inc 43,200
26,600 Safeway Inc * 1,280,125
1,200 Stanhome Inc 30,450
14,100 Starbucks Corp * 474,113
4,700 Tandy Corp 236,763
3,400 The Vons Co Inc * 231,625
1,400 TJX Cos Inc 58,450
48,800 Toys R Us Inc * 1,268,800
1,800 Value City Department Stores Inc * 14,625
162,400 Wal Mart Stores Inc 4,283,299
------------
17,144,121
------------
SERVICES -- 1.3%
600 Belo (AH) Corp 22,650
900 BHC Communications Inc, Class A 91,800
3,800 Catalina Marketing Corp 190,950
5,300 Cintas Corp 286,200
7,000 Circus Circus Enterprises Inc * 218,750
4,100 Disney Walt Co 304,425
16,200 Equifax Inc 481,950
3,900 Fleming Cos Inc 68,250
1,600 Gannett Co Inc 127,600
300 Kingworld Productions Inc * 11,138
8,700 Robert Half International Inc 362,138
3,100 Servicemaster Industry Inc 79,825
14,600 Supervalu Inc 452,600
1,600 Total System Services Inc 49,200
10,000 USA Waste Services Inc 360,000
------------
3,107,476
------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------
TECHNOLOGY -- 15.4%
16,200 Acxiom Corp 247,050
19,500 Advanced Micro Devices Inc * 699,563
1,700 American Management Systems Inc * 29,750
11,200 Avnet Inc 700,000
40,900 BMC Software Inc 1,751,030
5,200 Cabletron Systems Inc 156,000
65,600 Cisco Systems Inc * 3,648,999
7,200 Compuware Corp 448,200
33,100 Dell Computer Corp 2,354,237
2,200 Electronics For Imaging Inc 84,700
4,600 Fiserv Inc* 150,650
7,100 Grainger (WW) Inc 562,675
86,000 Intel Corp 12,201,249
3,400 Keane Inc 119,850
91,900 Microsoft Corp 8,960,249
3,300 National Data Corp 115,913
53,700 Oracle Corp 2,107,724
21,200 Paychex Inc 922,200
9,600 Seagate Technology Corp 453,600
900 Shared Medical Systems Corp 49,163
1,300 Solectron Corp * 68,738
31,300 Storage Technology Corp * 1,306,775
5,800 Sungard Data Systems Inc * 294,350
3,000 Synopsys Inc * 107,063
------------
37,539,728
------------
TELECOMMUNICATIONS -- 4.3%
100,400 AT & T Corp 4,003,449
1,500 Cincinnati Bell Inc 93,000
5,500 Comsat Corp 144,375
25,400 MCI Communications Corp 908,050
4,100 NYNEX Corp 211,150
45,000 Pacific Telesis Group 1,833,749
4,600 Southern New England Telecom 166,750
66,700 Sprint Corp 3,034,849
------------
10,395,372
------------
TOBACCO -- 2.6%
47,128 Philip Morris Cos Inc 6,368,170
------------
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------------------
TRANSPORTATION -- 1.3%
20,900 Burlington Northern Santa Fe Railroad Co 1,739,924
21,800 CSX Corp 1,005,525
700 Federal Express Corp 36,050
1,300 Gatx Corp 63,700
8,900 Ryder System Inc 280,350
------------
3,125,549
------------
UTILITIES -- 0.4%
400 Brooklyn Union Gas Co 11,400
9,550 Citizens Utilities, Class B 113,411
8,300 Coastal Corp 377,650
6,000 MCN Corp 181,500
4,000 Natural Gas Clearinghouse 79,000
4,100 Nicor Inc 137,350
700 Pacific Enterprises 21,350
900 Washington Gas Light Co 19,913
------------
941,574
------------
TOTAL COMMON STOCKS (COST $195,566,218) 223,179,699
------------
SHORT-TERM INVESTMENTS -- 6.6%
CASH EQUIVALENTS -- 4.4%(B)
1,179,281 American AAdvantage Money Market Fund 1,179,281
$3,445,352 Bank of Boston Eurodollar Time Deposit, 5.5375%
due 3/3/97 3,445,352
1,731,367 Merrimac Cash Fund Premium Class 1,731,367
$4,500,000 Prudential Securities Group Inc Master Note,
5.60% due 3/3/97 4,500,000
------------
10,856,000
------------
U.S. GOVERNMENT -- 0.0%
$ 50,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 49,387
------------
REPURCHASE AGREEMENT -- 2.2%
$5,257,225 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $5,259,350 and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25%
to 11.88%, with maturity dates ranging from
11/15/03 to 5/15/20
and with an aggregate market value of
$5,368,062. 5,257,225
------------
TOTAL SHORT-TERM INVESTMENTS (COST $16,162,588) 16,162,612
------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.0%
(Cost $211,728,806) ** 239,342,311
Other Assets and Liabilities (net) -- 2.0% 4,841,121
-------------
TOTAL NET ASSETS -- 100% $ 244,183,432
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
** The aggregate identified cost for federal income tax
purposes is $212,154,521, resulting in gross
unrealized appreciation and depreciation of
$31,780,512 and $4,592,722, respectively, and net
unrealized appreciation of $27,187,790.
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $211,728,806) (Note 1) $239,342,311
Receivable for investments sold 24,660,124
Dividends and interest receivable 232,919
Receivable for expenses waived or borne by Manager (Note 2) 43,678
------------
Total assets 264,279,032
------------
LIABILITIES:
Payable for investments purchased 2,754,333
Payable upon return of securities loaned (Note 1) 10,856,000
Payable for Fund shares repurchased 4,588,000
Payable to affiliate for (Note 2):
Management fee 98,257
Shareholder service fee 29,477
Accrued expenses 54,046
Payable for open swap contracts (Notes 1 and 6) 1,649,521
Payable for variation margin on open futures contracts (Notes 1
and 6) 65,966
------------
Total liabilities 20,095,600
------------
NET ASSETS $244,183,432
============
NET ASSETS CONSIST OF:
Paid-in-capital $165,406,143
Accumulated undistributed net investment income 668,129
Accumulated undistributed net realized gain 52,453,021
Net unrealized appreciation 25,656,139
------------
$244,183,432
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $244,183,432
============
SHARES OUTSTANDING:
Class III 47,135,740
============
NET ASSET VALUE PER SHARE:
Class III $ 5.18
============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $9,768) $ 4,553,136
Interest (including securities lending income of $19,206) 983,575
-----------
Total income 5,536,711
-----------
EXPENSES:
Management fee (Note 2) 1,637,804
Custodian and transfer agent fees 78,029
Audit fees 47,841
Legal fees 17,049
Trustees fees (Note 2) 1,742
Registration fees 442
Miscellaneous 3,421
Fees waived or borne by Manager (Note 2) (561,765)
-----------
1,224,563
Shareholder service fee (Note 2)
Class III 347,907
-----------
Net expenses 1,572,470
-----------
Net investment income 3,964,241
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 107,638,369
Closed futures contracts 3,719,834
Closed swap contracts (2,423,559)
-----------
Net realized gain 108,934,644
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (49,148,219)
Open futures contracts (168,269)
Open swap contracts (1,163,427)
-----------
Net unrealized loss (50,479,915)
-----------
Net realized and unrealized gain 58,454,729
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $62,418,970
===========
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,964,241 $ 5,177,101
Net realized gain 108,934,644 39,524,050
Change in net unrealized appreciation (de-
preciation) (50,479,915) 61,683,361
------------ ------------
Net increase in net assets resulting from
operations 62,418,970 106,384,512
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (4,363,604) (4,668,104)
------------ ------------
Net realized gains
Class III (77,849,380) (23,225,614)
------------ ------------
(82,212,984) (27,893,718)
------------ ------------
Net share transactions: (Note 5)
Class III (127,388,467) 73,868,802
------------ ------------
Increase (decrease) in net assets result-
ing from net share transactions (127,388,467) 73,868,802
------------ ------------
Total increase (decrease) in net assets (147,182,481) 152,359,596
NET ASSETS:
Beginning of period 391,365,913 239,006,317
------------ ------------
End of period (including accumulated un-
distributed net investment income of
$668,129 and $1,067,492, respectively) $244,183,432 $391,365,913
============ ============
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82
-------- -------- -------- -------- --------
Income from investment opera-
tions:
Net investment income 0.07 0.08 0.06 0.06 0.07
Net realized and unrealized
gain 1.03 1.54 0.38 0.11 0.17
-------- -------- -------- -------- --------
Total from investment opera-
tions 1.10 1.62 0.44 0.17 0.24
-------- -------- -------- -------- --------
Less distributions to share-
holders:
From net investment income (0.08) (0.07) (0.06) (0.06) (0.08)
From net realized gains (1.49) (0.35) (0.07) (0.52) (1.43)
-------- -------- -------- -------- --------
Total distributions (1.57) (0.42) (0.13) (0.58) (1.51)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PE-
RIOD $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55
======== ======== ======== ======== ========
TOTAL RETURN(A) 21.64% 37.77% 10.86% 4.13% 3.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $244,183 $391,366 $239,006 $230,698 $168,143
Net expenses to average
daily net assets 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to av-
erage daily net assets 1.21% 1.54% 1.50% 1.38% 1.15%
Portfolio turnover rate 100% 76% 139% 57% 36%
Average broker commission
rate per equity share(c) $ .0281 N/A N/A N/A N/A
Fees and expenses voluntar-
ily waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.01 (b) (b) (b) (b)
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
16 See accompanying notes to the financial statements.
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Growth Fund (the "Fund"), formerly named the GMO Growth Allocation
Fund, is a series of GMO Trust (the "Trust"). The Fund is registered under
the Investment Company Act of 1940, as amended, as an open-end, non-
diversified management investment company. The Fund is advised and managed
by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The
Trust was established as a Massachusetts Business Trust under the laws of
the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks long-term growth of capital through investment of
substantially all of its assets in common stocks chosen from the Wilshire
5000 Index and primarily in the equity securities of companies chosen from
among the 1,200 companies with the largest equity capitalization whose
securities are listed on a United States national securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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
17
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $10,524,900, collateralized by
cash in the amount of $10,856,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of
18
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for redemptions in-kind. Gains associated with such
in-kind redemptions amounted to $2,742,541.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
-- ($2,651,991) $2,651,991
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
19
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $12,425 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $1,742. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
20
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and in-kind transactions, for the year ended February 28,
1997, aggregated $305,531,085 and $512,789,249, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 70% 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 28, 1997 February 29, 1996
Class III: -------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,041,337 $ 11,235,177 28,535,818 $138,511,760
Shares issued to
shareholders in
reinvestment of
distributions 15,334,132 78,162,104 4,717,528 24,056,140
Shares repurchased (39,536,755) (216,785,748) (17,613,541) (88,699,098)
----------- ------------- ----------- ------------
Net increase (decrease) (22,161,286) $(127,388,467) 15,639,805 $ 73,868,802
=========== ============= =========== ============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
57 S&P 500 March 1997 $22,526,400 $(307,845)
=========
</TABLE>
21
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Depreciation
----------------- ---------- --------------------------------- ------------
<S> <C> <C> <C>
$10,856,159/ 6/26/97 Agreement with Morgan Stanley $(529,553)
9,925,759 Capital Services, Inc. dated June
26, 1996 to pay (receive) the
notional amount multiplied by the
return on the Standard& Poor's
500 Index (including dividends)
less the notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread
and to receive (pay) the
counterparty's notional amount
multiplied by the return on the
Russell 2000 Index (including
dividends) less the notional
amount multiplied by 6 month
LIBOR adjusted by a specified
spread.
10,174,543/ 9/19/97 Agreement with Morgan Stanley (1,119,968)
10,068,764 Capital Services, Inc. dated
September 19, 1996 to pay
(receive) the notional amount
multiplied by the return on the
Standard& Poor's 500 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and to receive
(pay) the counterparty's notional
amount multiplied by the return
on the Russell 2000 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread.
-----------
Net unrealized depreciation $(1,649,521)
===========
</TABLE>
22
<PAGE>
GMO GROWTH FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
87.09% of distributions as net capital gain dividends.
23
<PAGE>
GMO GROWTH 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. LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Growth Fund returned 21.6% for the fiscal
year ended February 28, 1997 as compared to 26.1% for the S&P 500 and 25.1%
for the Russell 1000 Growth index. Consistent with the Fund's investment
objective and policies, the Fund was invested in common stocks throughout
the period.
The Fund is positioned to do well in a moderate to slowing economic
environment, and during the year was tilted toward defensive stocks and
away from cyclical and technology stocks. The overweight in defensive
stocks hurt performance, as defensive stocks underperformed the aggregate
index. Several of the largest defensive bets included overweights in drug
and food stocks, which are also owned because of their high quality. The
Fund's tilt towards the lower growth half of the high growth universe
detracted from performance, as the fastest growing companies exhibited the
strongest performance for the year. For example, technology stocks, in
which the Fund is underweight, outperformed the index by over 8% for the
year. On the upside, an underweight in telephone stocks added substantial
relative value.
Despite the underperformance of defensive stocks, high quality stocks
outperformed low quality stocks, and the Fund's emphasis on high quality
companies added value.
Stock selection added value for the year. Stocks in the best quartile of
our proprietary dividend discount model had a strong year, significantly
outperforming the index. Stocks not in any of our three primary selection
techniques -- value, momentum and neglect -- underperformed the index,
also adding value to relative performance.
The Growth Fund has been substantially restructured to improve risk control
in relation to the benchmark with the expectation that fiscal year 1998
returns will be significantly less volatile than fiscal year 1997 returns.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
24
<PAGE>
Comparison of Change in Value of a $10,000 Investment in GMO Growth
Fund Class III shares and the S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 12/31/88
<S> <C> <C> <C>
Class III 21.5% 14.9% 18.3%
<CAPTION>
[Line Graph Appears Here]
Date GMO Growth Fund S & P 500 Index
<S> <C> <C>
12/31/88 9,986 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
02/28/97 39,417 36,192
</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 14 bp on the purchase. Transaction
fees are paid to the Fund to cover trading costs. Class III shares
are a redesignation of the single class of shares that has been
offered by the Fund since inception. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO 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
Value Fund (formerly GMO Value Allocation Fund) at February 28, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Trust's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 87.9%
AEROSPACE -- 0.5%
3,700 Lockheed Martin Corp 327,450
1,800 Northrop Grumman Corp 130,725
36,200 Raytheon Co 1,705,925
2,300 Textron Inc 226,838
2,900 TRW Inc 151,888
------------
2,542,826
------------
AUTOMOTIVE -- 4.2%
1,800 Bandag Inc 87,750
67,000 Chrysler Corp 2,269,625
1,800 Eaton Corp 129,150
3,100 Electronic Data Systems Corp 139,888
154,100 Ford Motor Co 5,066,038
139,500 General Motors Corp 8,073,563
2,800 Genuine Parts Co 130,900
4,700 Goodyear Tire & Rubber Co 247,925
1,300 Lear Corp 50,700
175,000 Mascotech Industries Inc 3,325,000
2,000 Paccar Inc 131,250
------------
19,651,789
------------
BANKING AND FINANCIAL SERVICES -- 16.2%
3,900 Advanta Corp, Class A 161,363
4,700 Ahmanson (HF) & Co 193,288
39,300 American Express Co 2,569,238
17,500 American General Corp 759,063
4,800 Amsouth Bancorp 246,000
26,400 Banc One Corp 1,164,900
12,400 Bancorp Hawaii Inc 545,600
1,500 Bank of Boston Corp 113,063
4,100 Bank of New York Inc 158,875
72,000 BankAmerica Corp 8,190,000
6,400 Bankers Trust New York Corp 580,800
17,200 Banponce Corp 619,200
4,200 Barnett Banks Inc 194,250
20,755 Bear Stearns Inc 622,661
3,900 Beneficial Corp 269,588
137,500 Block (HR) Inc 4,039,063
1,800 Capital One Financial Corp 71,550
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
3,900 Central Fidelity Banks Inc 113,588
70,100 Chase Manhattan Corp 7,018,763
87,199 Citicorp 10,180,483
6,800 Comerica Inc 408,850
6,200 Commerce Bancshares Inc 294,500
4,300 Compass Bancshares Inc 191,888
6,500 Corestates Financial Corp 342,063
8,700 Countrywide Credit Industries Inc 253,388
41,900 Dean Witter Discover & Co 1,607,913
6,800 Donaldson Lufkin & Jenrette 292,400
16,800 Edwards (AG) Inc 596,400
32,900 Federal Home Loan Mortgage Corp 978,775
72,700 Federal National Mortgage Associates 2,908,000
4,600 First Bank of America Corp 288,075
42,400 First Chicago NBD Corp 2,480,400
500 First Empire State Corp 161,625
900 First Hawaiian Inc 29,925
3,200 First Security Corp 111,600
1,500 First Tennessee National Corp 70,125
23,300 First Union Corp (NE) 2,044,575
4,200 First Virginia Banks Inc 221,550
5,200 Firstar Corp 159,250
10,500 Fleet Financial Group Inc 640,500
10,000 Franklin Resources Inc 585,000
4,100 Golden West Financial Corp 277,775
32,300 Great Western Financial Corp 1,417,163
2,300 Green Tree Financial Corp 86,250
9,100 Greenpoint Financial Corp 546,000
2,100 Household International Inc 203,438
3,300 Huntington Bancshares Inc 94,050
5,200 J.P. Morgan & Co Inc 546,650
15,100 Key Corp 807,850
10,300 Lehman Brothers Holding Inc 346,338
3,200 Liberty Financial Cos 136,800
14,550 MBNA Corp 465,600
6,600 Mercantile Bankshares 245,025
9,100 Merrill Lynch 873,600
3,400 MGIC Investment Corp 267,325
15,800 Morgan Stanley Group Inc 997,375
12,100 National City Corp 611,050
53,400 Nationsbank Corp 3,197,325
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
700 Northern Trust 29,750
20,200 Norwest Corp 1,004,950
2,600 Old Kent Financial Corp 130,325
10,800 Paine Webber Group Inc 352,350
40,100 PNC Bank Corp 1,699,238
3,700 Regions Financial Corp 217,838
9,300 Republic New York Corp 863,738
3,400 Rowe (T) & Price Associates Inc 150,025
10,600 Salomon Inc 589,625
4,500 Southern National Corp 174,938
6,200 Southtrust Corp 245,675
7,200 Standard Federal Bancorp 414,900
1,800 Star Banc Corp 70,650
1,700 State Street Boston Corp 136,638
3,900 Student Loan Marketing Association 412,913
4,600 Suntrust Banks Inc 236,325
65,563 Travelers Group Inc 3,515,816
1,700 Union Planters Corp 76,075
5,700 Unionbancal Corp 343,425
5,700 US Bancorp 281,438
5,100 Wachovia Corp 310,463
7,530 Washington Federal Inc 192,015
5,200 Washington Mutual, Inc 274,950
1,800 Wells Fargo & Co 547,650
3,700 Wilmington Trust Corp 167,425
------------
76,036,887
------------
CHEMICALS -- 0.8%
20,000 Albemarle Corp 392,500
2,800 Cytec Industries Inc 110,950
4,700 Eastman Chemical Co 259,088
8,600 Great Lakes Chemical Corp 398,825
15,000 Imperial Chemical Industries PLC ADR 748,125
10,000 Lubrizol Corp 346,250
21,500 Millenium Chemicals Inc 411,188
9,100 PPG Industries Inc 509,600
2,900 Sherwin Williams Co 162,763
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------
<C> <S> <C>
CHEMICALS -- CONTINUED
6,200 Union Carbide Corp 292,950
10,000 Wellman Inc 175,000
------------
3,807,239
------------
COMPUTER AND OFFICE EQUIPMENT -- 1.1%
6,600 Amdahl Corp * 65,175
14,100 Apple Computer Inc * 229,125
15,100 Compaq Computer Corp * 1,196,675
7,200 Gateway 2000 Inc 423,000
4,900 Hewlett Packard Co 274,400
140,000 Intergraph Corp * 1,155,000
6,900 Lexmark International Group Inc 192,338
12,100 Micron Technology 453,750
25,000 Office Depot * 475,000
3,500 Pitney Bowes Inc 217,438
5,200 Quantum Corp * 206,700
15,000 Silicon Graphics Inc * 361,875
------------
5,250,476
------------
CONSTRUCTION -- 0.1%
4,100 Centex Corp 165,538
2,800 Georgia-Pacific Corp 218,400
5,900 MEMC Electronic Materials 144,550
------------
528,488
------------
CONSUMER GOODS -- 2.8%
4,100 Black and Decker Corp 129,663
7,300 Callaway Golf Co 232,688
1,100 Clorox Co 131,450
10,500 CVS Corp 485,625
63,500 Eastman Kodak Co 5,691,188
3,200 Fastenal Co 116,000
1 Footstar Inc 25
2,700 Hasbro Inc 115,425
2,100 Jones Apparel Group Inc 77,963
3,900 Lancaster Colony Corp 178,425
3,100 Liz Claiborne Inc 125,550
12,100 Mattel Co 300,988
50,000 Maytag Corp 1,100,000
23,000 Moore Corp Ltd 508,875
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------
<C> <S> <C>
CONSUMER GOODS -- CONTINUED
6,000 Nike Inc, Class B 431,250
9,000 Procter and Gamble Co 1,081,125
4,400 Reebok International Ltd 205,700
4,200 Russell Corp 158,025
82,500 Safety Kleen 1,485,000
9,600 Terra Industries Inc 130,800
5,300 VF Corp 368,350
2,700 Whirlpool Corp 136,350
------------
13,190,465
------------
ELECTRONIC EQUIPMENT -- 0.8%
5,000 3 Com Corp * 165,547
10,300 American Power Conversion Corp * 215,013
3,000 Amp Inc 116,625
2,800 Arrow Electronics Inc * 157,150
2,200 Emerson Electric 217,800
2,400 Harris Corp Inc 177,000
47,500 International Rectifier Corp * 641,250
3,500 ITT Corp 197,750
4,300 Linear Technology Corp 195,650
2,700 Litton Industries* 116,100
2,900 Maxim Intergrated Products Inc * 143,913
10,500 Motorola Inc 586,688
20,500 National Semiconductor Corp * 535,563
2,400 Texas Instruments 185,100
7,000 Vishay Intertechnology Inc 160,125
3,100 Xilinx Inc * 139,888
------------
3,951,162
------------
ENVIRONMENTAL CONTROL -- 1.8%
239,800 Wheelabrator Technology Inc 3,417,150
165,000 WMX Technologies 5,218,125
------------
8,635,275
------------
FOOD AND BEVERAGE -- 3.0%
47,100 Anheuser Busch Cos Inc 2,095,950
59,659 Archer Daniels Midland Co 1,103,692
3,000 Coca Cola Enterprises Inc 185,250
3,100 ConAgra Inc 164,300
10,000 Coors (Adolph) Co 213,750
4,000 CPC International Inc 336,500
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------
<C> <S> <C>
FOOD AND BEVERAGE -- CONTINUED
50,000 Darden Restaurants Inc 362,500
43,750 Energy Group PLC ADR 1,487,500
43,750 Hanson PLC ADR 973,438
3,100 Heinz (HJ) Co 129,038
4,200 Hormel (Geo A) and Co 110,250
18,000 IBP Inc 418,500
2,500 Nabisco Holdings Corp Class A 102,813
41,100 Pepsico Inc 1,351,163
20,900 RJR Nabisco Holdings Corp 765,463
14,100 Sara Lee Corp 546,375
14,800 Seagrams Co Ltd 577,200
4,500 Tyson Food Inc Class A 91,125
15,500 Unilever NV ADR 2,952,750
6,900 Whitman Corp 162,150
------------
14,129,707
------------
HEALTH CARE -- 2.0%
6,100 Apria Healthcare Group 109,038
5,800 Bard (CR) 158,775
3,800 Baxter International Inc 174,800
3,800 Becton Dickinson & Co 187,150
25,300 Bergen Brunswig Corp, Class A 812,763
79,300 Beverly Enterprises Inc * 1,139,938
8,200 BioMet Inc 125,050
17,700 Columbia HCA Healthcare Corp 743,400
7,900 Foundation Health Corp * 298,225
2,600 Guidant Corp 174,200
2,900 Hillenbrand Industries Inc 109,113
47,500 Johnson & Johnson 2,737,188
1,600 Mckesson Corp 106,000
4,300 Medtronic Inc 278,425
20,100 Pharmacia & Upjohn Inc 741,188
1,600 Rhone Poulenc Rorer Inc 113,600
21,000 Tenet Healthcare Corp * 569,625
5,400 Teradyne, Inc * 147,150
20,000 Transitional Hospitals * 180,000
4,200 United Healthcare Corp 209,475
6,800 Wellpoint Health Network 291,550
------------
9,406,653
------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
<C> <S> <C>
INSURANCE -- 6.2%
7,800 Aetna Life and Casualty Co 646,425
6,400 AFLAC Corp 258,400
7,200 Allmerica Property & Casualty 225,900
43,482 Allstate Corp 2,755,672
7,800 AMBAC Inc 520,650
3,300 American Bankers Insurance Group 181,913
3,800 American Financial Group Inc 142,500
8,400 American National Insurance Co 693,000
2,400 AON Corp 152,100
4,800 Chubb Corp 281,400
6,500 Cigna Corp 993,688
1,500 Cincinnati Financial Corp 103,688
5,500 CNA Financial Corp * 611,875
17,564 Conseco Inc 689,387
7,100 Equitable Companies Inc 222,763
5,400 Equitable of Iowa Cos 286,875
900 General Re Corp 152,663
4,200 Health Systems International Inc, Class A 123,375
5,500 ITT Hartford Group Inc 412,500
10,800 Lincoln National Corp 627,750
27,200 Loews Corp 2,777,800
1,600 Marsh & McLennan Cos Inc 187,200
4,100 MBIA Inc 400,263
2,900 Mercury General Corp 177,988
10,000 Ohio Casualty Corp 396,250
23,400 Old Republic International Corp 634,725
1,604 Pacificare Health Systems, Class B 134,335
3,100 Progressive Corp 204,988
4,000 Provident Cos Inc 218,000
23,200 Providian Corp 1,296,300
200,000 Reliance Group Holdings Inc 2,175,000
12,600 Reliastar Financial Corp 781,200
12,100 Safeco Corp 505,175
13,000 Saint Paul Cos Inc 877,500
152,500 TIG Holdings Inc 5,451,875
9,900 Torchmark Corp 582,863
4,700 Transamerica Corp 411,838
2,300 Transatlantic Holdings Inc 194,063
38,500 USF & G Corp 866,250
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------
<C> <S> <C>
INSURANCE -- CONTINUED
10,100 USLIFE Corp 481,013
4,600 Western National Corp 105,800
------------
28,942,950
------------
MACHINERY -- 1.0%
6,200 Agco Corporation 175,925
9,500 Applied Materials Inc * 480,938
6,000 Case Corp 311,250
3,700 Caterpillar Inc 289,988
100,000 Cincinnati Milacron Inc 2,150,000
3,200 Cummins Engine Inc 162,000
8,200 FMC Corp * 563,750
8,400 Tecumseh Products Co, Class B 464,100
------------
4,597,951
------------
MANUFACTURING -- 4.9%
59,600 American Greetings Corp 1,847,600
11,100 Clayton Homes Inc 158,175
50,000 Corning Inc 1,881,250
2,900 Crane Co 94,613
20,000 General Electric Co 2,057,500
2,600 Harsco Corp 93,600
41,700 IBM Corp 5,994,375
6,500 International Game Technology 113,750
28,700 Lafarge Corp 667,275
6,300 Minnesota Mining And Manufacturing 579,600
72,500 Owens Corning 3,072,188
6,875 Quest Diagnostics Inc 116,016
13,800 Rockwell International Corp 893,550
4,900 Temple Inland Inc 270,113
50,000 Tenneco Inc 1,968,750
7,800 Trinity Industries Inc 251,550
40,100 United Technologies Corp 3,017,525
------------
23,077,430
------------
METALS AND MINING -- 1.9%
30,300 Alcan Aluminum Ltd 1,087,013
75,000 Allegheny Teledyne Inc 1,912,500
20,400 Asarco Inc 637,500
41,000 Cyprus Amax Minerals Co 958,375
35,000 Inco Ltd 1,229,375
2,500 Newmont Mining Corp 118,750
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------
<C> <S> <C>
METALS AND MINING -- CONTINUED
5,000 Pegasus Gold* 42,813
16,100 Phelps Dodge Corp 1,151,150
22,400 Reynolds Metals Co 1,405,600
3,100 Timken Co 162,363
700 Wesco Financial Corp 145,600
------------
8,851,039
------------
OIL AND GAS -- 5.4%
11,200 Amerada Hess Corp 597,800
2,400 Amoco Corp 202,800
7,600 Atlantic Richfield Co 950,000
25,000 Cabot Oil & Gas Corp, Class A 396,875
3,300 Chevron Corp 212,850
4,400 Columbia Gas Systems Inc 258,500
7,500 Dresser Industries Inc 227,813
62,500 Enron Oil & Natural Gas 1,265,625
50,000 Enserch Corp 1,050,000
12,000 Exxon Corp 1,198,500
23,900 Mitchell Energy, Class B 513,850
13,400 Mobil Corp 1,644,850
50,000 Noram Energy Corp 750,000
28,200 Occidental Petroleum Corp 719,100
25,000 Panenergy Corp 1,065,625
4,200 Phillips Petroleum Co 173,775
15,000 Questar Corp 543,750
6,200 Royal Dutch Petroleum Co ADR 1,072,600
13,900 Texaco Inc 1,374,363
8,600 Union Pacific Resources Group 209,625
150,000 Union Texas Petroleum Holdings Inc 2,775,000
68,900 Unocal Corp 2,661,263
165,400 USX--Marathon Group 4,403,775
50,000 Westcoast Energy Inc 906,250
------------
25,174,589
------------
PAPER AND ALLIED PRODUCTS -- 1.4%
2,500 Bowater Inc 105,938
21,300 Champion International Corp 939,863
58,000 International Paper Co 2,421,500
25,600 James River Corp 838,400
2,900 Kimberly Clark Corp 307,400
7,100 Louisiana Pacific Corp 150,875
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------
<C> <S> <C>
PAPER AND ALLIED PRODUCTS -- CONTINUED
3,500 Mead Corp 203,875
2,400 Potlatch Corp 103,800
3,200 Rayonier Inc 121,600
4,400 Sonoco Products Co 115,500
9,700 Stone Container Corp 126,100
3,100 Union Camp Corp 149,575
6,300 Westvaco Corp 185,850
15,600 Weyerhaeuser Co 721,500
4,200 Willamette Industries Inc 268,800
------------
6,760,576
------------
PHARMACEUTICALS -- 2.2%
78,900 Abbott Laboratories 4,438,125
10,000 Allergan Inc 340,000
6,200 American Home Products Corp 396,800
13,300 Bristol Myers Squibb Co 1,735,650
3,700 General Nutrition Cos Inc * 66,600
25,000 Immulogic Pharmaceutical 137,500
12,500 Lilly (Eli) & Co 1,092,188
8,800 Merck & Co Inc 809,600
4,900 Schering Plough Corp 375,463
5,000 Smithkline Beecham Plc 371,250
5,600 Warner Lambert Co 470,400
------------
10,233,576
------------
PRIMARY MATERIALS -- 0.1%
15,300 Premark International Inc 361,463
2,100 Vulcan Materials Co 135,975
------------
497,438
------------
PRIMARY PROCESSING -- 0.7%
6,000 Alumax Inc 234,750
20,000 Bethlehem Steel Corp * 165,000
10,800 Dow Chemical Co 874,800
4,200 Du Pont (EI) De Nemours & Co Inc 450,450
22,600 LTV Corp 282,500
43,000 USX-US Steel Group Inc 1,349,125
------------
3,356,625
------------
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------
<C> <S> <C>
PRINTING AND PUBLISHING -- 0.3%
8,200 Dun and Bradstreet Corp 200,900
65,000 News Corporation Ltd ADR 1,381,250
------------
1,582,150
------------
REAL ESTATE -- 1.0%
60,000 Crown American Realty Trust 472,500
25,000 Evans Withycombe Residential 512,500
7,500 JP Realty Inc 193,125
10,000 Saks Holdings 335,000
100,000 Summit Properties Inc 2,025,000
50,000 Walden Residential Properties Inc 1,287,500
------------
4,825,625
------------
REFINING -- 0.2%
2,500 Imperial Oil Ltd 109,688
25,000 Quaker State Corp 365,625
12,500 Sun Co Inc 337,500
------------
812,813
------------
RETAIL TRADE -- 3.4%
16,600 Albertsons Inc 585,150
5,300 American Stores Co 237,175
9,000 Autozone Inc * 222,750
3,700 Circuit City Stores Inc 115,625
25,000 Cone Mills Corp 196,875
58,700 Costco Cos Inc 1,504,188
7,000 Dayton Hudson Corp 294,000
14,700 Dillard Department Stores Inc 442,838
15,700 Federated Department Stores 545,575
4,700 Fruit of the Loom Inc 192,113
18,400 Gap Inc 607,200
2,800 Hannaford Brothers Co 99,750
35,800 Kmart Corp * 447,500
33,900 Limited Inc 644,100
6,300 May Department Stores Co 293,738
15,600 Mercantile Stores 748,800
10,300 Penney (JC) Co Inc 507,275
1,500 Sears Roebuck & Co 81,375
3,500 Tandy Corp 176,313
51,900 Toys R Us Inc * 1,349,400
234,800 Wal Mart Stores Inc 6,192,850
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------
<C> <S> <C>
RETAIL TRADE -- CONTINUED
5,300 Weismarkets Inc 159,000
3,300 Winn Dixie 105,188
3,900 Woolworth (FW) Co * 81,413
------------
15,830,191
------------
SERVICES -- 1.6%
3,600 BHC Communications Inc, Class A 367,200
29,600 Browning Ferris Industries Inc 928,700
4,184 Chris Craft Industries Inc 172,067
6,700 Circus Circus Enterprises Inc * 209,375
1,700 Disney Walt Co 126,225
2,600 Gannett Co Inc 207,350
2,300 Healthcare Compare Corp * 98,181
5,000 Kellwood Co 118,125
2,500 Kelly Services 68,750
5,400 Kingworld Productions Inc * 200,475
20,000 Manpower Inc 755,000
1,000 Meredith Corp 49,000
50,000 Ogden Corp 1,018,750
6,600 Servicemaster Industry Inc 169,950
57,700 Supervalu Inc 1,788,700
150,000 Waste Management International PLC ADR 1,125,000
------------
7,402,848
------------
TECHNOLOGY -- 6.9%
3,400 Adobe Systems Inc 124,100
11,300 Advanced Micro Devices Inc * 405,388
2,700 Autodesk Inc 91,463
7,000 Avnet Inc 437,500
16,400 Bay Networks Inc * 311,600
8,400 BMC Software Inc 359,625
12,700 Cabletron Systems Inc 381,000
14,900 Cisco Systems Inc * 828,813
100,000 Digital Equipment Corp * 3,275,000
1,700 Grainger (WW) Inc 134,725
55,100 Intel Corp 7,817,313
85,500 Microsoft Corp 8,336,250
48,200 Novell Inc * 488,025
4,900 Seagate Technology Corp 231,525
85,199 Storage Technology Corp * 3,557,058
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
408,400 Tandem Computers Inc * 5,105,000
6,500 Xerox Corp 406,250
------------
32,290,635
------------
TELECOMMUNICATIONS -- 5.8%
97,600 AT & T Corp 3,891,800
5,900 Bell Atlantic Corp 407,838
4,600 Bellsouth Corp 215,625
22,500 Comsat Corp 590,625
30,000 Cox Communications, Class A 603,750
20,000 Frontier Corp 442,500
95,400 GTE Corp 4,459,950
106,700 MCI Communications Corp 3,814,525
11,600 Nextel Communications Inc, Class A 165,300
8,000 NYNEX Corp 412,000
40,400 Pacific Telesis Group 1,646,300
50,000 SBC Communications 2,875,000
31,700 Sprint Corp 1,442,350
100,000 Tele-Communications, Class A 1,187,500
77,400 US West Inc 2,786,400
107,900 US West Media Group 1,982,663
4,100 Viacom Inc Class B 144,525
------------
27,068,651
------------
TOBACCO -- 1.8%
24,100 American Brands Inc 1,268,263
81,250 Imperial Tobacco Group Plc ADR 1,125,426
45,900 Philip Morris Cos Inc 6,202,238
------------
8,595,927
------------
TRANSPORTATION -- 1.3%
17,500 American West Holdings Corp, Class B 242,813
15,700 AMR Corp * 1,234,413
9,100 Burlington Northern Santa Fe Railroad Co 757,575
90,000 Canadian Pacific 2,227,500
437 Conrail Inc 45,667
8,700 CSX Corp 401,288
4,200 Delta Air Lines Inc 338,100
2,700 Federal Express Corp 139,050
5,000 Newport News Shipbuilding 77,500
7,500 Overseas Shipholding Group Inc 130,313
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- CONTINUED
10,000 Ryder System Inc 315,000
1,100 UAL Corp 62,425
1,600 Union Pacific Corp 96,400
------------
6,068,044
------------
UTILITIES -- 8.5%
4,300 AES Corp * 281,113
12,000 American Water Works Co 280,500
5,700 Baltimore Gas and Electric Co 156,750
5,800 Boston Edison Co 155,150
50,000 Calpine Corp 918,750
29,300 Centerior Energy Corp 303,988
32,500 Cinergy Corp 1,121,250
10,100 CMS Energy Corp 330,775
7,000 Coastal Corp 318,500
35,300 Consolidated Edison 1,089,888
6,300 Delmarva Power and Light Co 122,063
3,300 Dominion Resources Inc 132,825
20,000 DPL Inc 492,500
2,700 DQE Inc 79,988
15,800 DTE Energy Co 477,950
79,300 Edison International 1,704,950
6,600 Enova Corp 147,675
90,400 Entergy Corp 2,384,300
5,000 Florida Progress Corp 157,500
4,400 FPL Group Inc 200,200
24,400 General Public Utilities Inc 854,000
4,600 Houston Industries Inc 106,950
25,500 Illinova Corp 637,500
18,400 Long Island Lighting Co 423,200
12,300 Midamerican Energy Holding Co 202,950
3,500 Montana Power Co 76,563
7,200 New England Electric System 251,100
11,900 New York State Electric and Gas Corp 276,675
232,300 Niagara Mohawk Power Corp * 2,381,075
32,800 Northeast Utilities 340,300
52,500 Ohio Edison Co 1,181,250
3,400 Pacific Enterprises 103,700
25,000 Pacificorp 515,625
24,900 Peco Energy Co 560,250
154,800 PG & E Corp 3,560,400
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
4,800 Pinnacle West Capital Corp 150,000
10,100 PP & L Resources Inc 231,038
70,300 Public Service Enterprise Group Inc 1,977,188
17,500 Southern Co 380,625
254,900 Texas Utilities Co 10,291,588
25,000 TransCanada Pipeline Ltd 459,375
174,300 Unicom Corp 3,878,116
5,200 Western Resources Inc 157,300
------------
39,853,383
------------
TOTAL COMMON STOCKS (COST $357,176,193) 412,953,408
------------
PREFERRED STOCKS -- 4.2%
AUTOMOTIVE -- 0.1%
23,900 Mascotech Industries Inc Convertible $1.20 421,238
------------
BANKING AND FINANCIAL SERVICES -- 0.2%
22,500 Time Warner Financing Convertible $1.24 939,375
------------
FOOD AND BEVERAGE -- 0.9%
600,000 RJR Nabisco Holdings Convertible Series C 9.25% 4,275,000
------------
MANUFACTURING -- 1.2%
360,000 Westinghouse Electric Corp Convertible $1.30 144A 5,580,000
------------
METALS AND MINING -- 0.1%
7,500 Freeport McMoran Corp $0.34 248,437
------------
PAPER AND ALLIED PRODUCTS -- 0.8%
20,000 Boise Cascade Corp Series G $1.58 540,000
100,200 James River Corp Convertible 9.00% 3,068,625
------------
3,608,625
------------
REFINING -- 0.3%
30,000 Unocal Corp 144A Convertible 6.25% 1,627,500
------------
TRANSPORTATION -- 0.6%
23,900 Navistar International Corp $6.00 1,386,200
27,500 US Air Group Inc Convertible Series B 8.75% * 1,615,625
------------
3,001,825
------------
TOTAL PREFERRED STOCKS (COST $16,228,050) 19,702,000
------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 9.3%
REPURCHASE AGREEMENTS -- 3.9%
$18,186,275 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $18,193,625 and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from
7.25% to 11.88%, with maturity dates ranging
from 11/15/03 to 5/15/20
and with an aggregate market value of
$18,569,694. 18,186,275
-------------
U.S. GOVERNMENT -- 0.2%
$ 1,000,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 987,746
-------------
CASH EQUIVALENTS -- 5.2%(B)
2,945,159 American AAdvantage Money Market Fund 2,945,159
$ 1,428,615 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 1,428,615
$ 1,780,506 Harris Bank and Trust Eurodollar Time
Deposit, 5.375% due 3/3/97 1,780,506
15,173,393 Merrimac Cash Fund Premium Class 15,173,393
$ 3,000,000 Prudential Securities Group Inc Master Note,
5.60% due 3/3/97 3,000,000
-------------
24,327,673
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $43,501,488) 43,501,694
-------------
TOTAL INVESTMENTS -- 101.4%
(Cost $416,905,731) ** 476,157,102
Other Assets and Liabilities (net) -- (1.4)% (6,565,740)
-------------
TOTAL NET ASSETS -- 100% $ 469,591,362
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
144A Securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold
in transactions exempt from registration, normally to
qualified institutional investors.
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
** The aggregate identified cost for federal income tax
purposes is $418,002,905, resulting in gross unrealized
appreciation and depreciation of $67,206,417 and
$9,052,220, respectively, and net unrealized
appreciation of $58,154,197.
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $416,905,731) (Note 1) $476,157,102
Receivable for investments sold 21,559,723
Dividends and interest receivable 1,099,298
Receivable for expenses waived or borne by Manager (Note 2) 92,362
------------
Total assets 498,908,485
------------
LIABILITIES:
Payable for investments purchased 2,239,551
Payable upon return of securities loaned (Note 1) 24,327,673
Payable for Fund shares repurchased 2,226,000
Payable to affiliate for (Note 2):
Management fee 256,602
Shareholder service fee 54,986
Accrued expenses 51,307
Payable for open swap contracts (Notes 1 and 6) 154,789
Payable for variation margin on open futures contracts (Notes 1
and 6) 6,215
------------
Total liabilities 29,317,123
------------
NET ASSETS $469,591,362
============
NET ASSETS CONSIST OF:
Paid-in-capital $375,404,716
Accumulated undistributed net investment income 1,263,932
Accumulated undistributed net realized gain 34,051,747
Net unrealized appreciation 58,870,967
------------
$469,591,362
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $469,591,362
============
SHARES OUTSTANDING:
Class III 31,629,482
============
NET ASSET VALUE PER SHARE:
Class III $ 14.85
============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $17,955) $ 8,900,987
Interest (including securities lending income of $22,597) 887,729
-----------
Total income 9,788,716
-----------
EXPENSES:
Management fee (Note 2) 2,462,093
Custodian and transfer agent fees 73,826
Audit fees 48,418
Legal fees 16,326
Registration fees 5,105
Trustees fees (Note 2) 1,690
Miscellaneous 3,440
Fees waived or borne by Manager (Note 2) (871,498)
-----------
1,739,400
Shareholder service fee (Note 2)
Class III 406,469
-----------
Net expenses 2,145,869
-----------
Net investment income 7,642,847
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 65,692,516
Closed futures contracts (1,861,159)
Closed swap contracts (1,056,607)
-----------
Net realized gain 62,774,750
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (1,085,406)
Open futures contracts (170,807)
Open swap contracts 110,073
-----------
Net unrealized loss (1,146,140)
-----------
Net realized and unrealized gain 61,628,610
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $69,271,457
===========
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,642,847 $ 8,732,608
Net realized gain 62,774,750 57,961,119
Change in net unrealized appreciation
(depreciation) (1,146,140) 33,360,660
------------ ------------
Net increase in net assets resulting from
operations 69,271,457 100,054,387
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (7,540,588) (9,263,106)
------------ ------------
Net realized gains
Class III (44,759,234) (32,854,343)
------------ ------------
(52,299,822) (42,117,449)
------------ ------------
Net share transactions: (Note 5)
Class III 135,007,878 (91,019,550)
------------ ------------
Increase (decrease) in net assets
resulting from net share transactions 135,007,878 (91,019,550)
------------ ------------
Total increase (decrease) in net assets 151,979,513 (33,082,612)
NET ASSETS:
Beginning of period 317,611,849 350,694,461
------------ ------------
End of period (including accumulated
undistributed net investment
income of $1,263,932 and $1,384,221,
respectively) $469,591,362 $317,611,849
============ ============
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94
-------- -------- -------- -------- ----------
Income from investment
operations:
Net investment income 0.31 0.39 0.41 0.43 0.38
Net realized and
unrealized gain 2.47 3.71 0.32 1.27 0.98
-------- -------- -------- -------- ----------
Total from investment
operations 2.78 4.10 0.73 1.70 1.36
-------- -------- -------- -------- ----------
Less distributions to
shareholders:
From net investment income (0.32) (0.39) (0.45) (0.40) (0.38)
From net realized gains (1.86) (1.51) (1.71) (1.32) (0.42)
-------- -------- -------- -------- ----------
Total distributions (2.18) (1.90) (2.16) (1.72) (0.80)
-------- -------- -------- -------- ----------
NET ASSET VALUE, END OF
PERIOD $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50
======== ======== ======== ======== ==========
TOTAL RETURN(A) 21.26% 35.54% 6.85% 13.02% 11.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $469,591 $317,612 $350,694 $679,532 $1,239,536
Net expenses to average
daily net assets 0.61% 0.61% 0.61% 0.61% 0.62%
Net investment income to
average daily net assets 2.17% 2.66% 2.86% 2.70% 3.15%
Portfolio turnover rate 84% 65% 77% 35% 50%
Average broker commission
rate per equity share(b) $ .0457 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.04 $ 0.02 $ 0.02 $ 0.02 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
20 See accompanying notes to the financial statements.
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Value Fund (the "Fund"), formerly named the GMO Value Allocation
Fund, is a series of GMO Trust (the "Trust"). The Fund is registered under
the Investment Company Act of 1940, as amended, as an open-end, non-
diversified management investment company. The Fund is advised and managed
by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The
Trust was established as a Massachusetts Business Trust under the laws of
the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
21
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $22,715,970, collateralized by
cash in the amount of $24,327,673, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument.
22
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for return of capital dividends and redemptions in-
kind. Gains associated with such in-kind redemptions accounted to
$1,510,374.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
$(222,548) $(2,878,716) $3,101,264
</TABLE>
23
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .15% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $194,073 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .70% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .46% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .61%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
24
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $1,690. No
remuneration is paid to any Trustee or officer who is affiliated with
the Manager.
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and in-kind transactions, for the year ended February 28,
1997, aggregated $332,412,776 and $262,020,695, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 21% of the outstanding shares of the Fund were held
by one shareholder.
5.SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: ------------------------ --------------------------
Shares Amount Shares Amount
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 9,674,742 $141,074,274 1,619,182 $ 21,822,769
Shares issued to
shareholders
in reinvestment of
distributions 3,486,567 48,679,629 2,797,603 37,463,449
Shares repurchased (3,824,235) (54,746,025) (11,220,138) (150,305,768)
---------- ------------ ----------- -------------
Net increase (decrease) 9,337,074 $135,007,878 (6,803,353) $ (91,019,550)
========== ============ =========== =============
</TABLE>
25
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
36 Russell 2000 March 1997 $ 6,476,400 $ (35,488)
29 S&P 500 March 1997 $11,460,800 $(190,127)
---------
$(225,615)
=========
</TABLE>
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- --------------------------------- --------------
<S> <C> <C> <C>
$ 3,290,979/ 5/16/97 Agreement with Morgan Stanley $9,330
3,155,364 Capital Services, Inc. dated May
20, 1996 to pay (receive) the
notional amount multiplied by the
return on the Standard & Poor's
500 Index (including dividends)
less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and
to receive (pay) the change in
market value of a basket of
selected securities (including
dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
</TABLE>
26
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- --------------------------------- --------------
<S> <C> <C> <C>
2,884,248/ 9/11/97 Agreement with Morgan Stanley (164,119)
2,889,514 Capital Services, Inc. dated
September 9, 1996 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and
to receive (pay) the change in
market value of a basket of
selected securities (including
dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
---------
Net unrealized depreciation $(154,789)
=========
</TABLE>
27
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
69.32% of distributions as net capital gain dividends.
28
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
GMO VALUE FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. Richard A. Mayo, 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. LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Value Fund returned 21.3% for the fiscal
year ended February 28, 1997 as compared to 26.1% for the S&P 500 and 25.1%
for the Russell 1000 Value Index. Consistent with the Fund's investment
objective and policies, the Fund was invested in common stocks throughout
the period.
The Fund is positioned to do well in a moderate to slowing economic
environment, and is tilted toward high quality, defensive and utility
stocks. The most significant negative influence in the Fund during the year
was the combination of an overweighting in utility stocks and an
underweight in bank stocks. For the year, bank stocks outperformed the
aggregate index by 17% and utility stocks underperformed by 18%. In
addition to these strategies, the portfolio was also overweight in
defensive stocks, which underperformed the index. Drug stocks, in
particular, significantly underperformed for the year.
Stock selection added value for the year. Stocks in the best quartile of
our proprietary dividend discount model had a good year, outperforming the
index. Stocks not in any of our three primary selection techniques --
value, momentum and neglect -- underperformed the index, also adding value
to relative performance.
The Fund continues to be positioned to benefit from the outperformance of
utility stocks with attractive fundamentals in a deregulatory environment.
We have, however, trimmed back the Fund's underweight in the banking
sector. The Fund has been substantially restructured to improve risk
control in relation to the benchmark with the expectation that fiscal year
1998 returns will be significantly less volatile than fiscal year 1997
returns.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
30
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Value Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 11/13/90
<S> <C> <C> <C>
Class III 21.1% 17.0% 19.4%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Value Fund S & P 500 Index
<S> <C> <C>
11/13/90 9,986 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
02/28/97 30,505 29,621
</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 14 bp on the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Class I shares and
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO TOBACCO-FREE CORE FUND (A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Tobacco-Free Core Fund at February 28, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at February 28,
1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------
COMMON STOCKS -- 94.5%
AEROSPACE -- 0.8%
6,400 Raytheon Co 301,600
4,500 TRW Inc 235,688
------------
537,288
------------
AUTOMOTIVE -- 3.2%
100 Bandag Inc 4,875
15,700 Chrysler Corp 531,837
20,500 Ford Motor Co 673,937
11,800 General Motors Corp 682,924
1,800 Goodyear Tire & Rubber Co 94,950
4,000 Harley Davidson Inc 149,500
------------
2,138,023
------------
BANKING AND FINANCIAL SERVICES -- 12.7%
6,600 Ahmanson (HF) & Co 271,425
600 American General Corp 26,025
2,100 Amsouth Bancorp 107,625
8,100 Bank of Boston Corp 610,537
8,200 Bank of New York Inc 317,750
3,500 Bankers Trust New York Corp 317,625
7,400 Barnett Banks Inc 342,250
5,635 Bear Stearns Inc 169,061
1,500 Beneficial Corp 103,688
13,464 Chase Manhattan Corp 1,348,082
1,900 Citicorp 221,825
1,000 Comdisco Inc 31,125
2,400 Countrywide Credit Industry Inc 69,900
10,500 Dean Witter Discover & Co 402,938
1,300 Edwards (AG) Inc 46,150
900 First Chicago NBD Corp 52,650
3,900 Fleet Financial Group Inc 237,900
1,300 Golden West Financial Corp 88,075
8,500 Great Western Financial Corp 372,938
1,400 Greenpoint Financial Corp 84,000
1,200 Household International Inc 116,250
2,300 Lehman Brothers Holding Inc 77,338
4,000 Mellon Bank Corp 321,500
2,700 Merrill Lynch 259,200
1,800 Morgan Stanley Group Inc 113,625
900 Paine Webber Group Inc 29,363
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
14,100 PNC Bank Corp 597,487
6,300 Salomon Inc 350,438
1,900 Southern National Corp 73,863
2,100 Student Loan Marketing Association 222,338
2,800 Summit Bancorp 133,700
1,400 Sunamerica Inc 64,225
1,900 Synovus Financial Corp 66,263
10,033 Travelers Group Inc 538,019
3,600 US Bancorp 177,750
------------
8,362,928
------------
CHEMICALS -- 1.0%
1,700 Eastman Chemical Co 93,713
7,600 Monsanto Co 276,450
700 Praxair Inc 34,038
5,200 Union Carbide Corp 245,700
------------
649,901
------------
COMPUTER AND OFFICE EQUIPMENT -- 2.2%
10,800 Compaq Computer Corp * 855,899
7,200 Computer Associates International Inc 313,200
1,100 HBO & Co 63,388
1 NCR Corp 25
1,500 Pitney Bowes Inc 93,188
1,200 Reynolds & Reynolds Inc, Class A 33,600
1,900 Sterling Software Inc 54,388
1,000 Western Digital Corp 59,000
------------
1,472,688
------------
CONSTRUCTION -- 0.3%
3,200 Home Depot Inc 174,400
------------
CONSUMER GOODS -- 3.6%
7,300 Callaway Golf Co 232,688
2,600 Clorox Co 310,700
4,800 CVS Corp 222,000
900 Hasbro Inc 38,475
3,100 Liz Claiborne Inc 125,550
1,800 Newell Co 66,825
3,100 Nike Inc, Class B 222,813
6,500 Procter and Gamble Co 780,812
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------
CONSUMER GOODS -- CONTINUED
3,600 Reebok International Ltd 168,300
2,700 VF Corp 187,650
------------
2,355,813
------------
ELECTRONIC EQUIPMENT -- 0.6%
800 3 Com Corp * 26,487
1,200 Cooper Industries Inc 53,100
1,000 Litton Industries * 43,000
300 Northern Telecom Ltd 21,563
800 Raychem Corp 68,100
4,800 Tellabs Inc 191,400
------------
403,650
------------
ENVIRONMENTAL CONTROL -- 0.1%
4,500 Wheelabrator Technology Inc 64,125
------------
FOOD AND BEVERAGE -- 8.9%
19,900 Anheuser Busch Cos Inc 885,549
23,249 Archer Daniels Midland Co 430,107
29,000 Coca Cola Co 1,768,999
3,100 Coca Cola Enterprises Inc 191,425
9,000 CPC International Inc 757,124
1,100 Dean Foods Co 35,888
1,300 Hormel (Geo A) and Co 34,125
4,100 IBP Inc 95,325
6,800 Pepsico Inc 223,550
15,200 Sara Lee Corp 588,999
3,100 Seagrams Co Ltd 120,900
3,400 Unilever ADR 647,699
400 Universal Foods Corp 13,800
4,100 Whitman Corp 96,350
500 Wrigley (William Jr) Co 29,938
------------
5,919,778
------------
HEALTH CARE -- 2.1%
400 Becton Dickinson & Co 19,700
300 Cardinal Health Inc 18,450
500 Columbia HCA Healthcare Corp 21,000
1,200 Hillenbrand Industries Inc 45,150
5,000 Johnson & Johnson 288,125
200 McKesson Corp 13,250
11,100 Pharmacia & Upjohn Inc 409,313
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------
HEALTH CARE -- CONTINUED
14,100 Tenet Healthcare Corp * 382,463
3,900 United States Surgical Corp 166,238
800 Wellpoint Health Network 34,300
------------
1,397,989
------------
INSURANCE -- 4.3%
1,900 Aetna Life and Casualty Co 157,463
2,900 AFLAC Corp 117,088
4,300 Allstate Corp 272,513
1,200 AMBAC Inc 80,100
800 Cigna Corp 122,300
400 CNA Financial Corp * 44,500
12,800 Conseco Inc 502,399
3,000 Lincoln National Corp 174,375
1,700 MBIA Inc 165,963
2,100 Old Republic International Corp 56,963
1,200 Progressive Corp 79,350
600 Provident Cos Inc 32,700
3,700 Providian Corp 206,738
4,900 Safeco Corp 204,575
4,500 Saint Paul Cos Inc 303,750
2,100 Torchmark Corp 123,638
2,400 Transamerica Corp 210,300
400 USLIFE Corp 19,050
------------
2,873,765
------------
MACHINERY -- 0.3%
2,800 Baker Hughes Inc 99,400
1,100 FMC Corp * 75,625
------------
175,025
------------
MANUFACTURING -- 4.5%
4,800 Corning Inc 180,600
13,300 General Electric Co 1,368,237
2,500 Gillette Co 197,813
4,500 IBM Corp 646,874
4,900 International Game Technology 85,750
1,900 Leggett & Platt Inc 68,163
3,100 Temple Inland Inc 170,888
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------
MANUFACTURING --CONTINUED
3,500 Tyco International Ltd 206,500
900 United Technologies Corp 67,725
------------
2,992,550
------------
METALS AND MINING -- 0.3%
3,100 Allegheny Teledyne Inc 79,050
1,800 Phelps Dodge Corp 128,700
------------
207,750
------------
OIL AND GAS -- 7.8%
4,600 Apache Corp 148,925
3,200 Atlantic Richfield Co 400,000
2,400 Burlington Resources Inc 105,300
4,100 Chevron Corp 264,450
4,300 Columbia Natural Gas Systems Inc 252,625
1,400 Ensco International Inc * 60,725
5,400 Exxon Corp 539,324
8,400 Global Marine Inc * 156,450
600 Mobil Corp 73,650
900 Noble Affiliates Inc 35,100
4,500 Noble Drilling Corp 79,875
3,300 Occidental Petroleum Corp 84,150
1,500 Oryx Energy Co * 30,000
1,500 Pennzoil Co 86,063
10,600 Phillips Petroleum Co 438,575
2,400 Royal Dutch Petroleum Co ADR 415,200
3,700 Schlumberger Ltd 372,313
7,600 Sonat Inc 349,600
7,900 Texaco Inc 781,112
11,400 Unocal Corp 440,325
1,000 USX--Marathon Group 26,625
------------
5,140,387
------------
PAPER AND ALLIED PRODUCTS -- 1.0%
1,400 Champion International Corp 61,775
6,600 International Paper Co 275,550
2,000 Mead Corp 116,500
1,800 Sonoco Products Co 47,250
4,300 Westvaco Corp 126,850
500 Willamette Industries Inc 32,000
------------
659,925
------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------
PHARMACEUTICALS -- 10.1%
27,800 Abbott Laboratories 1,563,749
600 Allergan Inc 20,400
10,100 American Home Products Corp 646,399
13,800 Bristol Myers Squibb Co 1,800,899
3,700 Lilly (Eli) & Co 323,288
9,800 Merck & Co Inc 901,599
3,500 Pfizer Inc 320,688
4,000 Schering Plough Corp 306,500
9,300 Warner Lambert Co 781,199
------------
6,664,721
------------
PRIMARY MATERIALS -- 0.0%
200 Vulcan Materials Co 12,950
------------
PRIMARY PROCESSING -- 0.1%
2,900 USX-US Steel Group Inc 90,988
------------
REFINING -- 0.1%
500 Murphy Oil Corp 23,188
2,600 Tosco Corp 72,475
------------
95,663
------------
RETAIL TRADE -- 5.3%
11,800 Albertsons Inc 415,950
6,500 American Stores Co 290,875
12,400 Dayton Hudson Corp 520,799
6,600 Dillard Department Stores Inc 198,825
3,800 Fruit of the Loom Inc 155,325
6,300 Gap Inc 207,900
25,300 Kmart Corp * 316,250
2,800 May Department Stores Co 130,550
5,300 Penney (JC) Co Inc 261,025
5,600 Safeway Inc * 269,500
2,200 TJX Cos Inc 91,850
12,600 Toys R Us Inc * 327,600
11,900 Wal Mart Stores Inc 313,863
------------
3,500,312
------------
SERVICES -- 0.2%
300 BHC Communications Inc, Class A 30,600
200 Circus Circus Enterprises Inc * 6,250
400 Equifax Inc 11,900
300 Fleming Cos Inc 5,250
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------
SERVICES --CONTINUED
400 Robert Half International Inc 16,650
2,700 Supervalu Inc 83,700
------------
154,350
------------
TECHNOLOGY -- 9.1%
3,000 Advanced Micro Devices Inc * 107,625
2,300 Avnet Inc 143,750
1,400 Cabletron Systems Inc 42,000
8,500 Cisco Systems Inc * 472,813
6,400 Dell Computer Corp 455,200
800 Grainger (WW) Inc 63,400
13,600 Intel Corp 1,929,499
17,700 Microsoft Corp 1,725,749
6,600 Oracle Corp 259,050
200 Seagate Technology Corp 9,450
8,800 Storage Technology Corp * 367,400
7,100 Xerox Corp 443,750
------------
6,019,686
------------
TELECOMMUNICATIONS -- 5.5%
24,200 AT & T Corp 964,974
2,500 Bell Atlantic Corp 172,813
400 Bellsouth Corp 18,750
700 Cincinnati Bell Inc 43,400
5,700 GTE Corp 266,475
7,000 MCI Communications Corp 250,250
5,300 NYNEX Corp 272,950
17,700 Pacific Telesis Group 721,274
18,700 Sprint Corp 850,849
3,200 US West Inc 115,200
------------
3,676,935
------------
TRANSPORTATION -- 1.7%
9,600 Burlington Northern Santa Fe Railroad Co 799,199
3,500 CSX Corp 161,438
4,400 Ryder System Inc 138,600
------------
1,099,237
------------
UTILITIES -- 8.7%
2,300 AES Corp * 150,363
4,800 Allegheny Power System Inc 147,000
7,100 American Electric Power Inc 296,425
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------------
UTILITIES -- CONTINUED
7,300 Baltimore Gas and Electric Co 200,750
3,200 Carolina Power and Light Co 118,800
11,100 Central & South West Corp 270,563
9,200 Cinergy Corp 317,400
1,700 Citizens Utilities, Class B 20,188
4,000 CMS Energy Corp 131,000
3,100 Coastal Corp 141,050
1,700 Dominion Resources Inc 68,425
4,500 DPL Inc 110,813
3,300 DQE Inc 97,763
7,400 Duke Power Co 327,450
17,200 Edison International 369,800
1,600 Enova Corp 35,800
17,000 Entergy Corp 448,375
10,500 Houston Industries Inc 244,125
4,700 Illinova Corp 117,500
2,000 LG&E Energy Corp 49,500
5,500 Long Island Lighting Co 126,500
3,600 New York State Electric and Gas Corp 83,700
1,700 Northern States Power Co 80,963
9,500 Pacificorp 195,938
3,200 Portland General Electric Co 125,200
3,400 Potomac Electric Power Co 86,275
2,100 PP & L Resources Inc 48,038
1,700 Public Service of Colorado 66,300
2,200 Scana Corp 57,475
33,000 Southern Co 717,749
3,500 Teco Energy Inc 85,313
8,300 Texas Utilities Co 335,113
4,500 Wisconsin Energy Corp 115,313
------------
5,786,967
------------
TOTAL COMMON STOCKS (Cost $56,943,215) 62,627,794
------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE/
($) SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 8.3%
CASH EQUIVALENTS -- 4.1%(B)
313,076 American AAdvantage Money Market Fund 313,076
$1,518,597 Bank of Boston Eurodollar Time Deposit, 5.5375%
due 3/3/97 1,518,597
$ 263,678 Harris Bank and Trust Eurodollar Time Deposit,
5.375% due 3/3/97 263,678
601,049 Merrimac Cash Fund Premium Class 601,049
------------
2,696,400
U.S. GOVERNMENT -- 0.4%
$ 250,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 246,937
------------
REPURCHASE AGREEMENTS -- 3.8%
2,554,346 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97, with a
maturity value of $2,555,378 and an effective
yield of 4.85%, collateralized
by U.S. Treasury Obligations with rates ranging
from 7.25% to 11.88%, with maturity dates ranging
from 11/15/03 to 5/15/20 and with an aggregate
market value of $2,608,199. 2,554,346
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,497,561) 5,497,683
------------
TOTAL INVESTMENTS -- 102.8%
(Cost $62,440,776) ** 68,125,477
Other Assets and Liabilities (net) -- (2.8)% (1,865,042)
------------
TOTAL NET ASSETS -- 100% $66,260,435
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures
contracts.
(b) Represents investments of securities lending
collateral. (Note 1).
** The aggregate identified cost for federal
income tax purposes is $62,526,329, resulting in
gross unrealized appreciation and depreciation
of $6,530,150 and $931,002, respectively, and
net unrealized appreciation of $5,599,148.
</TABLE>
See accompanying notes to the financial statements.
9
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $62,440,776) (Note 1) $68,125,477
Receivable for investments sold 1,543,422
Dividends and interest receivable 141,172
Receivable for expenses waived or borne by Manager (Note 2) 15,291
Receivable for Fund shares sold 82,515
-----------
Total assets 69,907,877
-----------
LIABILITIES:
Payable for investments purchased 789,613
Payable upon return of securities loaned (Note 1) 2,696,400
Payable to affiliate for (Note 2):
Management fee 25,701
Shareholder service fee 7,711
Accrued expenses 42,518
Payable for open swap contracts (Notes 1 and 6) 84,699
Payable for variation margin on open futures contracts (Notes 1
and 6) 800
-----------
Total liabilities 3,647,442
-----------
NET ASSETS $66,260,435
===========
NET ASSETS CONSIST OF:
Paid-in-capital $49,503,672
Accumulated undistributed net investment income 165,058
Accumulated undistributed net realized gain 11,004,259
Net unrealized appreciation 5,587,446
-----------
$66,260,435
===========
NET ASSETS ATTRIBUTABLE TO:
Class III shares $66,260,435
===========
SHARES OUTSTANDING:
Class III 5,106,204
===========
NET ASSET VALUE PER SHARE:
Class III $ 12.98
===========
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $2,705) $ 1,127,362
Interest (including securities lending income of $1,975) 220,808
-----------
Total income 1,348,170
-----------
EXPENSES:
Management fee (Note 2) 291,746
Custodian and transfer agent fees 49,146
Audit fees 47,383
Registration fees 3,685
Legal fees 2,851
Trustees fees (Note 2) 321
Miscellaneous 857
Fees waived or borne by Manager (Note 2) (183,825)
-----------
212,164
Shareholder service fee (Note 2)
Class III 67,968
-----------
Net expenses 280,132
-----------
Net investment income 1,068,038
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 17,074,290
Closed futures contracts 549,094
Closed swap contracts (427,720)
-----------
Net realized gain 17,195,664
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (6,061,418)
Open futures contracts (42,551)
Open swap contracts (5,751)
-----------
Net unrealized loss (6,109,720)
-----------
Net realized and unrealized gain 11,085,944
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,153,982
===========
</TABLE>
See accompanying notes to the financial statements.
11
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,068,038 $ 1,281,438
Net realized gain 17,195,664 9,934,207
Change in net unrealized appreciation
(depreciation) (6,109,720) 7,259,517
------------ -----------
Net increase in net assets resulting from
operations 12,153,982 18,475,162
------------ -----------
Distributions to shareholders from:
Net investment income
Class III (1,070,308) (1,114,110)
------------ -----------
Net realized gains
Class III (10,440,389) (6,201,500)
------------ -----------
(11,510,697) (7,315,610)
------------ -----------
Net share transactions: (Note 5)
Class III 8,132,135 (1,643,268)
------------ -----------
Increase (decrease) in net assets
resulting from net share transactions 8,132,135 (1,643,268)
------------ -----------
Total increase in net assets 8,775,420 9,516,284
NET ASSETS:
Beginning of period 57,485,015 47,968,731
------------ -----------
End of period (including accumulated
undistributed net investment income of
$165,058 and $167,328, respectively) $ 66,260,435 $57,485,015
============ ===========
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.24 0.28 0.23 0.34 0.31
Net realized and unrealized gain 2.41 3.71 0.50 1.18 0.84
------- ------- ------- ------- -------
Total from investment operations 2.65 3.99 0.73 1.52 1.15
------- ------- ------- ------- -------
Less distributions to
shareholders:
From net investment income (0.24) (0.25) (0.28) (0.35) (0.30)
From net realized gains (2.36) (1.46) (0.87) (1.45) --
------- ------- ------- ------- -------
Total distributions (2.60) (1.71) (1.15) (1.80) (0.30)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35
======= ======= ======= ======= =======
TOTAL RETURN(A) 22.76% 38.64% 7.36% 14.12% 11.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $66,260 $57,485 $47,969 $55,845 $85,232
Net expenses to average daily net
assets 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to average
daily net assets 1.83% 2.25% 2.52% 2.42% 2.88%
Portfolio turnover rate 131% 81% 112% 38% 56%
Average broker commission rate
per equity share(b) $ .0259 N/A N/A N/A N/A
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.04 $ 0.03 $ 0.03 $ 0.03 $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
See accompanying notes to the financial statements.
13
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange which are not tobacco producing issuers.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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
14
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
the stock markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is liquidated on the following business day. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $2,619,888, collateralized by
cash in the amount of $2,696,400, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is
15
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
16
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $14,385 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $321. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended February 28, 1997, aggregated
$70,870,549 and $87,252,931, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 92% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
17
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
5.SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: ------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,730,490 $ 22,801,781 781,571 $ 9,065,588
Shares issued to
shareholders in
reinvestment of
distributions 933,753 11,510,697 594,645 7,315,610
Shares repurchased (2,002,361) (26,180,343) (1,434,132) (18,024,466)
---------- ------------ ---------- ------------
Net increase (decrease) 661,882 $ 8,132,135 (57,916) $ (1,643,268)
========== ============ ========== ============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
4 Russell 2000 March 1997 $ 719,600 $ (3,943)
4 S&P 500 March 1997 1,580,800 (8,613)
--------
$(12,556)
========
</TABLE>
18
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- --------------------------------- --------------
<S> <C> <C> <C>
$1,403,323/ 5/16/97 Agreement with Morgan Stanley $ 3,978
1,345,495 Capital Services, Inc. dated May
20, 1996 to pay (receive) the
notional amount multiplied by the
return on the Standard & Poor's
500 Index (including dividends)
less the notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread
and to receive (pay) the change
in market value of a basket of
selected securities (including
dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
1,558,424/ 9/11/97 Agreement with Morgan Stanley (88,677)
1,561,269 Capital Services, Inc. dated
September 9, 1996 to pay (receive)
the notional amount multiplied by
the return on the Standard & Poor's
500 Index (including dividends)
less the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread and to receive (pay)
the change in market value of a basket
of selected securities (including
dividends) less the counterparty's
notional amount multiplied by 6
month LIBOR adjusted by a specified
spread.
--------
Net unrealized depreciation $(84,699)
========
</TABLE>
19
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
77.10% of distributions as net capital gain dividends.
20
<PAGE>
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. LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Tobacco-Free Core Fund returned 22.8% for
the fiscal year ended February 28, 1997, as compared to 26.1% 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.
The majority of the Fund's performance shortfall was due to three sector
strategies which underperformed for the year. The first of these strategies
involved underweighting banks and overweighting utilities, a strategy which
was based upon our view that utility stocks are significantly undervalued
relative to their historical levels, and that banks, which are in the sixth
year of a rally off their 1990 laws, are overvalued. Historically both
sectors have underperformed in periods of rising interest rates and the
strategy was expected to have a neutral impact if rates did not fact
increase. This year, however, banks moved up and utilities moved down
relative to the market in an environment of rising interest rates.
Therefore, rather than having the neutralizing effect that was intended,
both strategies hurt the performance of the Fund.
The second sector strategy, overweighting defensive stocks and
underweighting cyclical stocks, also impacted performance negatively,
primarily during the rally of cyclical stocks in the early part of the
year. Last, our underweight position in the largest 100 industrials hurt
relative performance in an environment where the largest capitalization
stocks carried the market, significantly outperforming smaller industrial
stocks for the year.
Tobacco stocks had a strong year, outperforming the S&P 500 by 10%;
therefore the result of not owning tobacco stocks in the Fund had a
slightly negative impact for the year.
In addition to the aforementioned sector bets, the three GMO stock
selection parameters -- value, momentum and neglect -- had mixed results
for the year. Relative to the S&P 500, our dividend discount model provided
positive contributions to return while the momentum and neglect models both
experienced negative value-added versus the index.
OUTLOOK
The Fund's overweighting in utility stocks, which is in companies with good
fundamental prospects in the continuing deregulatory environment, remains
unchanged. We are also overweight in small-cap stocks, which appear very
attractive relative to their historical levels and to the valuations for
large capitalization stocks.
21
<PAGE>
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
With large-cap value stocks approaching more attractive valuation levels
following the rally of large-cap growth stocks, we have increased the
weight of the value stream in the portfolio. The weights of the momentum
and neglect streams have been reduced somewhat.
We believe that growth of the derivatives markets and increased
participation of hedge funds has made stock and sector moves sharper and
less predictable. As a result, we have enhanced our risk controls to
accommodate a more volatile and difficult market environment. We are
confident that with stricter risk parameters in place, the Tobacco-Free
Core Fund's volatility will resume the well-controlled behavior that has
been the cornerstone of our long-term performance.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
22
<PAGE>
Comparison of Change in Value of a $10,000 Investment in GMO
Tobacco-Free Core Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10/31/91
<S> <C> <C> <C>
Class III 22.6% 18.3% 18.2%
<CAPTION>
[Line Graph Appears Here]
Date GMO Tobacco-Free Core Fund S & P 500 Index
<S> <C> <C>
10/31/91 9,986 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
02/28/97 24,445 23,251
</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. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 14bp on the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Class I shares and
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of GMO
Fundamental Value Fund at February 28, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at February 28,
1997 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 88.1%
AEROSPACE -- 0.1%
1,500 Boeing Company 152,614
------------
AUTOMOTIVE -- 2.0%
5,000 Chrysler Corp 169,375
7,500 Ford Motor Co 246,563
20,000 General Motors Corp 1,157,500
150,000 Mascotech Industries Inc 2,850,000
10,000 Titan Wheel International Inc 141,250
------------
4,564,688
------------
BANKING AND FINANCIAL SERVICES -- 9.4%
45,000 American Express Co 2,941,875
125,000 Block (HR) Inc 3,671,875
50,000 Chase Manhattan Corp 5,006,250
37,500 Citicorp 4,378,125
15,000 Great Western Financial Corp 658,125
5,000 Nationsbank Corp 299,375
20,000 PNC Bank Corp 847,500
50,000 Travelers Group Inc 2,681,250
5,000 Wells Fargo & Co 1,521,250
------------
22,005,625
------------
CHEMICALS -- 1.1%
10,000 Agrium Inc 137,500
25,000 Albemarle Corp 490,625
10,000 Borden Chemical & Plastics L. P. 115,000
10,000 Engelhard Corp 221,250
12,500 Georgia Gulf Corp 337,500
12,500 IMC Global Inc 435,938
5,000 Lubrizol Corp 173,125
15,357 Millenium Chemicals Inc 293,703
22,500 Wellman Inc 393,750
------------
2,598,391
------------
COMPUTER AND OFFICE EQUIPMENT -- 0.5%
100,000 Intergraph Corp * 825,000
2,500 Micron Technology 93,750
1 NCR Corp 8
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------
<C> <S> <C>
COMPUTER AND OFFICE EQUIPMENT -- CONTINUED
10,000 Silicon Graphics Inc * 241,250
------------
1,160,008
------------
CONSTRUCTION -- 0.2%
28,125 Hanson PLC ADR 625,781
------------
CONSUMER GOODS -- 4.8%
35,000 Black and Decker Corp 1,106,875
20,000 Burlington Industries Inc 257,500
70,000 Eastman Kodak Co 6,273,750
5,000 Jostens Inc 107,500
35,000 Maytag Corp 770,000
2,500 Procter and Gamble Co 300,313
100,000 Safety Kleen 1,800,000
25,000 Scotts Company, Class A 531,250
------------
11,147,188
------------
ELECTRONIC EQUIPMENT -- 0.3%
25,000 International Rectifier Corp * 337,500
2,500 Motorola Inc 139,688
5,000 National Semiconductor Corp * 130,625
------------
607,813
------------
ENVIRONMENTAL CONTROL -- 2.7%
85,000 Wheelabrator Technology Inc 1,211,250
162,500 WMX Technologies 5,139,063
------------
6,350,313
------------
FOOD AND BEVERAGE -- 2.4%
12,500 Anheuser Busch Cos Inc 556,250
25,000 Coors (Adolph) Co 534,375
25,000 Cott Corp 246,093
25,000 Darden Restaurants Inc 181,250
45,000 Nestle SA ADR 2,449,791
20,000 Sara Lee Corp 775,000
4,000 Unilever NV ADR 762,000
------------
5,504,759
------------
HEALTH CARE -- 2.2%
42,500 Baxter International Inc 1,955,000
10,000 Bergen Brunswig Corp, Class A 321,250
75,000 Beverly Enterprises Inc * 1,078,125
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- CONTINUED
5,000 Haemonetics Corp * 86,250
7,500 Johnson & Johnson 432,188
7,500 Nellcor Puritan Bennett Inc 130,313
50,000 Owens and Minor Holdings Co 512,500
25,000 Perrigo Co * 303,125
5,625 Quest Diagnostics Inc 94,922
20,000 Transitional Hospitals * 180,000
------------
5,093,673
------------
INSURANCE -- 6.5%
7,500 Aetna Life and Casualty Co 621,563
10,000 Allamerica Financial Corp 373,750
25,000 Allstate Corp 1,584,375
15,000 Chartwell Re Corp 412,500
2,500 Cigna Corp 382,188
1,900 Gallagher (Arthur J) and Co 58,425
5,000 Loews Corp 510,625
200,000 Reliance Group Holdings Inc 2,175,000
50,000 Sedgwick Group ADR 517,995
125,000 TIG Holdings Inc 4,468,750
10,000 Transamerica Corp 876,250
50,000 USF & G Corp 1,125,000
25,000 Washington National Corp 712,500
70,000 Willis Corroon Group Plc ADR 848,750
10,000 Zurich Reinsurance Centre Inc 383,750
------------
15,051,421
------------
MACHINERY -- 1.5%
75,000 Cincinnati Milacron Inc 1,612,500
10,000 Cummins Engine Inc 506,250
15,000 FMC Corp * 1,031,250
25,000 Giddings and Lewis Inc 345,313
------------
3,495,313
------------
MANUFACTURING -- 9.0%
35,000 American Greetings Corp 1,085,000
45,000 Corning Inc 1,693,125
22,500 General Electric Co 2,314,688
50,000 Griffon Corp * 700,000
30,000 IBM Corp 4,312,500
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- CONTINUED
15,000 Lafarge Corp 348,750
95,000 Owens Corning 4,025,625
40,000 Rockwell International Corp 2,590,000
22,500 Tenneco Inc 885,938
40,000 United Technologies Corp 3,010,000
------------
20,965,626
------------
METALS AND MINING -- 2.3%
7,500 Alcan Aluminum Ltd 269,063
102,500 Allegheny Teledyne Inc 2,613,750
35,000 Amcol International Corp 660,625
10,000 Asarco Inc 312,500
10,000 Cyprus Amax Minerals Co 233,750
10,001 Echo Bay Mines Ltd 77,505
10,000 Falconbridge Ltd 233,374
5,000 Newmont Mining Corp 237,500
25,000 Pittston Minerals Group 362,500
10,000 Placer Dome Inc 215,000
2,500 Reynolds Metals Co 156,875
------------
5,372,442
------------
OIL AND GAS -- 9.0%
10,000 Amerada Hess Corp 533,750
5,000 Atlantic Richfield Co 625,000
25,000 Cabot Oil & Gas Corp, Class A 396,875
15,000 Coflexip SA ADR * 417,188
5,000 Dresser Industries Inc 151,875
50,000 Enron Oil & Gas 1,012,500
45,000 Enserch Corp 945,000
75,000 Lasmo Plc ADR 890,625
25,000 Mitchell Energy, Class A 525,000
55,000 Mitchell Energy, Class B 1,182,500
110,000 Noram Energy Corp 1,650,000
25,000 Occidental Petroleum Corp 637,500
80,000 Panenergy Corp 3,410,000
17,500 Questar Corp 634,375
5,000 Texaco Inc 494,375
5,000 Total SA 198,125
50,000 Union Texas Petroleum Holdings Inc 925,000
45,000 Unocal Corp 1,738,125
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------
<C> <S> <C>
OIL AND GAS -- CONTINUED
125,000 USX -- Marathon Group 3,328,125
75,000 Westcoast Energy Inc 1,359,375
------------
21,055,313
------------
PAPER AND ALLIED PRODUCTS -- 1.0%
10,000 Champion International Corp 441,250
10,000 International Paper Co 417,500
25,000 James River Corp 818,750
5,000 Jefferson Smurfit Corp 68,125
2,500 Stone Container Corp 32,500
12,500 Weyerhaeuser Co 578,125
------------
2,356,250
------------
PHARMACEUTICALS -- 1.3%
7,500 Glaxo Wellcome Plc ADR 254,063
25,000 Lilly (Eli) & Co 2,184,375
7,500 Smithkline Beecham Plc 556,875
------------
2,995,313
------------
PRIMARY PROCESSING -- 0.9%
25,000 Armco Inc * 103,125
5,000 Dow Chemical Co 405,000
5,000 Du Pont (EI) De Nemours & Co Inc 536,250
25,000 Intermet Corp 378,125
25,000 Northwestern Steel And Wire 106,250
15,000 USX-US Steel Group Inc 470,625
------------
1,999,375
------------
PRINTING AND PUBLISHING -- 0.5%
50,000 News Corporation Ltd ADR 1,062,500
------------
REAL ESTATE -- 3.5%
50,000 Amli Residential Properties Trust 1,187,500
35,000 Crown American Realty Trust 275,625
3,800 Irvine Apartment Communities 102,600
85,000 JP Realty Inc 2,188,750
10,000 Regency Realty Corp 273,750
30,000 Simon Debartolo Group Inc 903,750
77,500 Summit Properties Inc 1,569,375
62,500 Walden Residential Properties Inc 1,609,375
------------
8,110,725
------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------
<C> <S> <C>
REFINING -- 0.2%
37,500 Quaker State Corp 548,438
------------
RETAIL TRADE -- 2.8%
15,000 American Stores Co 671,250
75,000 Costco Cos Inc 1,921,875
35,000 Federated Department Stores 1,216,250
105,000 Wal Mart Stores Inc 2,769,375
------------
6,578,750
------------
SERVICES -- 1.6%
20,000 Cordiant Plc ADR * 97,500
15,000 Manpower Inc 566,250
25,000 Morningstar Group Inc * 575,000
50,000 Ogden Corp 1,018,750
22,000 Pinkertons Inc 580,250
112,500 Waste Management International PLC ADR 843,750
------------
3,681,500
------------
TECHNOLOGY -- 7.3%
35,000 Avnet Inc 2,187,500
15,000 Bay Networks Inc * 285,000
45,000 Data General Corp * 871,875
75,000 Digital Equipment Corp * 2,456,250
10,000 Intel Corp 1,418,750
25,000 Novell Inc * 253,125
117,500 Storage Technology Corp * 4,905,625
287,500 Tandem Computers Inc * 3,593,750
15,000 Xerox Corp 937,500
------------
16,909,375
------------
TELECOMMUNICATIONS -- 5.4%
12,500 AT & T Corp 498,438
5,000 Bell Atlantic Corp 345,625
25,000 Cox Communications, Class A 503,125
5,000 Frontier Corp 110,625
90,000 GTE Corp 4,207,500
7,500 Liberty Media Group, Class A 157,500
2,500 Lucent Technologies 134,687
50,000 MCI Communications Corp 1,787,500
25,000 Pacific Telesis Group 1,018,750
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS -- CONTINUED
10,000 SBC Communications 575,000
7,500 TCI Satellite Entertainment, Class A 60,000
75,000 Tele-Communications, Class A 890,625
25,000 US West Inc 900,000
75,000 US West Media Group 1,378,125
------------
12,567,500
------------
TOBACCO -- 0.4%
75,000 Imperial Tobacco Group Plc ADR 1,038,855
------------
TRANSPORTATION -- 1.9%
12,500 AMR Corp * 982,813
80,000 Canadian Pacific 1,980,000
7,500 Delta Air Lines Inc 603,750
10,000 Hunt (JB) Transportation Services Inc 138,750
10,000 Navistar International Corp * 96,250
5,000 Overseas Shipholding Group Inc 86,875
10,000 Ryder System Inc 315,000
10,000 USAir Group Inc * 197,500
------------
4,400,938
------------
UTILITIES -- 7.3%
50,000 Calpine Corp 918,750
20,000 Cinergy Corp 690,000
5,000 CMS Energy Corp 163,750
25,000 DPL Inc 615,625
15,000 DTE Energy Co 453,750
28,125 Energy Group PLC ADR 956,250
52,500 Entergy Corp 1,384,688
125,000 Niagara Mohawk Power Corp * 1,281,250
25,000 Northeast Utilities 259,375
25,000 Ohio Edison Co 562,500
37,200 Pacificorp 767,250
20,000 PG & E Corp 460,000
25,000 Public Service Enterprise Group Inc 703,125
25,000 Southern Co 543,750
87,500 Texas Utilities Co 3,532,813
75,000 TransCanada Pipeline Ltd 1,378,125
100,000 Unicom Corp 2,225,000
------------
16,896,001
------------
TOTAL COMMON STOCKS (COST $149,117,271) 204,896,488
------------
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 10.2%
AUTOMOTIVE -- 0.3%
38,600 Mascotech Industries Inc Convertible $1.20 680,325
------------
BANKING AND FINANCIAL SERVICES -- 0.2%
10,000 Time Warner Financing Convertible $1.24 417,500
------------
FOOD AND BEVERAGE -- 1.6%
525,000 RJR Nabisco Holdings Convertible Series C 9.25% 3,740,625
------------
INSURANCE -- 0.6%
25,000 Alexander & Alexander Services Inc Convertible $3.63 144A 1,318,750
------------
MANUFACTURING -- 1.6%
237,500 Westinghouse Electric Corp Convertible $1.30 144A 3,681,250
------------
METALS AND MINING -- 0.8%
5,000 Battle Mountain Gold Convertible $3.25 255,000
50,300 Freeport McMoran Corp $0.34 1,666,188
------------
1,921,188
------------
OIL AND GAS -- 0.5%
15,000 Atlantic Richfield Co Convertible 9.00% 343,125
75,000 Santa Fe Energy Resources Inc Convertible 8.25% 815,625
------------
1,158,750
------------
PAPER AND ALLIED PRODUCTS -- 1.6%
25,000 Boise Cascade Corp Series G $1.58 675,000
97,500 James River Corp Convertible 9.00% 2,985,938
------------
3,660,938
------------
PRIMARY PROCESSING -- 0.1%
5,000 Armco Inc Convertible $3.625 207,500
------------
REFINING -- 1.4%
24,500 Ashland Inc Convertible $3.125 1,592,500
30,000 Unocal Corp Convertible 6.25% 144A 1,627,500
------------
3,220,000
------------
</TABLE>
See accompanying notes to the financial statements.
8
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
SERVICES -- 0.2%
25,000 International Technology Corp Convertible 7.00% 462,500
------------
TELECOMMUNICATIONS -- 0.2%
15,000 Sprint Corp Convertible 8.25% 526,875
------------
TRANSPORTATION -- 1.0%
26,100 Navistar International Corp $6.00 1,513,800
15,000 US Air Group Inc Convertible Series B $4.38 * 881,250
------------
2,395,050
------------
UTILITIES -- 0.1%
10,000 MCN Corp Convertible 285,000
------------
TOTAL PREFERRED STOCKS (COST $20,193,514) 23,676,251
------------
DEBT OBLIGATIONS -- 0.8%
HEALTH CARE -- 0.5%
$2,500,000 Roche Holdings Inc, 0.00% due 4/20/10 1,156,250
------------
OIL AND GAS -- 0.3%
$1,000,000 Noram Energy Corp, 6.00% due 3/15/12 875,000
------------
TOTAL DEBT OBLIGATIONS (COST $1,812,697) 2,031,250
------------
SHORT-TERM INVESTMENTS -- 5.7%
REPURCHASE AGREEMENTS -- 0.5%
$1,124,989 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97, with a maturity value of
$1,125,443 and an effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25% to 11.88%, with
maturity dates ranging from 11/15/03 to
5/15/20 and with an aggregate market value of
$1,148,707. 1,124,989
------------
CASH EQUIVALENTS -- 5.2%(A)
1,403,114 American AAdvantage Money Market Fund 1,403,114
$4,166,139 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 4,166,139
$1,182,520 Harris Bank and Trust Eurodollar Time Deposit,
5.375% due 3/3/97 1,182,520
2,340,827 Merrimac Cash Fund Premium Class 2,340,827
$3,000,000 Prudential Securities Group Inc Master Note,
5.60% due 3/3/97 3,000,000
------------
12,092,600
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$13,217,589) 13,217,589
------------
</TABLE>
See accompanying notes to the financial statements.
9
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS -- 104.8%
(Cost $184,341,071) ** 243,821,578
------------
Other Assets and Liabilities (net)--(4.8)% (11,238,354)
------------
TOTAL NET ASSETS -- 100% $232,583,224
============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from
registration, normally to qualified institutional
investors.
(a)Represents investments of security lending
collateral (Note 1).
* Non-income producing security.
** The aggregate identified cost for federal income
tax purposes is $184,521,015, resulting in gross
unrealized appreciation and depreciation of
$64,837,079 and $5,536,516, respectively, and net
unrealized appreciation of $59,300,563.
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $184,341,071) (Note 1) $243,821,578
Receivable for investments sold 711,905
Dividends and interest receivable 609,957
Receivable for expenses waived or borne by Manager (Note 2) 33,615
------------
Total assets 245,177,055
------------
LIABILITIES:
Payable for investments purchased 295,700
Payable upon return of securities loaned (Note 1) 12,092,600
Payable to affiliate for (Note 2):
Management fee 136,440
Shareholder service fee 27,288
Accrued expenses 41,803
------------
Total liabilities 12,593,831
------------
NET ASSETS $232,583,224
============
NET ASSETS CONSIST OF:
Paid-in-capital $162,849,002
Accumulated undistributed net investment income 938,206
Accumulated undistributed net realized gain 9,315,509
Net unrealized appreciation 59,480,507
------------
$232,583,224
============
NET ASSETS ATTRIBUTABLE TO:
Class III shares $232,583,224
============
SHARES OUTSTANDING:
Class III 14,246,178
============
NET ASSET VALUE PER SHARE:
Class III $ 16.33
============
</TABLE>
See accompanying notes to the financial statements.
11
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $6,110) $ 6,026,703
Interest (including securities lending income of $20,828) 259,649
-----------
Total income 6,286,352
-----------
EXPENSES:
Management fee (Note 2) 1,627,950
Audit fees 47,571
Custodian and transfer agent fees 41,247
Legal fees 10,176
Registration fees 1,528
Trustees fees (Note 2) 1,098
Miscellaneous 1,638
Fees waived or borne by Manager (Note 2) (347,372)
-----------
1,383,836
Shareholder service fee (Note 2)
Class III 244,167
-----------
Net expenses 1,628,003
-----------
Net investment income 4,658,349
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 18,434,364
Change in net unrealized appreciation (depreciation) on
investments 17,227,189
-----------
Net realized and unrealized gain 35,661,553
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $40,319,902
===========
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,658,349 $ 5,198,684
Net realized gain 18,434,364 15,932,806
Change in net unrealized appreciation
(depreciation) 17,227,189 30,653,753
------------ ------------
Net increase in net assets resulting from
operations 40,319,902 51,785,243
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (4,445,572) (5,212,954)
------------ ------------
Net realized gains
Class III (17,043,498) (10,547,076)
------------ ------------
(21,489,070) (15,760,030)
------------ ------------
Net share transactions: (Note 5)
Class III 1,324,046 (6,467,774)
------------ ------------
Increase (decrease) in net assets
resulting from net share transactions 1,324,046 (6,467,774)
------------ ------------
Total increase in net assets 20,154,878 29,557,439
NET ASSETS:
Beginning of period 212,428,346 182,870,907
------------ ------------
End of period (including accumulated
undistributed net investment income of
$938,206 and $875,858, respectively) $232,583,224 $212,428,346
============ ============
</TABLE>
See accompanying notes to the financial statements.
13
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82
-------- -------- -------- -------- -------
Income from investment
operations:
Net investment income 0.33 0.37 0.34 0.27 0.30
Net realized and unrealized
gain 2.53 3.26 0.55 1.64 1.32
-------- -------- -------- -------- -------
Total from investment
operations 2.86 3.63 0.89 1.91 1.62
-------- -------- -------- -------- -------
Less distributions to
shareholders:
From net investment income (0.32) (0.37) (0.32) (0.28) (0.30)
From net realized gains (1.25) (0.76) (0.52) (0.85) (0.43)
-------- -------- -------- -------- -------
Total distributions (1.57) (1.13) (0.84) (1.13) (0.73)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71
======== ======== ======== ======== =======
TOTAL RETURN(A) 20.03% 29.95% 7.75% 16.78% 15.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $232,583 $212,428 $182,871 $147,767 $62,339
Net expenses to average daily
net assets 0.75% 0.75% 0.75% 0.75% 0.73%
Net investment income to
average daily net assets 2.15% 2.61% 2.84% 2.32% 2.77%
Portfolio turnover rate 25% 34% 49% 65% 83%
Average broker commission
rate per equity share(b) $ .0590 N/A N/A N/A N/A
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
See accompanying notes to the financial statements.
14
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term capital growth through investment primarily in
equity securities.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At February 28, 1997, Class III was the only active class
of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
15
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $10,561,400, collateralized by
cash in the amount of $12,092,600, which was invested in short-term
instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests and return of capital
dividends.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
($150,429) $150,428 $1
</TABLE>
16
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Amounts representing a return
of capital are reflected as a reduction of cost.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1997, the Fund received $150 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .60% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .75%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
17
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $1,098. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended February 28, 1997, aggregated
$54,265,291 and $68,497,331, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 95% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5.SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: ------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 7,028 $ 107,000 616,745 $ 8,794,800
Shares issued to
shareholders in
reinvestment of
distributions 1,161,012 17,805,046 825,614 11,508,937
Shares repurchased (1,045,307) (16,588,000) (1,900,841) (26,771,511)
---------- ------------ ---------- ------------
Net increase (decrease) 122,733 $ 1,324,046 (458,482) $ (6,467,774)
========== ============ ========== ============
</TABLE>
18
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
64.16% of distributions as net capital gain dividends.
19
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
Mr. Richard Mayo is responsible for the management of the GMO Fundamental
Value Fund. Mr. Mayo has been a portfolio manager with GMO since its
founding in 1977 and began his career in the late 1960's.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Investing Environment
The last year in general and the last six months in particular have
witnessed very favorable condition for supporting improved stock prices.
Inflation has remained at very low levels, helping to keep interest rates
near twenty year lows, and most importantly corporate profitability which
has been improving steadily from the recession of 1990 has reached levels
(see chart) more like the 1960's.
(ART)
This is worth mentioning because the stock market was valued more
frequently then at 16-18 times earnings than the 14-16 are we experienced
in the last 10-15 years. The chart below shows the valuation differences in
the periods of low inflation and good profitability. The important point
here is to develop one's expectations of the future stock returns not so
much on the level of the market but on the ability of corporations to
maintain their very high profit ratios--return on sales or return on
assets--relative to the past.
20
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
LOW INFLATION IS VERY POSITIVE FOR VALUATIONS
<TABLE>
<CAPTION>
1960S 1970S 1980S 1990S LATEST
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
INFLATION--GDP DEFLATOR (Y/Y)
High 4.7 9.4 9.3 4.3
Average 2.2 6.7 5.0 2.7 1.8
Low 1.2 4.2 2.6 1.8
S&P 500 P/E RATIO
High 22.0 18.4 16.3 24.3
Average 17.6 12.1 12.2 20.1 20.8
Low 15.9 7.2 8.0 16.2
RETURN ON CAPITAL IN U.S. (IN %)
High 14.2 14.9 17.3 18.5
Average 12.2 14.0 15.1 17.8 18.4
Low 9.2 12.8 12.6 16.6
</TABLE>
Source: JP Morgan dated March 3, 1997
Today's robust profitability is a result of very significant attitude
shifts on the part of today's corporate leaders. They have become
exceedingly cost conscious, whether by downsizing, restructuring
(consolidating manufacturing plants, administrative offices, etc.) or
selling low return assets, and they have greatly improved returns as shown
in the chart above. A lot of this should be thought of as a permanent
improvement. Other elements such as the steadily declining wage costs and
the lower dollar of the late 1980's and early 1990's have shifted direction
and may negatively impact profit margins in the near future.
(ART)
21
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
As a consequence we are less optimistic about the future growth in profits
and worry that consensus opinions that were bolstered by the strong fourth
quarter (year over year up more than 10%) are much too high. At the moment
the market seems to be projecting earnings growth rates of 7-8%, a rate of
growth that would be very unusual considering the six year improvement that
has already occurred.
Also important to understanding the market advance and to forecasting
future returns are the money flows. The mutual fund investor has invested
huge amounts in equity funds--about $240 billion last year. The inflows get
invested immediately and are creating unusual volatility day-to-day or even
intraday.
(ART)
We don't know what level of inflows is sustainable, but we know any
significant contraction of funds from this source will be a problem for the
market.
Another important flow of money into stocks has resulted from the greatly
improved profitability of corporations. Their cash flow has improved
dramatically and their reluctance to significantly increase their
investments has taken their free cash flow to record levels.
22
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
(ART)
These flows have been used to repurchase their own stock as corporate
executives believe their own company is one of their best investments if
their own returns are rising. Furthermore, buying in stock produces
"immediate" returns versus waiting for the payoff of a long term project.
Reinforcing this is the fact that many executives' compensation is tied
directly to stock prices through stock options.
Corporations bought about $150 billion of their own stock in 1996 and seem
to be running at an equivalent rate this year. These stock investments and
the mutual fund inflows have given the market a tremendous boost but they
must continue and even accelerate to keep the market advancing. Any
slowdown and the long awaited correction may become a reality.
Our concern about the sustainability of money flows as well as the
possibility of an interruption of rising profit margins has encouraged us
to try to reduce risk in the portfolio. We have done this by selling stocks
that looked overpriced and investing defensively. Unfortunately in the
short term this has had an unfavorable impact on relative performance. This
has happened for a few reasons.
The primary reason is size and momentum. Two years ago the largest
companies were undervalued. We increased our exposure to that sector by
adding stocks like Eli Lilly, Johnson & Johnson, GTE, General Electric, and
DuPont. In hindsight we did not get enough into the large companies because
they became the major investment theme of the last eighteen months.
23
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
More recently we concluded that the large stock category was overvalued. In
the last twelve months the fifty largest (market capitalization) stocks
outperformed the remaining 450 in the S&P 500 by more than 20%. This is
enormous in historical terms. In addition our analysis suggests investors
expect the 15 largest companies to grow at an average of 13% for the next
ten years. This is almost twice the growth rate for the average
corporation. We are skeptical that this is achievable. Our skepticism has
encouraged us to take profits in most of these companies. However money
managers today prefer to stick with companies that are meeting expectations
and valuation is secondary. This is a problem for a long term, value
oriented manager.
Our valuation emphasis has encouraged us to shift money to a sector that we
define as low expectation stocks. Most investors believe that Eli Lilly
will grow earnings 17% for the next 10 years. They must deliver. We prefer
situations where there is short term frustration and we can buy a good
business or very good assets where improvements will produce very good
rewards and disappointments will lead to only minor penalties. A short
capsule of four situations we hope will give you an understanding of what
we are doing in the portfolio.
WMX Technology--This waste hauling company was a growth company in the
1980s. It tried to continue to grow in the 1990s by investing in lower
return assets. As a consequence its return on assets declined from a peak
of 17% to 5% in 1993. Growth investors liquidated their positions over the
past five years in frustration. Finally provoked by investor criticism,
management reassessed its businesses and today is making ROA its main
priority. This has encouraged management to put up for sale $1.5 billion of
assets and use a large part of the proceeds to repurchase stock. In
addition a program has been instituted to cut costs which we think will
boost profits by 10-15%. Investors remain skeptical in the short term due
to some management turmoil (cultural changes are difficult), but the
company is the biggest in its industry and with the right leadership could
be the best. That should be worth a market multiple, a potential 25-30%
return which we think has limited risk due to the low valuation and the 4%
stock buyback this year which will likely be followed with more in 1998.
H&R Block--This is a simple story. The company has a very good business in
tax preparation (it owns its sector). With price increases and modest
growth in customers, it can grow 10-12%/yr for the next five years. The
company has almost no debt. Comparable companies sell at market multiples.
H&R Block's valuation has been restrained by its investment in CompuServe,
a computer on-line service. CompuServe has had profit difficulties due to
the high cost of adding new subscribers. Since CompuServe became a public
company a year ago, the problems have discouraged investors in H&R Block
due to the uncertainty of how the CompuServe problem will be solved. We
don't think this is the right focus. We think it is highly probable the
CompuServe situation will be resolved in some way--sold, spun out to
shareholders, or downsized--and if our residual value of CompuServe is
correct, the remaining H&R Block is 20-25% undervalued. Added to this, we
think a major stock repurchase will help us realize this potential.
Owens-Corning--UNDERVALUED--The stock (March 24, 1997) is selling at $40.
The company is forecasting earnings of $4.85/sh. Wall Street analysts are
more pessimistic, predicting only $4.75/sh. European operations are
sluggish and the higher dollar is hurting the translation of foreign
profits. But, even if the company's expectations are too high, or Wall
Street analysts miss the forecast, this company sells at the lowest
multiple of any firm in the industrial products category. In the past, this
has been justified because
24
<PAGE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF THE GMO TRUST)
- --------------------------------------------------------------------------------
of the large cost of asbestos litigation and settlements. However, the
number of new asbestos claimants is plummeting and the cost per case is
stable. The uncertainty that has penalized valuation should be lifting.
Prior to the asbestos turmoil, this stock sold at close to a market
multiple. A significant valuation change is possible.
DIGITAL EQUIPMENT
This company has:
1. $14 per in cash.
2. The world's fastest microprocessor.
3. Over 10% of all Windows NT certified engineers.
4. #5 in the rapidly growing networking business.
5. The largest multi-vendor computer service organization.
Could these assets be undervalued?
(ART)
We have highlighted some of the stocks that we are currently enthusiastic
about and will add to at today's prices and buy more enthusiastically at
lower prices. We think stocks such as these will produce good returns and
will have less risk in a market decline. To outperform in the future will
also require limiting mistakes. You can see each day stocks of companies
that failed to meet earnings expectations experience dramatic declines. We
are trying to avoid these problems by getting more money into our highest
confidence situations and reducing the number of stocks in the portfolio.
We are also sticking with some of the stocks--such as
25
<PAGE>
money center banks--that have done well. Our investment thesis is that
these companies are undergoing a valuation change. They are delivering 10%
earnings growth--growth that is above average--so the stocks should sell
closer to market multiples.
In summary, our investment view is this: The market is overvalued because
growth expectations are too high. We are preparing for a market correction,
probably precipitated by the recent increase in interest rates (the long
bond is yielding close to 7%, up .7%) or Federal Reserve actions in March
or May. The place to be in the decline will not be the very large companies
that we think are also overvalued, but more eclectic choices profiled
above. This has worked in the past and we think taking advantage of
volatility will produce good relative returns over the next year.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
26
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Fundamental Value Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 10/31/91
<S> <C> <C> <C>
Class III 19.9% 17.8% 18.5%
</TABLE>
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date GMO Fundamental Value Fund S & P 500 Index
<S> <C> <C>
10/31/91 9,985 10,000
02/28/92 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
02/28/97 24,679 23,251
</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 the purchase. Transaction fees are paid to the Fund
to cover trading costs. Class III shares are a redesignation of the single class
of shares that has been offered by the Fund since inception. Class I shares and
Class II shares have not commenced operations. Past performance is not
indicative of future performance. Information is unaudited.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO SMALL CAP 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
Small Cap Value Fund (formerly GMO Core II Secondaries Fund) at February
28, 1997, the results of its operations, the changes in its net assets and
the financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 28, 1997 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------
COMMON STOCKS -- 70.0%
ADVERTISING -- 0.1%
1,300 Grey Advertising Inc 356,200
------------
AEROSPACE -- 1.0%
5,100 Curtiss Wright Corp 267,750
21,600 Gencorp Inc 407,700
3,700 Hi Shear Industries Inc 8,788
86,200 Kaman Corp, Class A 1,185,250
19,100 Logicon Inc 721,025
11,000 Rohr Industries Inc * 199,375
7,800 Teleflex Inc 409,500
57,300 Thiokol Corp 3,194,474
------------
6,393,862
------------
AUTOMOTIVE -- 1.2%
13,000 Bandag Inc 633,750
27,400 Borg Warner Automotive Inc 1,082,300
19,600 Breed Technologies Inc 428,750
24,100 Caliber Systems Inc 548,275
14,500 Cooper Tire & Rubber Co 288,188
14,000 Lear Corp 546,000
19,000 Mascotech Industries Inc 361,000
21,100 Modine Manufacturing Co 580,250
9,400 Paccar Inc 616,875
23,300 Smith (AO) Corp, Class B 783,463
4,000 SPX Corp 183,500
23,600 Superior Industries International Inc 566,400
53,500 Wabash National Corp 916,188
------------
7,534,939
------------
BANKING AND FINANCIAL SERVICES -- 9.2%
4,800 Advanta Corp, Class A 198,600
11,700 Albank Financial Corp 410,963
24,750 Alex Brown Inc 1,438,593
18,300 Astoria Financial Corp 786,900
37,600 Baldwin and Lyons Inc, Class B 653,300
31,300 Bancorp Hawaii Inc 1,377,199
69,900 Banponce Corp 2,516,399
5,200 Capital One Financial Corp 206,700
10,100 CCB Financial Corp 693,113
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
35,200 Central Fidelity Banks Inc 1,025,200
16,600 Charter One Financial Inc 790,575
7,700 Cityscape Financial Corp 210,788
6,300 Coast Savings & Loan * 294,525
16,800 Collective Bancorp Inc 690,900
70,100 Comdisco Inc 2,181,862
65,100 Commerce Bancshares Inc 3,092,249
7,200 Commercial Federal Corp 258,300
24,200 Compass Bancshares Inc 1,079,925
1,336 Crestar Financial Corp 49,098
11,200 Dauphin Deposit Corp 474,600
20,500 Deposit Guaranty Corp 630,375
45,100 Dime Bancorp Inc * 789,250
22,510 Downey Financial Corp 531,799
14,000 Eaton Vance Corp 619,500
68,200 Edwards (AG) Inc 2,421,099
22,400 Financial Security Assurance Holdings Ltd 798,000
7,200 Finova Group Inc 549,900
10,100 First Citizens Bancshares, Class A 780,225
17,300 First Commerce Corp 717,950
3,700 First Empire State Corp 1,196,950
25,475 First Finance Corp 681,456
31,000 First Hawaiian Inc 1,030,750
8,125 First Midwest Bancorp Inc 256,953
17,700 First Security Corp 617,288
20,500 First Virginia Banks Inc 1,081,375
14,800 Fulton Financial Corp 370,000
63,200 Glendale Federal Savings Bank 1,682,699
21,700 Greenpoint Financial Corp 1,301,999
16,300 Interra Financial Inc 666,263
12,800 Jefferies Group Inc 564,800
8,300 Legg Mason Inc 369,350
23,100 Leucadia National Corp 615,038
11,600 Liberty Financial Cos 495,900
10,400 Long Island Bancorp Inc 380,900
8,900 Mark Twain Bancshares Inc 486,163
26,600 Mercantile Bankshares 987,525
18,950 Morgan Keegan Inc 352,944
600 National Bancorp of Alaska Inc 42,600
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES -- CONTINUED
36,500 North American & Mortgage Co 743,688
11,300 Old Kent Financial Corp 566,413
5,400 Onbancorp Inc 240,975
13,600 One Valley Bancorp Inc 542,300
19,400 Peoples Bank Bridgeport 669,300
7,800 Peoples Heritage Finance Group Inc 244,725
35,200 Piper Jaffrey Inc 598,400
5,900 PMI Group Inc 323,025
14,000 Provident Bancorp Inc 521,500
44,270 Quick And Reilly Group 1,549,432
31,900 Raymond James Financial Corp 1,064,663
17,400 Riggs National Corp 346,913
15,000 Roosevelt Financial Group Inc 345,000
24,500 Rowe (T) & Price Associates Inc 1,081,063
80,500 Ryland Group Inc 1,016,313
42,200 Signet Banking Corp 1,339,849
51,480 Sovereign Bancorp Inc 649,935
14,875 St. Paul Bancorp Inc 394,188
29,800 Standard Federal Bancorp 1,717,224
11,700 Student Loan Group 472,388
1 Toronto Dominion Bank Ontario 9
20,800 Trustmark Corp 553,800
13,900 Union Planters Corp 622,025
8,100 Unionbancal Corp 488,025
14,100 United Asset Management Corp 380,700
11,500 United Carolina Bancshares Corp 501,688
46,500 United Cos Financial Corp 1,209,000
8,200 US Trust Corp 385,400
35,765 Washington Federal Inc 912,008
5,400 Washington Mutual, Inc 285,525
20,300 Wilmington Trust Corp 918,575
------------
60,132,889
------------
CHEMICALS -- 0.8%
14,200 Arcadian Corp 370,975
13,000 Crompton & Knowles Corp 247,000
24,800 Cytec Industries Inc 982,700
11,700 Ferro Corp 368,550
7,900 Fuller (HB) Co 385,125
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------
CHEMICALS -- CONTINUED
13,300 Geon Co 285,950
52,000 Hanna (MA) Co 1,079,000
29,600 Kaiser Aluminum Corp * 370,000
13,200 Mississippi Chemical Corp 323,400
21,500 Schuller Corp 255,313
46,800 Wellman Inc 819,000
------------
5,487,013
------------
COMMUNICATIONS -- 0.0%
9,800 DSC Communications Corp * 205,800
------------
COMPUTER AND OFFICE EQUIPMENT -- 1.5%
87,400 Amdahl Corp * 863,075
11,500 Banctec Inc * 293,250
5,500 Dynatech Corp * 154,000
9,900 Everex Systems Inc(b) --
56,600 Exabyte Corp 619,063
30,400 Intergraph Corp * 250,800
28,600 Lexmark International Group Inc 797,225
20,100 Micron Electronics Inc * 389,438
78,500 Quantum Corp * 3,120,374
21,500 Sequent Computer Inc * 369,531
8,800 Sterling Software Inc 251,900
24,900 Stratus Computer Inc 843,488
94,900 Unisys Corp * 640,575
21,400 Western Digital Corp 1,262,599
------------
9,855,318
------------
CONSTRUCTION -- 1.1%
23,300 Bridge & Toll Road Brothers Inc * 451,438
25,800 Centex Corp 1,041,675
10,200 Foster Wheeler Corp 397,800
18,300 Granite Construction Inc 328,256
30,500 Horton (DR) Inc 381,250
45,300 Kaufman & Broad Home Corp 639,863
40,100 McDermott International Inc 892,225
16,900 MEMC Electronic Materials 414,050
29,500 Pulte Corp 1,006,688
130,300 Standard Pacific Corp 1,009,825
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
CONSTRUCTION -- CONTINUED
7,300 Texas Industries Inc 425,225
------------
6,988,295
------------
CONSUMER GOODS -- 3.1%
45,400 Alberto Culver Co, Class B 1,293,899
14,800 Bassett Furniture Industries Inc 366,300
48,800 Burlington Industries Inc 628,300
96,400 Callaway Golf Co 3,072,749
600 Carter Wallace Inc 8,625
28,900 Compucom Systems Inc 216,750
15,500 Department 56 Inc 279,000
19,400 Fastenal Co 703,250
400 First Brands Corp 9,950
44,100 Furniture Brands International Inc * 650,475
8,700 Johnson Worldwide Associates 110,925
24,800 Jones Apparel Group Inc 920,700
40,800 Justin Industries 474,300
3,000 K Swiss Inc, Class A 33,000
18,600 Kimball International, Class B 734,700
133,500 Kinetic Concepts Inc 1,985,812
16,000 La-z-boy Chair Co 554,000
26,510 Lancaster Colony Corp 1,212,833
29,200 Moore Corp Ltd 646,050
7,900 National Service Industries 300,200
44,510 Natures Sunshine Products Inc 684,341
7,700 Nine West Group Inc 361,900
1,700 Oil Dri America Class A 29,750
14,800 Paragon Trade Brands Inc 270,100
5,900 Polaroid Corp 249,275
20,700 Russell Corp 778,838
9,000 Safeguard Scientifics Inc 218,250
18,600 Safety Kleen 334,800
12,700 Sunbeam Corp 347,663
15,000 Technology Data Corp * 360,000
72,200 Terra Industries Inc 983,725
5,600 Timberland Co 226,800
21,400 Unifi Inc 682,125
13,300 US Industries Inc 487,113
------------
20,216,498
------------
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------
ELECTRONIC EQUIPMENT -- 2.2%
48,700 American Power Conversion Corp * 1,016,613
5,200 Applied Magnetics Corp * 202,150
1,800 Aspect Telecommunications Corp 44,775
6,600 C-cube Microsystems Inc * 192,225
46,100 Cypress Semiconductor Corp * 610,825
22,400 Dallas Semiconductor Corp 582,400
10,000 Exide Corp 196,250
13,500 Federal Signal Corp 339,188
6,900 Franklin Electric Inc 331,200
10,600 Harman International Industries 483,625
2,160 HSN Inc 55,620
7,500 Hutchinson Technology Inc 240,938
46,000 Integrated Device Technology Inc * 506,000
13,600 Jabil Circuit Inc 450,500
19,100 Komag Inc * 573,000
9,000 Lattice Semiconductor Corp * 429,750
21,400 Marshall Industries * 708,875
4,700 Maxim Intergrated Products Inc * 233,238
19,900 Oak Technology Inc 268,650
73,000 Pioneer Standard Electrs Inc 1,022,000
4,600 Pittway Corp Class A 243,800
40,400 Read Rite Corp 1,239,775
16,200 SCI Systems Inc * 866,700
14,700 Sensormatic Electronics Corp 253,575
19,100 Silicon Valley Group Inc * 408,263
47,900 Stewart & Stevenson Services Corp 1,251,388
1 Thomas & Betts Corp 43
27,700 Vishay Intertechnology Inc 633,638
21,900 VLSI Technology 409,256
8,200 Wyle Electronics Inc 300,325
2,400 Zenith Electronics Corp * 23,100
21,900 Zilog Inc * 517,388
------------
14,635,073
------------
FOOD AND BEVERAGE -- 2.4%
40,500 Bob Evans Farms Inc 551,813
47,000 Chiquita Brands International Inc 634,500
37,000 Coors (Adolph) Co 790,875
91,000 Darden Restaurants Inc 659,750
27,200 Dean Foods Co 887,400
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------
FOOD AND BEVERAGE -- CONTINUED
10,300 Dreyers Grand Ice Cream Inc 318,656
2,100 Farmer Brothers Co 315,000
17,900 Flowers Industries Inc 413,938
29,700 Great Atlantic & Pacific Tea Co 883,575
14,500 Hormel (Geo A) and Co 380,625
30,500 Hudson Foods Inc 533,750
40,500 International Multifoods Corp 855,563
19,300 Interstate Bakeries Corp 902,275
34,400 Luby's Cafeteria Inc 700,900
88,800 Michael Foods Inc 987,900
13,200 Quality Food Centers Inc * 483,450
71,500 Ryans Family Steak House * 527,313
51,600 Sanderson Farms Inc 870,750
700 Seaboard Corp 179,200
12,765 Smith Food and Drug Center, Class B 419,649
33,800 Smithfield Foods Inc * 1,309,749
1 Tootsie Roll Industries Inc 18
1,500 United Foods Inc Class B * 2,813
45,125 Universal Foods Corp 1,556,812
60,650 WLR Foods Inc 716,428
------------
15,882,702
------------
HEALTH CARE -- 4.8%
8,600 Amerisource Health Corp 433,225
19,100 Apria Healthcare Group 341,413
53,300 Ballard Medical Products 1,046,013
14,800 Bard (CR) 405,150
33,300 Beckman Instruments Inc 1,381,949
27,900 Bergen Brunswig Corp, Class A 896,288
93,200 Beverly Enterprises Inc * 1,339,749
67,000 Bindley Western Industries Inc 1,281,374
31,600 BioMet Inc 481,900
63,900 Cognex Corp * 1,158,188
8,100 Dentsply International Inc 423,225
12,500 Diagnostic Products Corp 387,500
20,200 EG & G Inc 439,350
13,500 Electroglas Inc * 249,750
14,200 Foundation Health Corp * 536,050
100 Greenfield Industries Inc 2,188
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- --------------------------------------------------------------------
HEALTH CARE -- CONTINUED
28,900 Haemonetics Corp 498,525
12,100 Health Care & Retirement 328,213
15,400 Healthsource Inc * 321,475
7,300 Herbalife International Inc 153,300
41,000 Horizon CMS Healthcare Corp 671,375
28,700 Integrated Health Services Inc 853,825
6,000 KLA Instruments Corp * 250,125
135,700 Laboratory Corporation America Holdings 508,875
15,300 Lincare Holdings Inc * 659,813
11,000 Living Centers of America Inc 350,625
17,100 Marquette Medical Systems, Class A 324,900
10,000 Medimmune Inc 145,000
5,700 Mentor Corp 141,788
148,600 Mid Atlantic Medical Services Inc * 2,191,849
51,100 Nellcor Puritan Bennet Inc 887,863
63,500 Novacare Corp * 793,750
44,100 Perrigo Co * 534,713
15,000 Sierra Health Services Inc * 395,625
38,000 Sofamor Denek Group Inc * 1,505,749
48,400 Spacelabs Medical Inc 1,052,700
6,300 Steris Corp * 159,075
49,600 Sunrise Medical Inc * 669,600
13,800 Sybron International Corp * 410,550
10,700 Tektronix Inc 521,625
19,200 Tencor Instruments * 769,200
43,740 Tenet Healthcare Corp * 1,186,448
26,700 Teradyne, Inc * 727,575
11,900 United States Surgical Corp 507,238
11,600 Universal Health Services, Class B 395,850
26,700 Value Health Inc * 640,800
11,900 Varian Associates Inc 687,225
10,700 Vencor Inc * 370,488
28,800 Vital Sign Inc 712,800
6,978 Vitalink Pharmacy Services 147,410
------------
31,279,284
------------
INSURANCE -- 8.9%
4,568 Alleghany Corp 974,697
18,700 Everest Re Holdings Inc 589,050
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------------
INSURANCE -- CONTINUED
19,300 Allied Group Inc 646,550
58,900 Allmerica Property & Casualty 1,847,987
17,900 AMBAC Inc 1,194,825
27,800 American Bankers Insurance Group 1,532,474
27,500 American Financial Group Inc 1,031,250
16,149 American Heritage Life Investments 419,874
13,500 American National Insurance Co 1,113,750
31,800 APL Ltd 731,400
24,200 Argonaut Group Inc 695,750
100 Avemco Corp 2,375
18,900 Berkley (WR) Corp 970,988
15,500 Capital Re Corp 670,375
16,600 Capitol American Financial Corp 603,825
37,200 Citizens Corp 925,350
8,700 CMAC Investment Corp 304,500
36,000 Commerce Group Inc 949,500
117,569 Conseco Inc 4,614,582
30,500 Equitable of Iowa Cos 1,620,312
10,800 Foremost Corp of America 642,600
38,915 Fremont General Corp 1,123,671
13,800 Gallagher (Arthur J) and Co 424,350
700 Guaranty National Corp 12,513
16,300 Harleysville Group Inc 489,000
37,500 Health Systems International Inc, Class A 1,101,563
17,300 Home Beneficial Corp, Class B 657,400
25,400 Horace Mann Educators Corp 1,089,025
83,500 Integon Corp 1,075,063
32,200 John Alden Financial Corp 611,800
8,100 Kansas City Life Insurance Co 550,800
20,100 Liberty Corp 826,613
14,800 Life Re Corp 636,400
4,700 Markel Corp * 512,300
12,600 Mercury General Corp 773,325
14,800 NAC Re Corp 543,900
36,900 Ohio Casualty Corp 1,462,162
43,250 Old Republic International Corp 1,173,156
19,600 Orion Capital 1,254,400
4,424 Pacificare Health Systems, Class A * 353,920
13,904 Pacificare Health Systems, Class B 1,164,460
43,100 Paul Revere Corp 1,794,037
</TABLE>
9
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------
INSURANCE -- CONTINUED
22,600 Penncorp Financial Group Inc 791,000
38,500 Presidential Life Corp 577,500
46,900 Protective Life Corp 2,016,699
53,100 Provident Cos Inc 2,893,949
16,200 Reinsurance Group of America 793,800
61,700 Reliance Group Holdings Inc 670,988
47,339 Reliastar Financial Corp 2,935,017
28,875 RLI Corp 996,188
22,000 Selective Insurance Group 924,000
16,700 TIG Holdings Inc 597,025
12,500 Transatlantic Holdings Inc 1,054,688
5,500 Trenwick Group Inc 270,875
13,700 Twentieth Century Industries 239,750
11,200 UICI * 330,400
10,400 USF & G Corp 234,000
50,175 USLIFE Corp 2,389,583
13,200 Washington National Corp 376,200
27,700 Western National Corp 637,100
7,700 Zurich Reinsurance Centre Inc 295,488
------------
58,736,122
------------
MACHINERY -- 2.3%
49,300 Agco Corporation 1,398,887
9,700 Briggs & Stratton Corp 423,163
19,200 Cincinnati Milacron Inc 412,800
27,400 Coltec Industries Inc 500,050
3,300 Cooper Cameron Corp 216,150
29,900 Cummins Engine Inc 1,513,687
19,700 Donaldson Co Inc 662,413
19,300 Federal Mogul Corp 475,263
33,300 Giddings and Lewis Inc 459,956
5,400 Harnischfeger Industries Inc 236,925
150 Idex Corp 3,806
14,100 Kennametal Inc 578,100
18,700 Kulicke & Soffa Industries * 495,550
24,900 Lam Research Corp * 949,313
23,700 Mohawk Industries Inc * 625,088
10,500 Nordson Corp 588,000
12,900 Novellus System Inc * 1,054,575
31,000 Oakley Inc 275,125
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ---------------------------------------------------------------
MACHINERY -- CONTINUED
61,800 Outboard Marine Corp 896,100
22,100 Starrett (LS) Co, Class A 660,238
31,600 Tecumseh Products Co, Class B 1,745,899
28,900 Toro Co 1,000,663
7,500 Ultratech Stepper Inc * 195,938
------------
15,367,689
------------
MANUFACTURING -- 2.3%
33,000 ACX Technologies Inc * 631,125
8,100 Alliant Techsystems Inc 353,363
38,200 Amcast Industrial Corp 883,375
8,500 Applied Power Inc, Class A 332,563
31,600 Ball Corp 797,900
8,300 Barnes Group Inc 552,988
15,000 BW IP Inc 240,000
28,250 Clayton Homes Inc 402,563
36,700 Crane Co 1,197,338
10,500 CSS Industries Inc * 291,375
50 Donnelly Corp 850
15,400 Gibson Greetings Inc * 317,625
42,200 Global Industrial Technologies Inc 749,050
15,100 Greif Brothers Corp 456,775
12,800 Harsco Corp 460,800
19,400 International Game Technology 339,500
46,200 Lafarge Corp 1,074,150
24,800 Lydall Inc * 558,000
4,900 Mine Safety Appliances 285,425
21,200 Owens Illinois Inc 511,450
17,200 Standex International Corp 485,900
9,550 Tredegar Industries 383,194
51,300 Trinity Industries Inc 1,654,424
15,900 Trinova Corp 590,288
38,700 Watts Industries Inc, Class A 1,001,363
8,500 West Co Inc 236,938
------------
14,788,322
------------
METALS AND MINING -- 1.0%
41,800 Allegheny Teledyne Inc 1,065,900
61,000 Asarco Inc 1,906,249
10,600 Cleveland Cliffs Inc 455,800
</TABLE>
11
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
METALS AND MINING -- CONTINUED
22,000 Commercial Metals Co 638,000
12,400 Nacco Inds Inc, Class A 672,700
12,700 Pittston Brinks Group 327,025
24,200 Timken Co 1,267,474
------------
6,333,148
------------
OIL AND GAS -- 1.1%
14,000 El Paso Natural Gas Co 750,750
82,400 Enserch Corp 1,730,399
23,600 Equitable Resources Inc 699,150
4,800 Helmerich & Payne Inc 202,800
9,400 KCS Energy Inc 338,400
109,600 Noram Energy Corp 1,643,999
23,800 Oryx Energy Co * 476,000
7,800 Parker & Parsley Petroleum Co 230,100
6,900 Peoples Energy Corp 233,738
1,400 Piedmont Natural Gas Co 33,075
26,600 Santa Fe Energy Resources Inc * 342,475
13,600 Seagull Energy Corp * 249,900
12,800 Snyder Oil Corp 204,800
1 Southeastern Michigan Gas Enterprise 19
12,700 Union Texas Petroleum Holdings Inc 234,950
------------
7,370,555
------------
PAPER AND ALLIED PRODUCTS -- 2.2%
55,100 Boise Cascade Corp 1,811,412
52,100 Bowater Inc 2,207,737
26,800 Chesapeake Corp 793,950
41,600 Fort Howard Corp 1,237,600
108,900 Gaylord Container, Class A 694,238
26,400 Longview Fibre Co 405,900
13,500 Media General Inc, Class A 405,000
16,100 Pentair Inc 505,138
41,000 Potlatch Corp 1,773,249
31,100 Rayonier Inc 1,181,800
35,800 Rock-tenn Co, Class A 707,050
17,100 Shorewood Packaging Corp * 299,250
87,500 Stone Container Corp 1,137,500
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------
PAPER AND ALLIED PRODUCTS -- CONTINUED
15,500 TJ International Inc 313,875
32,100 Zurn Industries Inc 822,563
------------
14,296,262
------------
PHARMACEUTICALS -- 0.2%
20,700 ICN Pharmaceuticals Inc 522,675
42,700 Mark IV Industries Inc 992,775
------------
1,515,450
------------
PRIMARY MATERIALS -- 0.7%
19,400 Ameron Inc 943,325
11,100 Carpenter Technology Corp 405,150
20,800 Martin Marietta Materials Inc 548,600
11,800 Medusa Corp 470,525
35,400 Premark International Inc 836,325
8,700 Southdown, Inc 311,025
25,300 USG Corp 891,825
------------
4,406,775
------------
PRIMARY PROCESSING -- 1.8%
30,000 AK Steel Holding Corp 1,080,000
54,300 Alumax Inc 2,124,487
8,300 Belden Inc 295,688
113,800 Bethlehem Steel Corp * 938,850
34,600 Birmingham Steel Corp 627,125
54,600 Inland Steel Industries Inc 1,078,350
116,800 LTV Corp 1,459,999
48,900 Lukens Inc 910,763
6,800 Maxxam Inc * 327,250
6,700 Mueller Industries Inc * 288,938
8,800 NCH Corp 523,600
19,800 Oregon Steel Mills Inc 336,600
15,000 Quanex Corp 401,250
26,300 Rouge Steel Company, Class A 424,088
6,200 Valspar 354,950
149,000 WHX Corp 1,210,625
------------
12,382,563
------------
PRINTING AND PUBLISHING -- 0.5%
54,200 American Business Products Inc 1,266,924
51,600 Hollinger International Inc 522,450
</TABLE>
13
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
PRINTING AND PUBLISHING -- CONTINUED
4,600 Plenum Publishing 154,675
17,999 Pulitzer Publishing Co 866,202
12,900 Wiley (John) and Sons, Class A 370,875
------------
3,181,126
------------
REAL ESTATE -- 0.2%
38,800 Lennar Corp 979,700
20,000 Webb (D) Corp 322,500
------------
1,302,200
------------
REFINING -- 1.1%
19,400 Ashland Coal Inc 497,125
29,100 Holly Corp 778,425
9,300 Lyondell Petro Chemical Co 219,713
114,300 Tosco Corp 3,186,112
55,092 Ultramar Diamond Shamrock Corp 1,680,305
34,200 Valero Energy Corp 1,077,300
------------
7,438,980
------------
RETAIL TRADE -- 6.0%
17,400 AnnTaylor Stores Corp 348,000
17,200 Apogee Enterprises Inc 341,850
9,300 Barnes & Noble Inc 306,900
13,600 Bed, Bath & Beyond Inc 353,600
32,400 Best Buy Co Inc * 299,700
54,200 Blair Corp 982,375
13,300 Borders Group Inc 560,263
24,400 Brinker International Inc * 289,750
34,800 Brown Group Inc 565,500
15,800 Brunos Inc 231,075
46,500 Burlington Coat Factory Warehouse * 697,500
45,300 Casey's General Stores Inc 872,025
92,700 Cash American Investments Inc 880,650
82,100 Charming Shoppes Inc * 364,319
19,400 Claire's Stores Inc 274,025
20,000 CompUSA Inc 400,000
57,300 CPI Corp 1,052,888
3,500 Crown Books Corp 35,875
6,800 Dollar Tree Stores Inc 266,900
77,700 Dress Barn Inc * 1,330,612
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
RETAIL TRADE -- CONTINUED
12,000 Eagle Hardware & Garden Inc * 234,000
4,700 Ethan Allen Interiors Inc 215,613
2,900 Fabri-Centers of America, Class A * 47,488
65,800 Family Dollar Stores Inc 1,554,524
58,300 Fingerhut Cos Inc 852,638
22,000 Fruit of the Loom Inc 899,250
22,070 General Host Corp 80,004
11,800 Goodys Family Clothing Inc * 213,875
35,800 Hannaford Brothers Co 1,275,374
24,400 Heilig Meyers Co 344,650
5,100 Hi-lo Automotive Inc 21,038
79,500 Ingles Markets Inc 1,192,500
2,400 Lillian Vernon Corp 30,000
49,400 Longs Drug Stores Corp 1,253,525
33,600 Macfrugals Bargains Close Outs Inc * 911,400
11,700 Mercantile Stores 561,600
77,900 Michaels Stores Inc 1,149,025
16,700 Micro Warehouse Inc * 240,063
2,500 National Presto Industry 94,063
26,000 Neiman Marcus Group Inc * 698,750
31,500 Officemax Inc 378,000
9,400 Outback Steakhouse Inc * 224,425
21,133 Penney (JC) Co Inc 1,040,790
37,000 Phillips Van Heusen 471,750
75,400 Pier 1 Imports Inc 1,310,074
11,000 Proffitts Inc 356,125
14,500 Revco (DS) Inc * 592,688
33,000 Richfood Holdings Inc 697,125
26,600 Ross Stores Inc 1,276,799
30,300 Ruddick Corp 484,800
121,900 Service Merchandise Co * 441,888
30,400 Shopko Stores Inc 475,000
14,800 Smart & Final Inc 320,050
220,000 Southland Corp * 756,250
72,600 Spiegel Inc, Class A * 490,050
32,800 Stanhome Inc 832,300
2,900 Stein Mart Inc * 68,875
33,000 The Vons Co Inc * 2,248,124
27,500 TJX Cos Inc 1,148,125
</TABLE>
15
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------
RETAIL TRADE -- CONTINUED
47,500 Tyco Toys Inc * 534,375
8,400 Venture Stores Inc * 21,000
59,400 Waban Inc 1,700,324
16,100 Weismarkets Inc 483,000
20,200 Woolworth (FW) Co * 421,675
20,400 Zale Corp 377,400
------------
39,474,199
------------
SERVICES -- 4.6%
71,700 Allwaste Inc * 439,163
13,200 Amerco 359,700
19,500 Anixter International Inc * 263,250
16,200 Aquarion Co 441,450
35,125 Arctic Cat Inc 338,078
37,400 Aztar Corp 275,825
37,150 Banta Corp 938,038
32,200 Belo (AH) Corp 1,215,550
22,700 Bowne and Co Inc 612,900
103,700 Buffetts Inc * 745,344
7,700 Catalina Marketing Corp 386,925
10,700 Chemed Corp 394,563
44,535 Chris Craft Industries Inc 1,831,494
44,000 Dames and Moore Inc 605,000
23,500 Data Broadcasting Corp 161,563
24,200 Devon Group Inc 695,750
68,000 Fleming Cos Inc 1,190,000
17,900 Franklin Quest Co 373,663
67,000 Grand Casinos Inc * 737,000
90,000 Handleman Co 787,500
21,800 Healthcare Compare Corp * 930,588
15,700 Interim Services Inc 592,675
30,800 International Dairy Queen Inc, Class A 662,200
3,425 International Shipholding Corp 59,938
17,400 Jacobs Engineering Group * 448,050
28,200 Kellwood Co 666,225
22,900 Kelly Services 629,750
28,100 Kingworld Productions Inc * 1,043,213
60,200 Lee Enterprises Inc 1,414,699
1,000 Morningstar Group Inc * 23,000
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ----------------------------------------------------------------
SERVICES -- CONTINUED
40,600 Nash Finch Co 796,775
32,480 National Auto Credit Inc 324,800
30,800 Ogden Corp 627,550
25,800 Olsten Corp 461,175
41,900 PHH Corp 2,005,962
92,300 Physician Corp of America * 403,813
20,000 Primark Corp * 497,500
82,950 Rollins Inc 1,565,680
33,500 Rollins Truck Leasing Corp 469,000
18,000 Rykoff Sexton Inc 315,000
14,100 Sbarro Inc 366,600
24,800 Showboat Inc 508,400
37,200 Sizzler International Inc * 93,000
43,000 Spelling Entertainment Group Inc * 268,750
7,800 Stone & Webster Inc 280,800
46,100 Sun Healthcare Group Inc 633,875
11,000 Supervalu Inc 341,000
18,800 True North Communications Inc 376,000
100 Unifirst Corp 2,013
100 United Television Inc 9,000
21,948 United Water Resources Inc 392,321
------------
30,002,108
------------
TECHNOLOGY -- 1.7%
125,500 Advanced Micro Devices Inc * 4,502,312
18,200 Autodesk Inc 616,525
5,000 BDM International Inc 210,000
11,200 Broderbund Software Inc * 329,000
35,500 Cirrus Logic Corp * 481,469
3,500 Compuware Corp 217,875
20,000 Data General Corp * 387,500
8,700 Fisher Scientific International Inc 393,675
12,800 G Technology Holdings Corp 401,600
16,800 Medaphis Corp * 166,950
11,400 SEI Investments Co 252,225
7,800 Solectron Corp * 412,425
43,700 Storage Technology Corp * 1,824,474
96,400 Tandem Computers Inc * 1,205,000
------------
11,401,030
------------
</TABLE>
17
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------
TELECOMMUNICATIONS -- 0.2%
50,400 Comsat Corp 1,322,999
------------
TEXTILES -- 0.5%
4,200 Crystal Brands Inc *(b) --
46,400 Interface Flooring Systems Inc 1,073,000
42,400 Shaw Industries 551,200
29,900 Springs Industries Inc, Class A 1,319,337
13,200 Westpoint Stevens Inc 455,400
------------
3,398,937
------------
TRANSPORTATION -- 2.1%
22,800 Airborne Freight Corp 624,150
13,300 Airline Express International Corp 412,300
9,900 Alaska Airline Group Inc * 235,125
27,900 American West Holdings Corp, Class B 387,113
18,400 Arnold Industries Inc 255,300
14,900 Asa Holdings Inc 337,113
40,800 Comair Holdings Inc 841,500
71,000 Consolidated Freightways Inc 1,757,249
22,200 Fleetwood Enterprises Inc 577,200
27,600 Gatx Corp 1,352,399
17,800 Heartland Express Inc 373,800
41,200 Hunt (JB) Transportation Services Inc 571,650
26,500 Illinois Central Corp 910,938
122,800 Mesa Airline Group Inc * 782,850
55,600 Navistar International Corp * 535,150
11,400 Offshore Logistics Inc * 208,050
1,100 Omi Corp * 9,900
15,200 US Freightways Corp 366,700
109,200 USAir Group Inc * 2,156,699
23,600 Viad Corp 377,600
22,500 Werner Enterprises Inc 393,750
31,600 Yellow Corp * 493,750
------------
13,960,286
------------
UTILITIES -- 5.2%
62,900 AES Corp * 4,112,087
58,600 American Water Works Co 1,369,774
40,300 Atlantic Energy Inc 690,138
62,600 Boston Edison Co 1,674,549
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -----------------------------------------------------------------
UTILITIES -- CONTINUED
27,900 Brooklyn Union Natural Gas Co 795,150
5,800 Calenergy Inc * 193,575
198,900 Centerior Energy Corp 2,063,587
19,400 Central Hudson Gas & Electric 640,200
13,100 Central Louisiana Electric Inc 348,788
43,200 Central Maine Power Co 480,600
9,600 Cilcorp Inc 361,200
30,100 Commonwealth Energy Systems 673,488
37,500 Delmarva Power and Light Co 726,563
49,800 Destec Energy Inc 1,033,350
15,500 Eastern Enterprises 521,188
25,700 Eastern Utilities Associates 472,238
10,000 Energen Corp 300,000
14,200 Hawaiian Electric Industry Inc 498,775
22,700 LES Industries Inc 689,513
16,200 Mapco Inc 514,350
61,982 Midamerican Energy Holding Co 1,022,703
9,700 Minnesota Power & Light Co 271,600
36,900 Montana Power Co 807,188
46,900 Natural Gas Clearinghouse 926,275
21,200 Nevada Power Co 431,950
300 New Jersey Resources Corp 8,625
49,600 New York State Electric and Gas Corp 1,153,200
181,300 Niagara Mohawk Power Corp * 1,858,324
78,000 Northeast Utilities 809,250
3,800 Nui Corporation 79,800
10,100 Orange And Rockland Utilities 362,338
12,900 Portland General Electric Co 504,713
52,500 Public Services Co of New Mexico 964,688
22,800 Puget Sound Power and Light Co 578,550
52,300 Rochester Gas and Electric Corp 1,039,463
27,800 Sierra Pacific Resources 813,150
9,400 Sigcorp Inc 329,000
29,000 Southwest Natural Gas Corp 536,500
18,140 Tucson Electric Power Co 272,100
19,600 United Illuminating Co 570,850
32,700 Utilicorp United Inc 878,813
16,900 Washington Gas Light Co 373,913
19,100 Washington Water Power 350,963
29,000 Western Gas Resources Inc 540,125
</TABLE>
19
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- -------------------------------------------------------------------------------
UTILITIES -- CONTINUED
12,900 Western Resources Inc 390,225
15,000 Wisconsin Power & Light Holding Co 416,250
------------
34,449,669
------------
TOTAL COMMON STOCKS (Cost $430,397,629) 460,096,293
------------
RIGHTS AND WARRANTS -- 0.0%
550 American Satellite Network Warrants expire
06/30/99* (Cost $0) --
------------
SHORT-TERM INVESTMENTS -- 15.0%
REPURCHASE AGREEMENTS -- 9.5%
$31,285,113 Prudential Securities, Inc. Repurchase
Agreement, dated 2/28/97, due 3/3/97,
with a maturity value of $31,297,549 and an
effective yield of 4.77%,
collateralized by U.S. Government and Agency
Obligations with rates
ranging from 0.0% to 8.00%, with maturity dates
ranging from
12/03/01 to 2/01/27 and with an aggregate
market value of $31,911,160. 31,285,113
$31,285,113 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $31,297,758 and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from
7.25% to 11.88%, with maturity dates ranging
from 11/15/03 to 5/15/20
and with an aggregate market value of
$31,944,694. 31,285,113
------------
62,570,226
------------
U.S. GOVERNMENT -- 0.5%
$ 2,950,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 2,913,851
------------
CASH EQUIVALENTS -- 5.0%(C)
3,742,523 American AAdvantage Money Market Fund 3,742,523
$ 6,102,407 Bank of Boston Eurodollar Time Deposit, 5.5375%
due 3/3/97 6,102,407
$ 3,189,047 Harris Bank and Trust Eurodollar Time Deposit,
5.375% due 3/3/97 3,189,047
18,577,623 Merrimac Cash Fund Premium Class 18,577,623
$ 1,000,000 Prudential Securities Group Inc Master Note,
5.60% due 3/3/97 1,000,000
------------
32,611,600
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $98,095,069) 98,095,677
------------
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
VALUE ($)
<C> <S> <C> <C>
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 85.0%
(Cost $528,492,698) ** 558,191,970
Other Assets and Liabilities (net) -- 15.0% 98,572,043
--------------
TOTAL NET ASSETS -- 100% $ 656,764,013
==============
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Bankrupt security -- valued by management (Note 1).
** The aggregate identified cost for federal income tax
purposes is $529,402,370, resulting in gross unrealized
appreciation and depreciation of $44,918,477 and
$16,128,877, respectively, and net unrealized
appreciation of $28,789,600.
(c) Represents investments of security lending collateral
(Note 1).
</TABLE>
21
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $528,492,698) (Note 1) $558,191,970
Cash 92,036,693
Receivable for investments sold 15,973,984
Dividends and interest receivable 1,011,081
Receivable for variation margin on open futures contracts (Notes
1 and 6) 769,919
Receivable for expenses waived or borne by Manager (Note 2) 131,435
Receivable for Fund shares sold 36,000,000
------------
Total assets 704,115,082
------------
LIABILITIES:
Payable for investments purchased 9,879,807
Payable upon return of securities loaned (Note 1) 32,611,600
Payable for Fund shares repurchased 4,469,000
Payable to affiliate for (Note 2):
Management fee 243,217
Shareholder service fee 73,103
Accrued expenses 74,342
------------
Total liabilities 47,351,069
------------
NET ASSETS $656,764,013
============
NET ASSETS CONSIST OF:
Paid-in-capital $600,032,715
Accumulated undistributed net investment income 2,331,429
Accumulated undistributed net realized gain 26,700,127
Net unrealized appreciation 27,699,742
------------
$656,764,013
============
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 1,391,447
============
Class III shares $655,372,566
============
SHARES OUTSTANDING:
Class I 87,565
============
Class III 41,234,772
============
NET ASSET VALUE PER SHARE:
Class I $ 15.89
============
Class III $ 15.89
============
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $271) $ 5,045,216
Interest (including securities lending income of $51,138) 5,218,734
-----------
Total income 10,263,950
-----------
EXPENSES:
Management fee (Note 2) 1,948,526
Custodian and transfer agent fees 99,551
Audit fees 51,321
Registration fees 27,740
Legal fees 18,304
Trustees fees (Note 2) 1,725
Miscellaneous 2,829
Fees waived or borne by Manager (Note 2) (761,954)
-----------
1,388,042
Shareholder service fee (Note 2)
Class I 606
Class III 482,110
-----------
Net expenses 1,870,758
-----------
Net investment income 8,393,192
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 43,765,541
Closed futures contracts 6,689,034
Closed swap contracts (2,237,125)
-----------
Net realized gain 48,217,450
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 9,314,095
Open futures contracts (2,035,067)
-----------
Net unrealized gain 7,279,028
-----------
Net realized and unrealized gain 55,496,478
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $63,889,670
===========
</TABLE>
23
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 8,393,192 $ 2,923,506
Net realized gain 48,217,450 35,136,350
Change in net unrealized appreciation
(depreciation) 7,279,028 2,918,309
------------ ------------
Net increase in net assets resulting from
operations 63,889,670 40,978,165
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (6,723,900) (2,725,107)
------------ ------------
Net realized gains
Class III (9,617,877) (38,332,108)
------------ ------------
(16,341,777) (41,057,215)
------------ ------------
Net share transactions: (Note 5)
Class I 1,343,250 --
Class III 376,339,439 (4,168,166)
------------ ------------
Increase (decrease) in net assets
resulting from net share transactions 377,682,689 (4,168,166)
------------ ------------
Total increase (decrease) in net assets 425,230,582 (4,247,216)
NET ASSETS:
Beginning of period 231,533,431 235,780,647
------------ ------------
End of period (including accumulated
undistributed net investment income of
$2,331,429 and $686,982, respectively) $656,764,013 $231,533,431
============ ============
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 2, 1997
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.34
------
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain 0.50
------
Total from investment operations 0.55
------
NET ASSET VALUE, END OF PERIOD $15.89
======
TOTAL RETURN(A) 3.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,391
Net expenses to average daily net assets 0.61%*
Net investment income to average daily net assets 1.87%*
Portfolio turnover rate 58%
Average broker commission rate per equity share $.0271
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per share
amount: (b)
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b)Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
*Annualized.
25
See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.28 0.23 0.20 0.21 0.22
Net realized and unrealized
gain 2.32 3.20 0.34 2.14 1.59
-------- -------- -------- -------- --------
Total from investment
operations 2.60 3.43 0.54 2.35 1.81
-------- -------- -------- -------- --------
Less distributions to
shareholders:
From net investment income (0.27) (0.23) (0.20) (0.22) (0.21)
From net realized gains (0.33) (2.92) (1.04) (0.50) (0.04)
-------- -------- -------- -------- --------
Total distributions (0.60) (3.15) (1.24) (0.72) (0.25)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68
======== ======== ======== ======== ========
TOTAL RETURN(A) 19.12% 27.18% 4.48% 18.97% 16.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $655,373 $231,533 $235,781 $151,286 $102,232
Net expenses to average
daily net assets 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to
average daily net assets 2.15% 1.67% 1.55% 1.66% 2.02%
Portfolio turnover rate 58% 135% 54% 30% 3%
Average broker commission
rate per equity share(b) $ .0271 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or borne
by the Manager consisted of
the following per share
amounts: $ 0.03 $ 0.02 $ 0.01 $ 0.02 $ 0.02
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
26 See accompanying notes to the financial statements.
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Small Cap Value Fund (the "Fund"), formerly named the GMO Core II
Secondaries Fund, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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.
27
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
Upon purchase of a futures contract, the Fund is required to deposit with
its custodian, in a segregated account in the name of the futures broker,
an amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is liquidated on the following business day. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $30,933,294, collateralized by
cash in the amount of $32,611,600, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into
28
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
these agreements involves, to varying degrees, elements of credit and
market risk in excess of the amounts recognized on the Statement of Assets
and Liabilities. Such risks involve the possibility that there is no liquid
market for these agreements, that the counterparty to the agreements may
default on its obligation to perform, or that there may be unfavorable
changes in the price of the security or index underlying these
transactions. There were no open swap agreements as of February 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests, return of capital dividends
and redemptions in-kind. Gains associated with such in-kind redemptions
amounted to $18,937,607.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
($24,845) ($16,120,442) $16,145,287
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
29
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. Prior to June 1, 1996, the premium on
cash purchases and fee on redemptions was .75% of the amount invested or
redeemed. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the year ended February 28,
1997, the Fund received $3,055,202 in purchase premiums and $191,650 in
redemption fees. There is no premium for reinvested distributions or in-
kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $1,725. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
30
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and in-kind transactions, for the year ended February 28,
1997, aggregated $465,555,595 and $172,108,038, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by one shareholder and 14% of the outstanding Class III shares of
the Fund were held by one shareholder, each holding in excess of 10% of the
outstanding shares of the respective class.
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 January 2, 1997
(commencement of operations)
to February 28, 1997
Class I: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 87,565 $ 1,343,250
Shares issued to shareholders in
reinvestment
of distributions -- --
Shares repurchased -- --
------------ ----------------
Net increase 87,565 $ 1,343,250
============ ================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: -------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 36,443,463 $ 557,963,243 5,303,210 $ 79,331,116
Shares issued to
shareholders
in reinvestment of
distributions 846,111 12,460,382 2,682,509 35,880,229
Shares repurchased (12,721,369) (194,084,186) (8,664,888) (119,379,511)
----------- ------------- ---------- -------------
Net increase (decrease) 24,568,205 $ 376,339,439 (679,169) $ (4,168,166)
=========== ============= ========== =============
</TABLE>
31
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Depreciation
--------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
1030 Russell 2000 March 1997 $185,297,000 $(1,999,530)
</TABLE>
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
32
<PAGE>
GMO SMALL CAP VALUE FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
28.20% of distributions as net capital gain dividends.
33
<PAGE>
GMO SMALL CAP VALUE FUND
(FORMERLY THE 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. LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO Small Cap Value Fund (formerly the GMO Core
II Secondaries Fund) returned 19.1% for the fiscal year ended February 28,
1997 as compared to 26.1% for the S&P 500. The combined Russell benchmark
(the Russell 2500 through December 31, 1996 and the Russell 2000 Value
Index thereafter), returned 17.6% for the fiscal year. Consistent with the
Fund's investment objective and policies, the Fund was invested in common
stocks throughout the period.
Sector bets had a negative impact on performance for the year. During the
year, the Fund was tilted toward defensive stocks and away from technology
stocks, while defensive stocks underperformed the benchmark and technology
stocks outperformed. Underweights in banks and energy stocks, which
outperformed the index, also contributed negatively.
The negative impact of industry sector bets was largely offset by the
Fund's overweight in low price-to-book stocks, which strongly outperformed
high price-to-book stocks for the year.
The GMO Small Cap Value Fund selects stocks based on our three primary
selection techniques -- value, momentum and neglect. Stock selection was
quite positive for the year. Stocks in the best quartile of our proprietary
dividend discount (value) model outperformed the index by a wide margin,
while stocks not selected by our three investment styles underperformed the
index.
Since 1983, small capitalization stocks have lagged and today they look
increasingly attractive relative to large capitalization stocks on a number
of measures -- price-to-book, price-to-cash flow, price-to-sales and price-
to-fair value. Although not as cheap as they were in the mid-1970's (prior
to their legendary rise through 1983), today small-cap stocks are at their
cheapest relative price since the late 1970's when institutions began to
treat small-cap stocks as a separate asset class. We expect that small-cap
stocks will outperform over a two-to-four year horizon.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
34
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Small Cap Value Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 12/31/91
<S> <C> <C> <C>
Class III 17.9% 16.8% 18.6%
01/02/97
Class I n/a n/a 2.5%
<CAPTION>
[LINE GRAPH APPEARS HERE]
Date GMO Small Cap Value Fund S & P 500 Index
<S> <C> <C>
12/31/91 9,950 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
02/28/97 24,029 21,741
</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 50 bp on the purchase and 50 bp on the redemption.
Performance for Class I shares will be different due to lower shareholder
service fees. Class II shares have not commenced operations. Past performance is
not indicative of future performance. Information is unaudited.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO U.S. SECTOR 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 Fund (formerly GMO U.S. Sector Allocation Fund) at February 28,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 28, 1997 by correspondence
with the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 77.7%
AEROSPACE -- 0.7%
18,200 Raytheon Co 857,675
12,800 TRW Inc 670,400
------------
1,528,075
------------
AUTOMOTIVE -- 2.5%
400 Bandag Inc 19,500
42,400 Chrysler Corp 1,436,299
56,300 Ford Motor Co 1,850,862
31,900 General Motors Corp 1,846,212
5,200 Goodyear Tire & Rubber Co 274,300
7,300 Harley Davidson Inc 272,838
------------
5,700,011
------------
BANKING AND FINANCIAL SERVICES -- 9.3%
17,800 Ahmanson (HF) & Co 732,025
1,700 American General Corp 73,738
5,600 Amsouth Bancorp 287,000
22,000 Bank of Boston Corp 1,658,249
21,800 Bank of New York Inc 844,750
9,800 Bankers Trust New York Corp 889,350
19,900 Barnett Banks Inc 920,375
14,825 Bear Stearns Inc 444,749
4,200 Beneficial Corp 290,325
36,344 Chase Manhattan Corp 3,638,942
5,100 Citicorp 595,425
1,700 Comdisco Inc 52,913
6,200 Countrywide Credit Industry Inc 180,575
19,000 Dean Witter Discover & Co 729,125
2,900 Edwards (AG) Inc 102,950
2,200 First Chicago NBD Corp 128,700
10,300 Fleet Financial Group Inc 628,300
3,700 Golden West Financial Corp 250,675
23,000 Great Western Financial Corp 1,009,124
3,700 Greenpoint Financial Corp 222,000
2,600 Household International Inc 251,875
6,300 Lehman Brothers Holding Inc 211,838
10,900 Mellon Bank Corp 876,088
7,100 Merrill Lynch 681,600
3,200 Morgan Stanley Group Inc 202,000
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------
<C> <S> <C>
BANKING AND FINANCIAL SERVICES -- CONTINUED
2,500 Paine Webber Group Inc 81,563
38,200 PNC Bank Corp 1,618,724
17,000 Salomon Inc 945,625
4,700 Southern National Corp 182,713
4,100 Student Loan Marketing Association 434,088
7,600 Summit Bancorp 362,900
2,600 Sunamerica Inc 119,275
3,500 Synovus Financial Corp 122,063
18,330 Travelers Group Inc 982,946
9,700 US Bancorp 478,938
------------
21,231,526
------------
CHEMICALS -- 0.6%
4,700 Eastman Chemical Co 259,088
13,700 Monsanto Co 498,338
1,100 Praxair Inc 53,488
12,800 Union Carbide Corp 604,800
------------
1,415,714
------------
COMPUTER AND OFFICE EQUIPMENT -- 1.2%
20,400 Compaq Computer Corp * 1,616,699
12,950 Computer Associates International Inc 563,325
2,100 HBO & Co 121,013
1 NCR Corp 8
2,800 Pitney Bowes Inc 173,950
2,100 Reynolds & Reynolds Inc, Class A 58,800
3,200 Sterling Software Inc 91,600
1,800 Western Digital Corp 106,200
------------
2,731,595
------------
CONSTRUCTION -- 0.1%
5,600 Home Depot Inc 305,200
------------
CONSUMER GOODS -- 2.1%
13,200 Callaway Golf Co 420,750
5,600 Clorox Co 669,200
14,200 CVS Corp 656,750
1,500 Hasbro Inc 64,125
5,600 Liz Claiborne Inc 226,800
2,600 Newell Co 96,525
5,800 Nike Inc, Class B 416,875
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------
<C> <S> <C>
CONSUMER GOODS -- CONTINUED
12,400 Procter and Gamble Co 1,489,549
6,600 Reebok International Ltd 308,550
5,100 VF Corp 354,450
------------
4,703,574
------------
ELECTRONIC EQUIPMENT -- 0.3%
1,400 3 Com Corp * 46,353
3,400 Cooper Industries Inc 150,450
300 Hubbell Inc, Class B 12,713
2,500 Litton Industries * 107,500
600 Northern Telecom Ltd 43,125
1,400 Raychem Corp 119,175
8,800 Tellabs Inc 350,900
------------
830,216
------------
ENVIRONMENTAL CONTROL -- 0.1%
9,000 Wheelabrator Technology Inc 128,250
------------
FOOD AND BEVERAGE -- 5.5%
54,200 Anheuser Busch Cos Inc 2,411,899
41,898 Archer Daniels Midland Co 775,113
52,300 Coca Cola Co 3,190,299
5,600 Coca Cola Enterprises Inc 345,800
20,300 CPC International Inc 1,707,737
2,600 Dean Foods Co 84,825
2,700 Hormel (Geo A) and Co 70,875
8,700 IBP Inc 202,275
12,300 Pepsico Inc 404,363
1,800 RJR Nabisco Holdings Corp 65,925
27,400 Sara Lee Corp 1,061,749
7,600 Seagrams Co Ltd 296,400
8,900 Unilever ADR 1,695,449
600 Universal Foods Corp 20,700
7,700 Whitman Corp 180,950
800 Wrigley (William Jr) Co 47,900
------------
12,562,259
------------
HEALTH CARE -- 1.3%
1,000 Becton Dickinson & Co 49,250
600 Cardinal Health Inc 36,900
1,300 Columbia HCA Healthcare Corp 54,600
2,600 Hillenbrand Industries Inc 97,825
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- CONTINUED
9,100 Johnson & Johnson 524,388
300 McKesson Corp 19,875
29,700 Pharmacia & Upjohn Inc 1,095,187
25,600 Tenet Healthcare Corp * 694,400
7,700 United States Surgical Corp 328,213
1,200 Wellpoint Health Network 51,450
------------
2,952,088
------------
INSURANCE -- 3.4%
5,500 Aetna Life and Casualty Co 455,813
4,600 AFLAC Corp 185,725
9,900 Allstate Corp 627,413
2,700 AMBAC Inc 180,225
2,100 Cigna Corp 321,038
1,200 CNA Financial Corp * 133,500
23,200 Conseco Inc 910,600
7,600 Lincoln National Corp 441,750
11,100 Loews Corp 1,133,587
3,300 MBIA Inc 322,163
5,050 Old Republic International Corp 136,981
2,400 Progressive Corp 158,700
1,300 Provident Cos Inc 70,850
9,700 Providian Corp 541,988
100 Reliastar Financial Corp 6,200
10,500 Safeco Corp 438,375
12,300 Saint Paul Cos Inc 830,250
3,800 Torchmark Corp 223,725
6,100 Transamerica Corp 534,513
600 USLIFE Corp 28,575
------------
7,681,971
------------
MACHINERY -- 0.2%
5,400 Baker Hughes Inc 191,700
3,000 FMC Corp * 206,250
------------
397,950
------------
MANUFACTURING -- 2.9%
12,200 Corning Inc 459,025
26,400 General Electric Co 2,715,899
4,900 Gillette Co 387,713
12,300 IBM Corp 1,768,124
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------
<C> <S> <C>
MANUFACTURING -- CONTINUED
8,900 International Game Technology 155,750
3,600 Leggett & Platt Inc 129,150
7,400 Temple Inland Inc 407,925
6,700 Tyco International Ltd 395,300
2,400 United Technologies Corp 180,600
------------
6,599,486
------------
METALS AND MINING -- 0.2%
7,900 Allegheny Teledyne Inc 201,450
4,700 Phelps Dodge Corp 336,050
------------
537,500
------------
OIL AND GAS -- 5.4%
8,800 Apache Corp 284,900
9,100 Atlantic Richfield Co 1,137,499
4,400 Burlington Resources Inc 193,050
11,600 Chevron Corp 748,200
11,700 Columbia Gas Systems Inc 687,375
2,600 Ensco International Inc * 112,775
14,500 Exxon Corp 1,448,187
200 FINA Inc, Class A 12,475
16,400 Global Marine Inc * 305,450
1,700 Mobil Corp 208,675
1,800 Noble Affiliates Inc 70,200
8,300 Noble Drilling Corp 147,325
1,000 Noram Energy Corp 15,000
9,300 Occidental Petroleum Corp 237,150
3,000 Oryx Energy Co * 60,000
3,800 Pennzoil Co 218,025
19,200 Phillips Petroleum Co 794,400
6,600 Royal Dutch Petroleum Co ADR 1,141,799
7,000 Schlumberger Ltd 704,375
18,300 Sonat Inc 841,800
20,900 Texaco Inc 2,066,487
20,700 Unocal Corp 799,538
2,800 USX--Marathon Group 74,550
------------
12,309,235
------------
PAPER AND ALLIED PRODUCTS -- 0.8%
4,200 Champion International Corp 185,325
18,700 International Paper Co 780,725
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------
<C> <S> <C>
PAPER AND ALLIED PRODUCTS -- CONTINUED
5,400 Mead Corp 314,550
3,500 Sonoco Products Co 91,875
11,600 Westvaco Corp 342,200
500 Willamette Industries Inc 32,000
------------
1,746,675
------------
PHARMACEUTICALS -- 6.4%
50,100 Abbott Laboratories 2,818,124
700 Allergan Inc 23,800
27,500 American Home Products Corp 1,759,999
37,500 Bristol Myers Squibb Co 4,893,749
9,900 Lilly (Eli) & Co 865,013
17,700 Merck & Co Inc 1,628,399
6,300 Pfizer Inc 577,238
7,200 Schering Plough Corp 551,700
16,800 Warner Lambert Co 1,411,199
------------
14,529,221
------------
PRIMARY MATERIALS -- 0.0%
400 Vulcan Materials Co 25,900
------------
PRIMARY PROCESSING -- 0.1%
8,100 USX-US Steel Group Inc 254,138
------------
REAL ESTATE -- 14.3%
3,300 Alexander Haagen Properties 49,500
3,800 Ambassador Apartments Inc 92,150
5,500 Amli Residential Properties Trust 130,625
5,800 Apartment Investment & Management Co, Class A 168,200
4,300 Arden Realty Group Inc 118,788
4,000 Associated Estates Realty Capital 94,000
8,700 Avalon Properties Inc 242,513
8,000 Bay Apartment Communities Inc 287,000
10,300 Berkshire Realty Co 119,738
8,600 Bradley Real Estate Inc 167,700
6,900 BRE Properties Inc 169,050
7,400 Burnham Pacific Properties Inc 108,225
22,800 Cali Realty Trust 729,600
8,600 Camden Property Trust 235,425
29,800 Carramerica Realty Corp 905,175
9,000 CBL & Associates Properties 223,875
13,700 Centerpoint Properties Corp 433,263
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- CONTINUED
5,106 Chateau Properties Inc 131,474
5,500 Chelsea GCA Realty Inc 187,688
8,600 Colonial Properties Trust 250,475
6,800 Columbus Realty Trust 141,950
13,000 Commercial Net Lease Realty 203,125
17,000 Cousins Properties Inc 414,375
20,700 Crescent Real Estate Equities 1,133,324
4,800 Crown American Realty Trust 37,800
6,900 Developers Diversified Realty Corp 252,713
23,600 Duke Realty Investments 946,950
14,200 Equity Inns Inc 191,700
29,500 Equity Residential Properties Trust 1,334,874
1,700 Essex Property Trust Inc Reit 51,000
7,500 Evans Withycombe Residential 153,750
5,200 Excel Realty Trust Inc 127,400
2,500 Factory Realty Trust Inc 16,563
14,100 Federal Realty Investment Trust 378,938
19,100 Felcor Suite Hotels Inc 647,013
19,000 First Industrial Reality Trust 567,625
26,100 Franchise Finance Corp of America 675,338
6,700 Gables Residential Trust 173,363
12,800 General Growth Properties 392,000
9,100 Glimcher Realty Trust 189,963
26,700 Highwood Properties Inc 921,150
2,500 Horizon Group Inc 32,813
14,100 Innkeepers USA Trust 197,400
15,100 IRT Property Co 169,875
9,700 Irvine Apartment Communities 261,900
6,400 JDN Realty Corp 184,000
8,000 JP Realty Inc 206,000
22,800 Kimco Realty Corp 766,650
14,400 Koger Equity Inc 257,400
3,400 Kranzco Realty Trust 54,825
4,900 Lexington Corporate Properties 63,088
23,200 Liberty Property Trust 551,000
9,700 Macerich Co 267,963
8,700 Manufactured Home Communities 197,925
1,700 Mark Centers Trust 19,338
14,900 Merry Land & Investment Co 322,213
4,600 MGI Properties Inc 100,050
2,800 Mid America Apartment Community 81,200
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------
<C> <S> <C>
REAL ESTATE -- CONTINUED
7,800 Mills Corp 183,300
7,600 National Golf Properties Inc 248,900
16,400 New Plan Realty Trust 381,300
4,500 Oasis Residential Inc 104,063
3,800 Paragon Group Inc 65,550
14,300 Patriot American Hospitality 647,075
1,400 Pennsylvania Real Estate 32,025
8,700 Post Properties Inc 329,513
63,900 Public Storage Inc 1,717,312
2,500 Regency Realty Corp 68,438
14,900 RFS Hotel Investors Inc 253,300
4,100 Saul Centers Inc 69,700
56,500 Security Capital Industrial Trust 1,242,999
44,200 Security Capital Pacific Trust 1,038,699
15,700 Shurgard Storage Centers 439,600
41,200 Simon Debartolo Group Inc 1,241,149
3,700 Smith (Charles E) Residential 104,525
22,300 Spieker Properties Inc 811,163
24,300 Starwood Lodging Trust 950,738
7,300 Storage Trust Realty 196,188
14,700 Storage USA Inc 538,388
9,000 Summit Properties Inc 182,250
6,100 Sun Communities Inc 195,963
1,200 Tanger Factory Outlet Centers Inc 29,850
13,200 Taubman Centers Inc 173,250
2,000 Town & Country Trust 29,000
9,100 Trinet Corporate Realty Trust 310,538
43,924 United Dominion Realty Trust 658,860
9,300 Urban Shopping Centers Inc 291,788
16,900 Vornado Realty Trust 978,088
5,700 Walden Residential Properties Inc 146,775
9,600 Washington Realty Trust 171,600
9,600 Weeks Corp 321,600
14,300 Weingarten Realty 613,113
7,400 Wellsford Residential Properties 216,450
6,100 Western Investment Real Estate Trust 78,538
8,400 Winston Hotels Inc 112,350
------------
32,702,956
------------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------
<C> <S> <C>
REFINING -- 0.1%
1,300 Murphy Oil Corp 60,288
5,700 Tosco Corp 158,888
------------
219,176
------------
RETAIL TRADE -- 3.1%
21,700 Albertsons Inc 764,925
11,700 American Stores Co 523,575
26,300 Dayton Hudson Corp 1,104,599
12,000 Dillard Department Stores Inc 361,500
6,900 Fruit of the Loom Inc 282,038
11,500 Gap Inc 379,500
68,500 Kmart Corp * 856,250
6,300 May Department Stores Co 293,738
13,200 Penney (JC) Co Inc 650,100
10,100 Safeway Inc * 486,063
3,900 TJX Cos Inc 162,825
23,400 Toys R Us Inc * 608,400
20,700 Wal Mart Stores Inc 545,963
------------
7,019,476
------------
SERVICES -- 0.1%
600 BHC Communications Inc, Class A 61,200
400 Circus Circus Enterprises Inc * 12,500
1,100 Equifax Inc 32,725
300 Fleming Cos Inc 5,250
700 Robert Half International Inc 29,138
5,300 Supervalu Inc 164,300
------------
305,113
------------
TECHNOLOGY -- 4.8%
5,100 Advanced Micro Devices Inc * 182,963
4,100 Avnet Inc 256,250
2,600 Cabletron Systems Inc 78,000
15,300 Cisco Systems Inc * 851,063
11,500 Dell Computer Corp 817,938
1,500 Grainger (WW) Inc 118,875
24,600 Intel Corp 3,490,124
32,100 Microsoft Corp 3,129,749
12,600 Oracle Corp 494,550
500 Seagate Technology Corp 23,625
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- CONTINUED
15,800 Storage Technology Corp * 659,650
14,500 Xerox Corp 906,250
------------
11,009,037
------------
TELECOMMUNICATIONS -- 3.6%
45,100 AT & T Corp 1,798,362
6,600 Bell Atlantic Corp 456,225
1,200 Bellsouth Corp 56,250
1,900 Cincinnati Bell Inc 117,800
15,300 GTE Corp 715,275
12,600 MCI Communications Corp 450,450
14,300 NYNEX Corp 736,450
47,800 Pacific Telesis Group 1,947,849
35,700 Sprint Corp 1,624,349
8,700 US West Inc 313,200
------------
8,216,210
------------
TOBACCO -- 0.6%
10,000 Philip Morris Cos Inc 1,351,249
------------
TRANSPORTATION -- 1.1%
22,900 Burlington Northern Santa Fe Railroad Co 1,906,424
7,600 CSX Corp 350,550
8,500 Ryder System Inc 267,750
------------
2,524,724
------------
UTILITIES -- 6.9%
4,500 AES Corp * 294,188
13,100 Allegheny Power System Inc 401,188
19,300 American Electric Power Inc 805,775
20,000 Baltimore Gas and Electric Co 550,000
9,100 Carolina Power and Light Co 337,838
29,900 Central & South West Corp 728,813
25,000 Cinergy Corp 862,500
4,300 Citizens Utilities, Class B 51,063
11,300 CMS Energy Corp 370,075
5,500 Coastal Corp 250,250
4,200 Dominion Resources Inc 169,050
13,200 DPL Inc 325,050
9,700 DQE Inc 287,363
20,000 Duke Power Co 885,000
47,000 Edison International 1,010,499
5,000 Enova Corp 111,875
46,100 Entergy Corp 1,215,887
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- CONTINUED
28,500 Houston Industries Inc 662,625
13,100 Illinova Corp 327,500
6,200 LG&E Energy Corp 153,450
15,500 Long Island Lighting Co 356,500
10,600 New York State Electric and Gas Corp 246,450
4,900 Northern States Power Co 233,363
27,000 Pacificorp 556,875
8,600 Portland General Electric Co 336,475
9,500 Potomac Electric Power Co 241,063
6,200 PP & L Resources Inc 141,825
5,100 Public Service of Colorado 198,900
6,500 Scana Corp 169,813
90,600 Southern Co 1,970,549
9,000 Teco Energy Inc 219,375
22,600 Texas Utilities Co 912,475
13,700 Wisconsin Energy Corp 351,063
------------
15,734,715
------------
TOTAL COMMON STOCKS (COST $160,981,967) 177,253,240
------------
SHORT-TERM INVESTMENTS -- 13.0%
U.S. GOVERNMENT -- 0.3%
$ 700,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 691,422
------------
REPURCHASE AGREEMENTS -- 10.0%
$11,421,973 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $11,426,589 and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from
7.25% to 11.88%, with maturity dates ranging
from 11/15/03 to 5/15/20
and with an aggregate market value of
$11,662,781. 11,421,973
$11,421,973 Prudential Securities, Inc Repurchase
Agreement, dated 2/28/97, due
3/3/97, with a maturity value of $11,426,513
and an effective yield of
4.77%, collateralized by U.S. Government Agency
Obligations with
rates ranging from 6.30% to 6.75%, with
maturity dates ranging from
5/24/01 to 12/03/01 and with an aggregate
market value of $11,650,538. 11,421,973
------------
22,843,946
------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------
<C> <S> <C>
CASH EQUIVALENTS -- 2.7%(B)
892,837 American AAdvantage Money Market Fund 892,837
$ 2,691,219 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 2,691,219
2,556,944 Merrimac Cash Fund Premium Class 2,556,944
-------------
6,141,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $29,676,126) 29,676,368
-------------
TOTAL INVESTMENTS -- 90.7%
(Cost $190,658,093) ** 206,929,608
Other Assets and Liabilities (net) -- 9.3% 21,137,917
-------------
TOTAL NET ASSETS -- 100% $ 228,067,525
=============
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR -- American Depositary Receipt
* Non-income producing security.
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
** The aggregate identified cost for federal income tax
purposes is $190,928,233, resulting in gross
unrealized appreciation and depreciation of
$17,738,772 and $1,737,397, respectively, and net
unrealized appreciation of $16,001,375.
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $190,658,093) (Note 1) $ 206,929,608
Cash 27,222,103
Receivable for investments sold 2,292,340
Dividends and interest receivable 505,220
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 82,350
Receivable for expenses waived or borne by Manager (Note 2) 37,624
-------------
Total assets 237,069,245
-------------
LIABILITIES:
Payable for investments purchased 1,974,041
Payable upon return of securities loaned (Note 1) 6,141,000
Payable to affiliate for (Note 2):
Management fee 86,280
Shareholder service fee 26,548
Accrued expenses 55,740
Payable for open swap contracts (Notes 1 and 6) 718,111
-------------
Total liabilities 9,001,720
-------------
NET ASSETS $ 228,067,525
=============
NET ASSETS CONSIST OF:
Paid-in-capital $ 164,450,814
Accumulated undistributed net investment income 1,418,165
Accumulated undistributed net realized gain 46,503,127
Net unrealized appreciation 15,695,419
-------------
$ 228,067,525
=============
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 1,356,604
=============
Class III shares $ 226,710,921
=============
SHARES OUTSTANDING:
Class I 104,149
=============
Class III 17,394,941
=============
NET ASSET VALUE PER SHARE:
Class I $ 13.03
=============
Class III $ 13.03
=============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $13,644) $ 4,708,694
Interest (including securities lending income of $11,654) 1,038,804
-----------
Total income 5,747,498
-----------
EXPENSES:
Management fee (Note 2) 1,138,768
Custodian and transfer agent fees 71,685
Audit fees 47,090
Registration fees 12,208
Legal fees 11,374
Trustees fees (Note 2) 1,185
Miscellaneous 2,389
Fees waived or borne by Manager (Note 2) (434,930)
-----------
849,769
Shareholder service fee (Note 2)
Class I 1,688
Class III 264,906
-----------
Net expenses 1,116,363
-----------
Net investment income 4,631,135
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 62,135,280
Closed futures contracts 5,402,447
Closed swap contracts (1,867,196)
-----------
Net realized gain 65,670,531
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (20,814,751)
Open futures contracts 132,679
Open swap contracts (403,007)
-----------
Net unrealized loss (21,085,079)
-----------
Net realized and unrealized gain 44,585,452
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $49,216,587
===========
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,631,135 $ 5,252,390
Net realized gain 65,670,531 52,195,479
Change in net unrealized appreciation
(depreciation) (21,085,079) 18,654,244
------------ ------------
Net increase in net assets resulting from
operations 49,216,587 76,102,113
------------ ------------
Distributions to shareholders from:
Net investment income
Class I (8,397) --
Class III (3,967,362) (5,069,167)
------------ ------------
Total distributions from net investment
income (3,975,759) (5,069,167)
------------ ------------
Net realized gains
Class I (85,607) --
Class III (51,735,148) (19,784,233)
------------ ------------
Total distributions from net realized
gains (51,820,755) (19,784,233)
------------ ------------
(55,796,514) (24,853,400)
------------ ------------
Net share transactions: (Note 5)
Class I 1,245,516 --
Class III 22,083,220 (47,221,095)
------------ ------------
Increase (decrease) in net assets
resulting from net share
transactions 23,328,736 (47,221,095)
------------ ------------
Total increase in net assets 16,748,809 4,027,618
NET ASSETS:
Beginning of period 211,318,716 207,291,098
------------ ------------
End of period (including accumulated
undistributed net investment income of
$1,418,165 and $774,923, respectively) $228,067,525 $211,318,716
============ ============
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.78
------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized gain 2.10
------
Total from investment operations 2.22
------
Less distributions to shareholders:
From net investment income (0.09)
From net realized gains (0.88)
------
Total distributions (0.97)
------
NET ASSET VALUE, END OF PERIOD $13.03
======
TOTAL RETURN (A) 19.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $1,357
Net expenses to average daily net assets 0.61%*
Net investment income to average daily net
assets 1.97%*
Portfolio turnover rate 104%
Average broker commission rate per equity share $.0270
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
*Annualized.
16 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------
1997 1996 1995 1994 1993 *
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 13.63 $ 11.06 $ 11.26 $ 10.38 $ 10.00
------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.26 0.29 0.28 0.29 0.05
Net realized and unrealized
gain 2.20 3.90 0.49 1.21 0.33
------- -------- -------- -------- --------
Total from investment
operations 2.46 4.19 0.77 1.50 0.38
------- -------- -------- -------- --------
Less distributions to
shareholders:
From net investment income (0.22) (0.29) (0.27) (0.30) --
From net realized gains (2.84) (1.33) (0.70) (0.32) --
------- -------- -------- -------- --------
Total distributions (3.06) (1.62) (0.97) (0.62) --
------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38
======= ======== ======== ======== ========
TOTAL RETURN (A) 20.88% 38.90% 7.56% 14.64% 3.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) 226,711 $211,319 $207,291 $167,028 $169,208
Net expenses to average
daily net assets 0.48% 0.48% 0.48% 0.48% 0.48%**
Net investment income to
average daily net assets 1.99% 2.27% 2.61% 2.56% 3.20%**
Portfolio turnover rate 104% 84% 101% 53% 9%
Average broker commission
rate per equity share (b) $ .0270 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or
borne by
the Manager consisted of
the following per
share amounts: $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
* For the period from December 31, 1992 (commencement of operations) to
February 28, 1993.
** Annualized.
See accompanying notes to the financial statements. 17
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO U.S. Sector Fund (the "Fund"), formerly named the GMO U.S. Sector
Allocation Fund, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,800 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock indices.
Stock index futures contracts represent commitments for future delivery of
cash based upon the level of a specified index of equity securities at a
specified price at a given date. The Fund may use futures contracts to
manage its exposure to the stock markets. Buying futures tends to increase
the Fund's exposure to the underlying instrument. Selling
18
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $5,948,663, collateralized by
cash in the amount of $6,141,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is
19
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 28, 1997.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for return of capital dividends.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------ ------------------------- ---------------
<S> <C> <C>
$(12,134) $12,134 --
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of the REIT's earnings. The excess amount
cannot be determined by the Fund at the time of receipt. If the
20
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
Fund distributes amounts which are subsequently determined to exceed REIT
earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the year ended February 28, 1997, the Fund
received $69,616 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .49% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $1,185. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3.PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended February 28, 1997, aggregated
$216,293,363 and $334,403,664, respectively.
21
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by one shareholder and 85% of the outstanding Class III shares of
the Fund were held by three shareholders, each holding in excess of 10% of
the outstanding shares of the respective Class.
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 September 3, 1996
(commencement of operations)
to February 28, 1997
Class I: ------------------------------
Shares Amount
------------------------------
<S> <C> <C>
Shares sold 97,467 $ 1,163,513
Shares issued to shareholders in
reinvestment
of distributions 7,610 94,003
Shares repurchased (928) (12,000)
------------ ----------------
Net increase 104,149 $ 1,245,516
============ ================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
Class III: ------------------------ -------------------------
Shares Amount Shares Amount
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 7,570,612 $ 96,850,986 1,735,802 $ 23,582,604
Shares issued to
shareholders in
reinvestment of
distributions 3,069,555 37,653,043 767,911 10,007,238
Shares repurchased (8,749,092) (112,420,809) (5,734,152) (80,810,937)
---------- ------------ ---------- -------------
Net increase (decrease) 1,891,075 $ 22,083,220 (3,230,439) $ (47,221,095)
========== ============ ========== =============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Appreciation
Contracts Type Date Contract Value (Depreciation)
---------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
108 Russell 2000 March 1997 $19,429,200 $204,037
9 S&P 500 March 1997 3,556,800 (62,022)
--------
$142,015
========
</TABLE>
22
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- --------------------------------- --------------
<S> <C> <C> <C>
$ 7,438,853/ 5/16/97 Agreement with Morgan Stanley $ 21,088
7,132,312 Capital Services, Inc. dated May
20, 1996 to pay (receive) the
notional amount multiplied by the
return on the Standard & Poor's
500 Index (including dividends)
less the notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread
and to receive (pay) the change
in market value of a basket of
selected securities (including
dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
12,990,744/ 9/11/97 Agreement with Morgan Stanley (739,199)
13,014,462 Capital Services, Inc. dated
September 9, 1996 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and to receive
(pay) the change in market value
of a basket of selected
securities (including dividends)
less the counterparty's notional
amount multiplied by 6 month
LIBOR adjusted by a specified
spread.
---------
Net unrealized depreciation $(718,111)
=========
</TABLE>
23
<PAGE>
GMO U.S. SECTOR FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
74.94% of distributions as net capital gain dividends.
24
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
GMO U.S. SECTOR 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., LLC for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO U.S. Sector Fund returned 20.9% for the
fiscal year ended February 28, 1997, as compared to 26.1% 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
year, the Fund's strategy was similar to that of the GMO Core Fund,
however, the Fund is structured to provide investors with the ability to
benefit from investment in and among core, growth, value, REIT (real estate
investment trust), and small capitalization strategies when the sectors
appear attractively priced.
The majority of the Fund's performance shortfall was due to three sector
strategies which underperformed for the year. The first of these strategies
involved underweighting banks and overweighting utilities, a strategy which
was based upon our view that utility stocks are significantly undervalued
relative to their historical levels, and that banks, which are in the sixth
year of a rally off their 1990 lows, are overvalued. Historically both
sectors have underperformed in periods of rising interest rates and the
strategy was expected to have a neutral impact if rates did in fact
increase. This year, however, banks moved up and utilities moved down
relative to the market in an environment of rising interest rates.
Therefore, rather than having the neutralizing effect that was intended,
both strategies hurt the performance of the Fund.
The second sector strategy, overweighting defensive stocks and
underweighting cyclical stocks, also impacted performance negatively,
primarily during the rally of cyclical stocks in the early part of the
year. Last, our underweight position in the largest 100 industrials hurt
relative performance in an environment where the largest capitalization
stocks carried the market, significantly outperforming smaller industrial
stocks for the year.
In addition to the aforementioned sector bets, the three GMO stock
selection parameters -- value, momentum and neglect -- had mixed results
for the year. Relative to the S&P 500, our dividend discount model provided
positive contributions to return while the momentum and neglect models both
experienced negative value-added versus the index.
OUTLOOK
In December the Fund allocated 20% to small capitalization stocks and 15%
to REITs (real estate investment trusts), based upon the attractive
valuations of these sectors relative to large capitalization U.S. equities.
Additionally, the core portion of the Fund is tilted primarily towards the
value style, based upon the relative attractiveness of large-cap value
stocks. Although the impact of the small-cap and REIT allocations has been
slightly negative in the first two months of 1997, we think the
fundamentals are positive for both groups to outperform over the short to
medium term.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co. LLC Management. They are not meant as investment advice.
26
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO U.S. Sector Fund Class III shares and the
S & P 500 Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 12/31/92
<S> <C> <C> <C>
Class III 20.7% n/a 20.1%
09/03/96
Class I n/a n/a 19.1%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO U.S. Sector Fund S & P 500 Index
<S> <C> <C>
12/31/92 9,986 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
02/28/97 21,454 20,201
</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 14 bp on
the purchase. Transaction fees are paid to the Fund to cover trading
costs. Class III shares are a redesignation of the single class of
shares that has been offered by the Fund since inception. Performance
for Class I shares will be different due to higher shareholder service
fees. Class II shares have not commenced operations. Past performance is
not indicative of future performance. Information is unaudited.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF GMO REIT 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
REIT Fund at February 28, 1997, the results of its operations, the changes
in its net assets and the financial highlights for the period from May 31,
1996 (commencement of operations) to February 28, 1997, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1997
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS -- 97.0%
APARTMENTS -- 20.5%
29,600 Ambassador Apartments Inc 717,800
45,100 AMLI Residential Properties Trust 1,071,125
44,800 Apartment Investment & Management Co, Class A 1,299,200
35,300 Associated Estates Realty Capital 829,550
73,600 Avalon Properties Inc 2,051,600
58,500 Bay Apartment Communities Inc 2,098,688
87,600 Berkshire Realty Co 1,018,350
44,700 BRE Properties Inc 1,095,150
72,600 Camden Property Trust 1,987,425
56,500 Columbus Realty Trust 1,179,438
216,800 Equity Residential Properties Trust 9,810,199
64,100 Evans Withycombe Residential 1,314,050
54,900 Gables Residential Trust 1,420,538
77,700 Irvine Apartment Communities 2,097,900
123,300 Merry Land & Investment Co 2,666,363
21,300 Mid America Apartment Community 617,700
35,000 Oasis Residential Inc 809,375
29,000 Paragon Group Inc 500,250
68,100 Post Properties Inc 2,579,288
343,000 Security Capital Pacific Trust 8,060,499
15,500 Smith (Charles E) Residential 437,875
76,300 Summit Properties Inc 1,545,075
16,100 Town & Country Trust 233,450
335,314 United Dominion Realty Trust 5,029,710
44,400 Walden Residential Properties Inc 1,143,300
61,200 Wellsford Residential Properties 1,790,100
----------
53,403,998
----------
DIVERSIFIED -- 3.1%
68,900 Colonial Properties Trust 2,006,713
130,900 Cousins Properties Inc 3,190,688
3,100 First Union Real Estate 41,075
37,800 Lexington Corporate Properties 486,675
34,200 MGI Properties Inc 743,850
9,000 Pennsylvania Real Estate 205,875
79,000 Washington Realty Trust 1,412,125
----------
8,087,001
----------
</TABLE>
1
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------
<C> <S> <C>
ENCLOSED MALLS -- 10.1%
75,400 CBL & Associates Properties 1,875,575
58,600 Crown American Realty Trust 461,475
119,400 General Growth Properties 3,656,625
71,000 JP Realty Inc 1,828,250
91,700 Macerich Co 2,533,213
71,400 Mills Corp 1,677,900
328,800 Simon Debartolo Group Inc 9,905,099
132,000 Taubman Centers Inc 1,732,500
86,900 Urban Shopping Centers Inc 2,726,488
----------
26,397,125
----------
FACTORY OUTLET -- 0.7%
45,100 Chelsea GCA Realty Inc 1,539,038
17,500 Factory Realty Trust Inc 115,938
2,100 Horizon Group Inc 27,563
900 Prime Retail Inc 11,588
9,400 Tanger Factory Outlet Centers Inc 233,825
----------
1,927,952
----------
HOTEL/MOTEL -- 9.8%
30,000 American General Hospitality 821,250
100,600 Equity Inns Inc 1,358,100
131,600 Felcor Suite Hotels Inc 4,457,950
173,300 Franchise Finance Corp of America 4,484,138
11,182 Homestead Village 85,260
97,700 Innkeepers USA Trust 1,367,800
97,900 Patriot American Hospitality 4,429,975
98,700 RFS Hotel Investors Inc 1,677,900
152,100 Starwood Lodging Trust 5,950,912
62,100 Winston Hotels Inc 830,588
----------
25,463,873
----------
INDUSTRIAL -- 15.2%
95,900 Centerpoint Properties Corp 3,032,838
178,500 Duke Realty Investments 7,162,312
149,100 First Industrial Realty Trust 4,454,363
181,100 Liberty Property Trust 4,301,125
465,975 Security Capital Industrial Trust 10,251,449
143,500 Spieker Properties Inc 5,219,812
</TABLE>
2
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------
<C> <S> <C>
INDUSTRIAL -- CONTINUED
80,900 Trinet Corporate Realty Trust 2,760,713
74,700 Weeks Corp 2,502,450
----------
39,685,062
----------
MANUFACTURED HOUSING -- 1.7%
52,475 Chateau Properties Inc 1,351,226
70,800 Manufactured Home Communities 1,610,700
46,500 Sun Communities Inc 1,493,813
----------
4,455,739
----------
OFFICE -- 11.8%
14,800 Arden Realty Group Inc 408,850
171,700 Cali Realty Trust 5,494,399
224,100 Carramerica Realty Corp 6,807,037
160,600 Crescent Real Estate Equities 8,792,849
211,100 Highwood Properties Inc 7,282,949
113,100 Koger Equity Inc 2,021,663
----------
30,807,747
----------
RECREATION -- 0.8%
66,300 National Golf Properties Inc 2,171,325
----------
SELF STORAGE -- 7.0%
385,300 Public Storage Inc 10,354,937
101,800 Shurgard Storage Centers 2,850,400
50,800 Storage Trust Realty 1,365,250
100,100 Storage USA Inc 3,666,163
----------
18,236,750
----------
SHOPPING/POWER CENTER -- 16.3%
34,700 Alexander Haagen Properties 520,500
72,800 Bradley Real Estate Inc 1,419,600
70,100 Burnham Pacific Properties Inc 1,025,213
103,400 Commercial Net Lease Realty 1,615,625
60,500 Developers Diversified Realty Corp 2,215,813
10,100 Essex Property Trust Inc 303,000
51,200 Excel Realty Trust Inc 1,254,400
130,800 Federal Realty Investment Trust 3,515,250
85,300 Glimcher Realty Trust 1,780,638
130,400 IRT Property Co 1,467,000
57,000 JDN Realty Corp 1,638,750
</TABLE>
3
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
SHOPPING/POWER CENTER -- CONTINUED
192,000 Kimco Realty Corp 6,455,999
35,300 Kranzco Realty Trust 569,213
14,800 Mark Centers Trust 168,350
149,800 New Plan Realty Trust 3,482,850
14,900 Regency Realty Corp 407,888
41,400 Saul Centers Inc 703,800
136,000 Vornado Realty Trust 7,870,999
122,400 Weingarten Realty 5,247,899
60,200 Western Investment Real Estate Trust 775,075
------------
42,437,862
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(COST $231,047,219) 253,074,434
------------
SHORT-TERM INVESTMENTS -- 5.4%
CASH EQUIVALENTS -- 2.3%(B)
684,226 American AAdvantage Money Market Fund 684,226
$4,706,125 Bank of Boston Eurodollar Time Deposit,
5.5375% due 3/3/97 4,706,125
$ 584,249 Harris Bank and Trust Eurodollar Time Deposit,
5.375% due 3/3/97 584,249
------------
5,974,600
------------
U.S. GOVERNMENT -- 0.1%
$ 300,000 U.S. Treasury Bill, 5.22% due 5/29/97(a) 296,324
------------
REPURCHASE AGREEMENTS -- 3.0%
$7,794,361 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $7,797,511 and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25%
to 11.88%, with maturity dates ranging from
11/15/03 to 5/15/20
and with an aggregate market value of
$7,958,689. 7,794,361
------------
TOTAL SHORT-TERM INVESTMENTS (COST $14,065,139) 14,065,285
------------
TOTAL INVESTMENTS -- 102.4%
(Cost $245,112,358) * 267,139,719
Other Assets and Liabilities (net) -- (2.4)% (6,169,415)
------------
TOTAL NET ASSETS -- 100% $260,970,304
============
</TABLE>
4
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS -- (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
<C> <S> <C>
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) Security has been segregated to cover
margin requirements on open financial
futures contracts.
(b) Represents investments of security
lending collateral (Note 1).
* The aggregate identified cost for
federal income tax purposes is
$245,179,966, resulting in gross
unrealized appreciation and depreciation
of $22,411,425 and $451,672,
respectively, and net unrealized
appreciation of $21,959,753.
</TABLE>
5
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $245,112,358) (Note 1) $267,139,719
Dividends and interest receivable 422,521
Receivable for expenses waived or borne by Manager (Note 2) 65,828
------------
Total assets 267,628,068
------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 5,974,600
Payable for Fund shares repurchased 431,210
Payable to affiliate for (Note 2):
Management fee 150,321
Shareholder service fee 30,063
Accrued expenses 54,770
Payable for variation margin on open futures contracts (Notes 1
and 6) 16,800
------------
Total liabilities 6,657,764
------------
NET ASSETS $260,970,304
============
NET ASSETS CONSIST OF:
Paid-in-capital $233,875,136
Accumulated undistributed net investment income 1,209,863
Accumulated undistributed net realized gain 3,552,016
Net unrealized appreciation 22,333,289
------------
$260,970,304
============
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 41,454
============
Class III shares $260,928,850
============
SHARES OUTSTANDING:
Class I 3,284
============
Class III 20,672,613
============
NET ASSET VALUE PER SHARE:
Class I $ 12.62
============
Class III $ 12.62
============
</TABLE>
6
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS --
PERIOD FROM MAY 31, 1996 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28,
1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 4,441,984
Interest (including securities lending income of $2,726) 365,858
-----------
Total income 4,807,842
-----------
EXPENSES:
Management fee (Note 2) 666,973
Audit fees 36,130
Custodian and transfer agent fees 29,569
Registration fees 27,656
Legal fees 3,020
Trustees fees (Note 2) 305
Miscellaneous 936
Fees waived or borne by Manager (Note 2) (286,384)
-----------
478,205
Shareholder service fee (Note 2)
Class I 9
Class III 133,386
-----------
Net expenses 611,600
-----------
Net investment income 4,196,242
-----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 3,021,872
Closed futures contracts 1,217,163
-----------
Net realized gain 4,239,035
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 22,027,361
Open futures contracts 305,928
-----------
Net unrealized gain 22,333,289
-----------
Net realized and unrealized gain 26,572,324
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $30,768,566
===========
</TABLE>
7
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MAY 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,196,242
Net realized gain 4,239,035
Change in net unrealized appreciation
(depreciation) 22,333,289
------------
Net increase in net assets resulting from
operations 30,768,566
------------
Distributions to shareholders from:
Net investment income
Class III (2,888,627)
------------
Net realized gains
Class III (784,771)
------------
(3,673,398)
------------
Net share transactions: (Note 5)
Class I 41,658
Class III 233,833,478
------------
Increase in net assets resulting from net share
transactions 233,875,136
------------
Total increase in net assets 260,970,304
NET ASSETS:
Beginning of period --
------------
End of period (including accumulated
undistributed net investment income of
$1,209,863) $260,970,304
============
</TABLE>
8
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.58
------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gain 0.01
------
Total from investment operations 0.04
------
NET ASSET VALUE, END OF PERIOD $12.62
======
TOTAL RETURN(A) 0.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $41
Net expenses to average daily net assets 0.82%*
Net investment income to average daily net
assets 3.17%*
Portfolio turnover rate 21%
Average broker commission rate per equity share $.0323
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: (b)
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
9
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MAY 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------
Income from investment operations:
Net investment income 0.24
Net realized and unrealized gain 2.60
--------
Total from investment operations 2.84
--------
Less distributions to shareholders:
From net investment income (0.17)
From net realized gains (0.05)
--------
Total distributions (0.22)
--------
NET ASSET VALUE, END OF PERIOD $12.62
========
TOTAL RETURN(A) 28.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $260,929
Net expenses to average daily net assets 0.69%*
Net investment income to average daily net assets 4.72%*
Portfolio turnover rate 21%
Average broker commission rate per equity share $.0323
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $0.02
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
* Annualized.
10
See accompanying notes to the financial statements.
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO REIT Fund (the "Fund"), which commenced operations on May 31, 1996,
is a series of GMO Trust (the "Trust"). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by Grantham,
Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was
established as a Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a series
into classes.
The Fund seeks maximum total return through investment primarily in real
estate investment trusts ("REITs").
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-
term investments with a remaining maturity of sixty days or less are valued
at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase and sell futures contracts on domestic stock
indicies. 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
11
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
liquidated on the following business day. Gains or losses are recognized
but not considered realized until the contracts expire or are closed.
Futures contracts involve, to varying degrees, risk of loss in excess of
the variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of February 28, 1997.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1997, the Fund
loaned securities having a market value of $5,728,063, collateralized by
cash in the amount of $5,974,600, which was invested in short-term
instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semiannually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of
12
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
the Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for return of capital dividends.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
($97,752) $97,752 --
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of its interest in the REIT's earnings.
The excess amount cannot be determined by the Fund at the time of receipt.
If the Fund distributes amounts which are subsequently determined to exceed
REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
13
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and fee on redemptions of Fund shares is .75%
of the amount invested or redeemed. All purchase premiums and redemption
fees are paid to and recorded as paid-in capital by the Fund. For the
period ended February 28, 1997, the Fund received $1,756,192 in purchase
premiums and $15,953 in redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in REITs rather
than a more diversified portfolio of investments. Since the Fund's
investments are concentrated in real-estate related securities, the value
of its shares can be expected to change in light of factors affecting the
real estate industry, including local or regional economic conditions,
changes in zoning laws, changes in real estate value and property taxes,
and changes in interest rates. The value of the Fund's shares may fluctuate
more widely than the value of shares of a portfolio that invests in a
broader range of industries.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .54% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended February 28, 1997 was $305. 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 28, 1997, aggregated
$252,611,024 and $23,854,592, respectively.
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 81% of the outstanding Class I shares of the Fund
were held by three shareholders, and 23% of the outstanding Class III
shares of the Fund were held by one shareholder, each holding in excess of
10% of the outstanding shares of the respective class.
14
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
5.SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from December 31, 1996
(commencement of operations)
to February 28, 1997
Class I: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 3,284 $ 41,658
Shares issued to shareholders in
reinvestment
of distributions -- --
Shares repurchased -- --
------------- ---------------
Net increase 3,284 $ 41,658
============= ===============
<CAPTION>
Period from May 31, 1996
(commencement of operations)
to February 28, 1997
Class III: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 20,722,033 $ 234,377,685
Shares issued to shareholders in
reinvestment
of distributions 180,673 2,193,376
Shares repurchased (230,093) (2,737,583)
------------- ---------------
Net increase 20,672,613 $ 233,833,478
============= ===============
</TABLE>
6.FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1997 is as
follows:
LONG FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Expiration Net Unrealized
Contracts Type Date Contract Value Appreciation
--------- ------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
16 S&P 500 March 1997 $6,323,200 $305,928
========
</TABLE>
At February 28, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
15
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
12.73% of distributions as net capital gain dividends.
16
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Richard McQuaid and Mr. Robert Brokaw are
primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Grantham has been with Grantham, Mayo, Van Otterloo & Co.
LLC since its founding in 1977. Mr. McQuaid has been at GMO for three years
and Mr. Brokaw has been with the firm for nine years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class III shares of the GMO REIT Fund returned 28.5% from the Fund's
inception (May 31, 1996) to February 28, 1997 while the Morgan Stanley REIT
Index (MSRI) returned 29.8% and the S&P 500 returned 20.0% during the same
period.
REIT Industry Review
Since the Fund's inception on May 31, 1996, the REIT market has been led by
the strong performance of commercial office buildings and hotels, followed
by industrial properties. Regional shopping malls rebounded strongly after
June. Apartments lagged this year following good performance in the three
prior years. Shopping centers also lagged, although performance improved
considerably over the previous year.
Fundamental Stock Selection
The Fund's fundamental valuation process analyzes individual companies and
also utilizes top-down sector analysis to analyze properties by their
geography and property type. Our fundamental research looks out one to two
years and is heavily weighted towards stocks with attractive valuations.
During the Fund's first seven months, these investment streams
underperformed the index, primarily due to the outperformance of growth-
oriented REITs during the period.
Quantitative Stock Selection
In addition to a fundamental valuation approach, the Fund utilizes two
quantitative models. One model selects sectors (or property types) on the
basis of their short-term return performance, and the other selects
individual stocks on the basis of their long-term return momentum. Our
sector selection model, which has a quick response to changing momentum,
added to the Fund's relative performance, as did the long-term momentum
model.
17
<PAGE>
GMO REIT FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
Implementation
Implementation negatively impacted the Fund's underperformance relative to
the MSRI during the year. The large inflow of new investors to the REIT
market, particularly in the last quarter of the calendar year, disrupted
valuations somewhat. Additionally, there is no satisfactory, liquid means
to gain immediate real estate exposure when new cash flows are taken into
the Fund. As an alternative to holding cash, the Fund utilizes S&P Mid-Cap
futures and S&P 500 futures to temporarily gain equity market exposure
until new funds are invested. This strategy protected our clients against a
significant portion of the risk of holding cash, but hurt relative
performance during a period when REIT stocks strongly outperformed relative
to U.S. equities (nearly 13% during the fourth quarter of 1996 alone).
Outlook
The Fund's holdings are broadly representative of the REIT market as a
whole. As an asset class, REITs are attractively priced relative to large
capitalization U.S. equities. They are priced at close to their fair value
and have higher yields than do equities. Further, the REIT market is
capturing the attention of institutional investors as an attractive
alternative to the less liquid private market for real estate investing.
The resulting influx of capital to the REIT market will further its
institutionalization, improving discovery and liquidity over the next few
years.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co LLC Management. They are not meant as investment advice.
18
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO REIT Fund Class III shares and the MSCI REIT Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 05/31/96
<S> <C> <C> <C>
Class II n/a n/a 26.6%
12/31/96
Class I n/a n/a -0.7%
[Line Graph Appears Here]
<CAPTION>
Date GMO REIT Fund MSCI REIT Index S&P 500 Index
<S> <C> <C> <C>
01/01/96
05/31/96 9,925 10,000 10,000
02/28/97 12,660 12,982 12,005
</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 75 bp on
the purchase and 75 bp on the redemption. Transaction fees are paid to
the Fund to cover trading costs. Performance for Class I will be
different due to higher shareholder service fees. Class II shares have
not commenced operations. Past performance is not indicative of future
performance. Information is unaudited.
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO WORLD EQUITY ALLOCATION FUND (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
World Equity Allocation Fund at February 28, 1997, the results of its
operations, the changes in its net assets and the financial highlights for
the period from June 28, 1996 (commencement of operations) to February 28,
1997, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 22, 1997
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
222,302 GMO Core Fund (Class III Shares) 4,472,710
58,969 GMO Currency Hedged International Bond Fund
(Class III Shares) 717,066
259,731 GMO Currency Hedged International Core Fund
(Class III Shares) 3,295,986
78,725 GMO Emerging Country Debt Fund (Class III
Shares) 1,109,235
677,857 GMO Emerging Markets Fund (Class III Shares) 8,466,439
45,122 GMO Growth Fund (Class III Shares) 233,731
104,631 GMO International Bond Fund (Class III Shares) 1,127,921
769,616 GMO International Core Fund (Class III Shares) 18,763,239
90,698 GMO International Small Companies Fund (Class
III Shares) 1,220,791
176,875 GMO REIT Fund (Class III Shares) 2,232,166
96,917 GMO Small Cap Growth Fund (Class III Shares) 951,726
116,023 GMO Small Cap Value Fund (Class III Shares) 1,843,605
117,339 GMO Value Fund (Class III Shares) 1,742,488
-----------
TOTAL MUTUAL FUNDS (COST $44,807,281) 46,177,103
-----------
SHORT-TERM INVESTMENT-- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$ 2,462 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,with a maturity value of
$2,463. and an effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25% to 11.88%, with
maturity dates ranging from 11/15/03 to 5/15/20
and with an aggregate market value of $2,514. 2,462
-----------
TOTAL SHORT-TERM INVESTMENT
(COST $2,462) 2,462
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $44,809,743)* 46,179,565
Other Assets and Liabilities (net) (9,273)
-----------
TOTAL NET ASSETS -- 100% $46,170,292
===========
NOTES TO THE SCHEDULE OF INVESTMENTS:
</TABLE>
* The aggregate identified cost for federal income tax purposes
is $44,879,481, resulting in gross unrealized appreciation and
depreciation of $1,543,537 and $243,453, respectively, and net
unrealized appreciation of $1,300,084.
See accompanying notes to the financial statements.
1
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $44,809,743) (Note 1) $46,179,565
Receivable for expenses waived or borne by Manager (Note 2) 5,735
-----------
Total assets 46,185,300
-----------
LIABILITIES:
Payable to affiliate for (Note 2):
Shareholder service fee 942
Accrued expenses 14,066
-----------
Total liabilities 15,008
-----------
NET ASSETS $46,170,292
===========
NET ASSETS CONSIST OF:
Paid-in-capital $44,429,227
Accumulated undistributed net realized gain 371,243
Net unrealized appreciation 1,369,822
-----------
$46,170,292
===========
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 9,424,152
===========
Class III shares $36,746,140
===========
SHARES OUTSTANDING:
Class I 896,088
===========
Class III 3,494,003
===========
NET ASSET VALUE PER SHARE:
Class I $ 10.52
===========
Class III $ 10.52
===========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS --
PERIOD FROM JUNE 28, 1996 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 168,303
Interest 131
----------
Total income 168,434
----------
EXPENSES:
Audit fees 14,167
Custodian and transfer agent fees 13,995
Registration fees 3,785
Legal fees 326
Trustees fees (Note 2) 43
Miscellaneous 675
Fees waived or borne by Manager (Note 2) (31,046)
----------
1,945
Shareholder service fee (Note 2)
Class I 5,781
Class II 838
----------
Net expenses 8,564
----------
Net investment income 159,870
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Investments (2,617)
Realized gain distributions from investment company shares 637,191
----------
Net realized gain 634,574
----------
Change in net unrealized appreciation (depreciation) on
investments 1,369,822
----------
Net realized and unrealized gain 2,004,396
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,164,266
==========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 28, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 159,870
Net realized gain 634,574
Change in net unrealized appreciation
(depreciation) 1,369,822
-----------
Net increase in net assets resulting from
operations 2,164,266
-----------
Distributions to shareholders from:
Net investment income
Class I (95,107)
Class III (64,763)
-----------
Total distributions from net investment income (159,870)
-----------
In excess of net investment income
Class I (702)
Class III (478)
-----------
(1,180)
-----------
Net realized gains
Class I (157,650)
Class III (104,501)
-----------
Total distributions from net realized gains (262,151)
-----------
(423,201)
-----------
Net share transactions: (Note 5)
Class I 9,038,695
Class II (24,488)
Class III 35,415,020
-----------
Increase in net assets resulting from net share
transactions 44,429,227
-----------
Total increase in net assets 46,170,292
NET ASSETS:
Beginning of period --
-----------
End of period $46,170,292
===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 28, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
Income from investment operations:
Net investment income 0.09 (b)
Net realized and unrealized gain 0.72
------
Total from investment operations 0.81
------
Less distributions to shareholders:
From net investment income (0.11)
In excess of net investment income (0.00)
From net realized gains (0.18)
------
Total distributions (0.29)
------
NET ASSET VALUE, END OF PERIOD $10.52
======
TOTAL RETURN(A) 8.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $9,424
Net expenses to average daily net assets 0.16%*
Net investment income to average daily net assets 1.80%*(b)
Portfolio turnover rate 31%
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
* Annualized.
See accompanying notes to the financial statements.
5
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 28, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 16, 1996
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
Income from investment operations:
Net investment income 0.04(b)
Net realized and unrealized gain 0.02
------
Total from investment operations 0.06
------
NET ASSET VALUE, END OF PERIOD $10.06
======
TOTAL RETURN(A) .60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ --
Net expenses to average daily net assets 0.12%*
Net investment income to average daily net assets 1.55%*(b)
Portfolio turnover rate 31%
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
* Annualized.
See accompanying notes to the financial statements.
6
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS III SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 22, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.07
-------
Income from investment operations:
Net investment income 0.11 (b)
Net realized and unrealized gain 0.63
-------
Total from investment operations 0.74
-------
Less distributions to shareholders:
From net investment income (0.11)
In excess of net investment income (0.00)
From net realized gains (0.18)
-------
Total distributions (0.29)
-------
NET ASSET VALUE, END OF PERIOD $10.52
=======
TOTAL RETURN(A) 7.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $36,746
Net expenses to average daily net assets 0.00%*
Net investment income to average daily net assets 0.91%*(b)
Portfolio turnover rate 31%
Fees and expenses voluntarily waived or borne by
the
Manager consisted of the following per share
amount: $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
*Annualized.
See accompanying notes to the financial statements.
7
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO World Equity Allocation Fund (the "Fund"), which commenced
operations on June 28, 1996, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the World Lite Extended Index, a modification of the Morgan Stanley Capital
International World Index that reduces the weighting of Japan and includes
a weighting for emerging countries. The Fund will pursue its objective by
investing primarily in Class III shares of equity funds of the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
8
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
----------------- ------------------------ ---------------
<S> <C> <C>
$1,180 ($1,180) --
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
9
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .69% of the amount
invested. In the case of cash redemptions, the fee is .09% of the amount
redeemed. Prior to October 16, 1996, the Fund did not charge a premium on
cash purchases or a fee on redemptions. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the period ended February 28, 1997, the Fund received $142,906 in
purchase premiums and no redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended February 28, 1997 was $43. 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 28, 1997, aggregated
$50,571,252 and $5,761,354, respectively.
10
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 100% of the outstanding Class I shares of the Fund
were held by three shareholders and 97% of the outstanding Class III shares
of the Fund were held by two shareholders, each holding in excess of 10% of
the outstanding shares of the respective class.
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 June 28, 1996
(commencement of operations)
to February 28, 1997
Class I: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 870,993 $ 8,785,236
Shares issued to shareholders in
reinvestment
of distributions 25,095 253,459
Shares repurchased -- --
------------- ---------------
Net increase 896,088 $ 9,038,695
============= ===============
<CAPTION>
Period from June 28, 1996
(commencement of operations)
to February 28, 1997
Class II: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 412,344 $ 4,123,441
Shares issued to shareholders in
reinvestment
of distributions -- --
Shares repurchased (412,344) (4,147,929)
------------- ---------------
Net increase (decrease) -- $ (24,488)
============= ===============
<CAPTION>
Period from October 22, 1996
(commencement of operations)
to February 28, 1997
Class III: ------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 3,482,496 $ 35,298,804
Shares issued to shareholders in
reinvestment
of distributions 11,507 116,216
Shares repurchased -- --
------------- ---------------
Net increase 3,494,003 $ 35,415,020
============= ===============
</TABLE>
11
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income, except that the Fund has designated
28.75% of distributions as net capital gain dividends.
12
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
GMO WORLD EQUITY ALLOCATION FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years. Mr. Inker has been with the firm for five years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class I shares of the GMO World Equity Allocation Fund returned 8.2%
for the eight months from its inception (June 28, 1996) to February 28,
1997. During that period the Fund's benchmark (GMO World Lite Extended)
returned 11.3%. This period was a strong extension of the longest
continuous bull market in U.S. equities this century. After a brief pause
during July, U.S. stocks set 42 new highs in the next 117 sessions, with
the S&P 500 returning an impressive 20%. International stocks lagged
somewhat, with the EAFE Lite Index up 4.3% and the IFC Investable Index of
emerging markets up 9.5%.
We use GMO's long-term asset class forecasts to allocate the World Equity
Allocation Fund among various GMO mutual funds. From the inception of the
Fund we have felt that the U.S. stock market is significantly overvalued.
The market's subsequent climb has only made this situation more extreme.
Our research suggests that from the market's current valuation level,
prospective returns for large capitalization U.S. stocks over the next 10
years will be very disappointing, with a forecasted average annual return
of only 3% per year.
The Fund is underweight in U.S. stocks by approximately 15% relative to the
benchmark. This bet negatively impacted the Fund's overall performance due
to the continuing rally of U.S. equities relative to the international
markets during the period. Within the U.S. equity portion of the portfolio,
we have tilted the portfolio towards the most attractively valued sectors:
small stocks, where we have a 6% overweighting, and real estate investment
trusts (REITs), where our overweighting is 5%. Since the Fund's inception,
the allocation to REITs has helped performance, as the GMO REIT Fund
outperformed the aggregate U.S. market by 7% over the period. Small stocks,
on the other hand, lagged by approximately 6%.
Within the international equity portion of the Fund, we have overweighted
emerging equities. The impact of the overweight to emerging equities has
been approximately flat since the inception of the Fund. Emerging equities
underperformed the benchmark through the end of the calendar year, but have
outperformed the benchmark by approximately an equal amount during the
first two months of 1997. Our implementation of emerging equities has added
value as well, with the GMO Emerging Markets Fund up 15.1% through the end
of February.
In December we added some fixed income exposure to the portfolio, and our
allocation to it stands at 6% of the total. Our allocation was 3.6% to
international bonds and 2.4% to emerging country debt. Due to the strong
performance of emerging country debt during this period, the fixed income
portion of the portfolio has trailed U.S. stocks only slightly during this
period and has not materially affected performance.
Until we see a significant correction in U.S. equities, it is likely that
the Fund will maintain its bearish stance. The moderately sized fixed
income position should provide a degree of protection in a bear market, and
we believe that international stocks, particularly in emerging markets,
will perform better than those in the U.S. In addition, REITs should do
well in the current market environment, providing more attractive yields
and valuations than available from the high valuation levels of U.S.
equities.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co. LLC Management. They are not meant as investment advice.
14
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO World Equity Allocation Fund Class I shares
and the MSCI World Index
As of February 28, 1997
Average Annual Total Return
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year 06/28/96
<S> <C> <C> <C>
Class I
n/a n/a 7.4%
10/22/96
Class II n/a n/a 6.7%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO World Equity Allocation Fund GMO EAFE Lite Extended Index MSCI World
<S> <C> <C> <C>
01/01/96
06/28/96 9,931 10,000 10,000
02/28/97 10,740 11,132 10,844
</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 69 bp on the purchase and 9 bp on the redemption. Transaction
fees are paid to the Fund to cover trading costs. Performance for Class III
shares may be different due to lower shareholder service fees. Class II shares
have not commenced operations. Past performance is not indicative of future
performance. Information is unaudited.
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF GMO TRUST AND THE SHAREHOLDERS OF
GMO GLOBAL BALANCED 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
Global Balanced Allocation Fund at February 28, 1997, the results of its
operations, the changes in its net assets and the financial highlights for
the period from July 29, 1996 (commencement of operations) to February 28,
1997, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1997 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 22, 1997
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
- ------------------------------------------------------------------------------
MUTUAL FUNDS -- 100.1%
141,033 GMO Core Fund (Class III Shares) 2,837,579
150,034 GMO Currency Hedged International Bond Fund
(Class III Shares) 1,824,415
140,971 GMO Currency Hedged International Core Fund
(Class III Shares) 1,788,928
630,010 GMO Domestic Bond Fund (Class III Shares) 6,413,502
46,526 GMO Emerging Country Debt Fund (Class III
Shares) 655,554
124,916 GMO Emerging Markets Fund (Class III Shares) 1,560,197
26,751 GMO Growth Fund (Class III Shares) 138,570
34,012 GMO International Bond Fund (Class III Shares) 366,651
63,684 GMO International Core Fund (Class III Shares) 1,552,628
14,182 GMO International Small Companies Fund (Class
III Shares) 190,886
101,975 GMO REIT Fund (Class III Shares) 1,286,919
55,618 GMO Small Cap Growth Fund (Class III Shares) 546,171
66,459 GMO Small Cap Value Fund (Class III Shares) 1,056,037
67,356 GMO Value Fund (Class III Shares) 1,000,241
-----------
TOTAL MUTUAL FUNDS (COST $20,444,188) 21,218,278
-----------
SHORT-TERM INVESTMENT -- 0.0%
REPURCHASE AGREEMENT -- 0.0%
$1,530 Salomon Brothers Repurchase Agreement, dated
2/28/97, due 3/3/97,
with a maturity value of $1,531. and an
effective yield of 4.85%,
collateralized by U.S. Treasury Obligations
with rates ranging from 7.25% to
11.88%, with maturity dates ranging from
11/15/03 to 5/15/20
and with an aggregate market value of $1,563. 1,530
-----------
TOTAL SHORT-TERM INVESTMENT (COST $1,530) 1,530
-----------
TOTAL INVESTMENTS -- 100.1%
(Cost $20,445,718) * 21,219,808
Other Assets and Liabilities (net) -- (0.1)% (12,229)
-----------
TOTAL NET ASSETS -- 100% $21,207,579
===========
NOTES TO THE SCHEDULE OF INVESTMENTS:
* The aggregate identified cost for federal income tax
purposes is $20,445,718, resulting in gross unrealized
appreciation and depreciation of $800,136 and $26,046,
respectively, and net unrealized appreciation of
$774,090.
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES -- FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $20,445,718) (Note 1) $21,219,808
Receivable for Fund shares sold 49,845
-----------
Total assets 21,269,653
-----------
LIABILITIES:
Payable for investments purchased 50,000
Payable to affiliate for (Note 2):
Shareholder service fee 1,454
Accrued expenses 10,620
-----------
Total liabilities 62,074
-----------
NET ASSETS $21,207,579
===========
NET ASSETS CONSIST OF:
Paid-in-capital $20,277,679
Accumulated undistributed net realized gain 155,810
Net unrealized appreciation 774,090
-----------
$21,207,579
===========
NET ASSETS ATTRIBUTABLE TO:
Class I shares $ 6,848,458
===========
Class II shares $14,359,121
===========
SHARES OUTSTANDING:
Class I 612,128
===========
Class II 1,283,396
===========
NET ASSET VALUE PER SHARE:
Class I $ 11.19
===========
Class II $ 11.19
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS -- PERIOD FROM JULY 29, 1996 (COMMENCEMENT OF
OPERATIONS) TO FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from investment company shares $ 69,109
Interest 69
----------
Total income 69,178
----------
EXPENSES:
Audit fees 14,175
Custodian and transfer agent fees 3,396
Registration fees 2,052
Legal fees 101
Miscellaneous 683
Fees waived or borne by Manager (Note 2) (19,894)
----------
513
Shareholder service fee (Note 2)
Class I 3,100
Class II 1,523
----------
Net expenses 5,136
----------
Net investment income 64,042
----------
REALIZED AND UNREALIZED GAIN (LOSS):
Investments 86,460
Realized gain distributions from investment company shares 120,208
----------
Net realized gain 206,668
----------
Change in net unrealized appreciation (depreciation) on
investments 774,090
----------
Net realized and unrealized gain 980,758
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,044,800
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JULY 29, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 64,042
Net realized gain 206,668
Change in net unrealized appreciation
(depreciation) 774,090
-----------
Net increase in net assets resulting from
operations 1,044,800
-----------
Distributions to shareholders from:
Net investment income
Class I (64,042)
-----------
In excess of net investment income
Class I (1,958)
-----------
Net realized gains
Class I (48,900)
-----------
(114,900)
-----------
Net share transactions: (Note 5)
Class I 6,386,281
Class II 13,891,398
-----------
Increase in net assets resulting from net share
transactions 20,277,679
-----------
Total increase in net assets 21,207,579
NET ASSETS:
Beginning of period --
-----------
End of period $21,207,579
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS I SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JULY 29, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
Income from investment operations:
Net investment income 0.22(b)
Net realized and unrealized gain 1.35
------
Total from investment operations 1.57
------
Less distributions to shareholders:
From net investment income (0.22)
In excess of net investment income (0.00)
From net realized gains (0.16)
------
Total distributions (0.38)
------
NET ASSET VALUE, END OF PERIOD $11.19
======
TOTAL RETURN (A) 15.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $6,848
Net expenses to average daily net assets 0.15%*
Net investment income to average daily net assets 2.75%*(b)
Portfolio turnover rate 33%
Fees and expenses voluntarily waived or borne by
the Manager
consisted of the following per share amount: $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
*Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A CLASS II SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 31, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
-----------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.86
-------
Income from investment operations:
Net investment income -- (b)
Net realized and unrealized gain 0.33
-------
Total from investment operations 0.33
-------
NET ASSET VALUE, END OF PERIOD $ 11.19
=======
TOTAL RETURN(A) 3.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $14,359
Net expenses to average daily net assets 0.07 %*
Net investment income to average daily net
assets (0.07)%*(b)
Portfolio turnover rate 33 %
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01
</TABLE>
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
* Annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
The GMO Global Balanced Allocation Fund (the "Fund"), which commenced
operations on July 29, 1996, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO Global Balanced Index, a benchmark developed by the Manager. The
Fund will pursue its objective by investing primarily in Class III shares
of domestic equity, international equity, and fixed income funds of the
Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
7
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
The following reclassification represents the cumulative amount necessary
to report the stated components of net assets on a tax basis, excluding
certain temporary differences, as of February 28, 1997. 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 from generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized Paid-in
Investment Income Gain/(Loss) Capital
----------------- ------------------------ --------
<S> <C> <C>
$1,958 ($1,958) --
</TABLE>
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
8
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
ALLOCATION OF OPERATING ACTIVITY
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-
rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .31% of the amount
invested. In the case of cash redemptions, the fee is .03% of the amount
redeemed. Prior to October 16, 1996, the Fund did not charge a premium on
cash purchases or a fee on redemptions. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the period ended February 28, 1997, the Fund received $53,056 in
purchase premiums and no redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2.FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
For the period ended February 28, 1997, the Fund incurred no Trustees fees.
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 28, 1997, aggregated
$22,845,568 and $2,487,840, respectively.
9
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
4.PRINCIPAL SHAREHOLDERS
At February 28, 1997, 96% of the outstanding Class I shares of the Fund
were held by four shareholders and 99% of the outstanding Class II shares
of the Fund were held by one shareholder, each holding in excess of 10% of
the outstanding shares of the respective class.
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 July 29, 1996
(commencement of operations)
to February 28, 1997
Class I: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 601,548 $ 6,271,381
Shares issued to shareholders in
reinvestment of distributions 10,580 114,900
Shares repurchased -- --
------------- ---------------
Net increase 612,128 $ 6,386,281
============= ===============
<CAPTION>
Period from December 31, 1996
(commencement of operations)
to February 28, 1997
Class II: -----------------------------
Shares Amount
-----------------------------
<S> <C> <C>
Shares sold 1,283,396 $ 13,891,398
Shares issued to shareholders in
reinvestment of distributions -- --
Shares repurchased -- --
------------- ---------------
Net increase 1,283,396 $ 13,891,398
============= ===============
</TABLE>
10
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL TAX INFORMATION--(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 28, 1997, all of the Fund's distributions
are from investment company taxable income.
11
<PAGE>
GMO GLOBAL BALANCED ALLOCATION FUND
(A SERIES OF GMO TRUST)
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Ben Inker are primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Grantham has been a
portfolio manager at Grantham, Mayo, Van Otterloo & Co. LLC for more than
fifteen years. Mr. Inker has been with the firm for five years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The Class I shares of the Global Balanced Allocation Fund returned 15.8%
for the seven months from its inception (July 29, 1996) to February 28,
1997. During that period the benchmark (48.75% S&P 500/16.25% GMO EAFE-Lite
Extended/35% Lehman Aggregate) returned 16.3%. This period was an strong
extension of the longest continuous bull market in U.S. equities this
century. Over this period U.S. stocks set 42 new highs in 117 sessions,
rising by over 26%. International stocks lagged the U.S. equity market,
with the EAFE-Lite Index returning 6% and the IFC Investable Index of
emerging markets returning 17% for the period.
We use GMO's long-term asset class forecasts to allocate the Global
Balanced Allocation Fund among various GMO mutual funds. From the inception
of the Fund we have felt that the U.S. stock market is significantly
overvalued. The market's subsequent climb has only made this situation more
extreme. Our research suggests that from the market's current valuation
level, prospective returns for large capitalization U.S. stocks over the
next 10 years will be very disappointing at only 3% per year.
The Fund is underweight in U.S. stocks in the portfolio by approximately
16% relative to the benchmark. This underweight negatively impacted the
Fund's overall performance as U.S. equities outperformed the international
markets during the period. Within U.S. stocks, we have tilted the portfolio
towards the most attractively valued sectors: small stocks, where we have a
7% overweight, and real estate investment trusts (REITs), where our
overweight is 5%. Since the Fund's inception, the GMO REIT Fund has kept up
with the overall market over the period. Small stocks, on the other hand,
have lagged by approximately 7%.
Within the international equity portion of the Fund, we have overweighted
emerging equities. The impact of the overweighting to emerging equities
have been approximately flat since the inception of the Fund. Emerging
equities underperformed the benchmark through the end of the calendar year,
but have outperformed the benchmark by approximately an equal amount during
the first two months of 1997. Our implementation of emerging equities has
added value as well, with the GMO Emerging Markets Fund up 15.1% through
the end of February.
Since the inception of the fund we have been overweight by approximately 9%
in fixed income, with allocations to international and emerging bonds along
with U.S. fixed income. The inclusion of the international and in
particular, emerging bonds, added the majority of value added to the Fund's
performance for the year. We have now pared back our allocation to emerging
debt, which has rallied significantly since 1994, from a high of nearly 8%
to a current allocation of 3% of the account.
Until we see a significant correction in U.S. equities, it is likely that
the Fund will maintain its bearish stance and fixed income overweighting.
Our fixed income position should provide a degree of protection in a bear
market, and we believe that international stocks, particularly in emerging
markets, will perform better than those in the U.S. In addition, REITs
should do well in such an environment, with their high yields and
reasonable valuations sparing them the worst of a U.S. market fall.
The views expressed here are exclusively those of Grantham, Mayo, Van
Otterloo & Co. LLC Management. They are not meant as investment advice.
12
<PAGE>
Comparison of Change in Value of a $10,000 Investment in
GMO Global Balanced Allocation Fund Class I shares and the Lehman/MSCI
World Index*
As of February 28, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
Since
Inception
1 Year 5 Year 07/29/96
<S> <C> <C> <C>
Class I n/a n/a 15.5%
12/31/96
Class II n/a n/a 2.7%
</TABLE>
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Global Balanced Allocation Fund GMO Global Balanced Index 50% Lehman Aggregate/50% MSCI World
<S> <C> <C> <C>
01/01/96
07/29/96 9,969 10,000 10,000
02/28/97 11,550 10,973 11,627
</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 31 bp on
the purchase and 3 bp on the redemption. Transaction fees are paid to
the Fund to cover trading costs. Performance for Class II shares may be
different due to lower shareholder service fees. Class III shares have
not commenced operations. Past performance is not indicative of future
performance. Information is unaudited.
* 50% Lehman Brothers Gov't Bond Index/MSCI World Index
