<PAGE>
November 6, 1997
VIA EDGAR
Securities and Exchange Commission
Office of Filings, Information and Consumer Services
450 Fifth Street, NW
Washington, D.C. 20549
RE: GMO Trust (the "Trust")
File No. 011-4347
Ladies and Gentlemen:
Pursuant to Rule 30(b)(2)-1 under the Investment Company Act of 1940. As
Amended, we are transmitting via EDGAR the GMO Trust Semi-Annual Reports for the
period ended August 31, 1997. Please be advised that the above-referenced Fund's
financials for the aforementioned period are included in this document.
If you have any questions, please telephone the undersigned at (617)
330-6027. Thank you for your assistance with this matter.
Very truly yours,
Donna M. McCarthy
Account Manager
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 87.8%
Argentina - 4.0%
256,520 Alpargatas SA * 212,954
825,616 Atanor SA D Shares 1,197,383
305,440 Capex SA Class A (Voting) 2,612,034
2,179,454 Central Costanera Class B (Voting) 7,411,626
2,183,500 Central Puerto B Shares 6,224,220
1,952,414 Cia Celulosa Argentina SA Class B * 976,402
1,034,415 Ciadea SA (Bearer) 2,658,978
186,122 Fiplasto Class B 753,945
1,589,939 Garovaglio Y Zorraquin * 6,440,541
93,000 Inversiones SA 409,282
1,080,459 Ledesma SA 1,296,810
459,598 Nobelza Piccardo 2,919,031
155,500 Perez Companc SA Class B 1,241,138
67,983 Pirelli Cables Industria * 142,793
79,358 Polledo * 119,061
264,950 Quimica Estrella Class B 357,754
45,970 Quimica Estrella Preferred 10% (d) 45,979
379,043 Rigolleau Christalerias Preferred * 439,778
1,839,928 Siderca 5,769,328
78,800 Telecom Argentina SA ADR 2,176,850
2,925,000 Transportadora De Gas Del Sur Class B 6,962,893
736,453 YPF SA ADR 23,980,751
------------------
74,349,531
------------------
Brazil - 11.1%
6,531,000 Acos Villares SA Preferred 1,465,288
2,300,000 Alpargatas de Sao Paulo 104,237
35,870,000 Alpargatas de Sao Paulo Preferred 1,609,223
1,557,000 Aracruz Cellulose Class B Preferred 3,165,330
148,940,000 Banco Nacional Preferred (c) 1,364
25,040,000 Belgo Mineira Preferred (Registered) 1,699,143
4,400,000 Belgo Mineira (Registered) 330,403
511,700,003 Bombril SA Preferred 4,592,180
6,800,000 Brasmotor Preferred (Registered) 1,282,784
21,500,000 Caemi Mineracao e Metalurgica SA Preferred 1,201,007
555,100,000 Cemig Preferred 24,908,333
143,400,000 Ceva Ceval Alimentos SA Preferred 1,483,901
34,000,000 Cia Energentica Perna Class A Preferred * 435,897
162,100,000 Cia Energetica de Sao Paulo SA Preferred (Registered) * 11,059,020
18,500,000 Cia Energetica de Sao Paulo SA * 1,153,201
246,500,000 Cia Hering Preferred (Registered) 3,724,588
14,900,000 Copel PNA 259,249
12,689,000 Copene-Petroquimica do Nordeste SA Class A Preferred 4,961,724
1,637,000 Cosipa PN Class B * 929,432
67,233,771 Electrobras Class B Preferred (Registered) 30,599,986
17,900,000 Electrobras Common 7,622,253
49,000,000 Energetica Ceara Class A Preferred * 228,846
113,950,000 Ericsson Telecomunicacoes Perferred 5,614,020
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brazil - continued
2,000,000 Ericsson Telecomunicacoes Common 84,249
660,000,000 Fertilizantes Fosfatados Preferred 3,324,176
511,732,118 Gerdau SA Preferred 10,028,450
1,336,261 Iochpe Maxion Preferred 116,250
262,400,000 Iparanga Brasil De Petroleo Preferred 4,205,128
42,420,000 Mesbla Preferred (Registered) (d) * 194,231
223,302,674 Metalurgica Gerdau Preferred 10,019,992
12,598,589 Metalurgica Gerdau SA 346,115
335,746,000 Olvebra Preferred * 33,821
205,500,000 Petrobras Distrib Preferred 5,271,113
66,580,000 Petroleo Brasileiro SA Preferred 16,279,176
583,800,000 Siderurgica de Tubarao Preferred Class B 9,783,462
271,810,000 Telecomunicacoes Brasileiras SA ORD 29,122,500
5,830,152 Unipar Preferred 2,082,197
600,740 Usiminas Preferred 6,106,423
673,000 Varig Preferred (Registered) * 1,355,861
------------------
206,784,553
------------------
Chile - 2.6%
103,200 Banco Santiago Sponsored ADR 2,586,450
22,000 Chile Fund Inc 534,875
88,600 Chilectra SA Sponsored ADR 2,835,200
286,508 Chilgener ADR 7,807,343
47,000 Chilquinta Sponsored ADR 752,000
94,200 Chilquinta Sponsored ADR 144A 1,507,200
181,000 Compania de Telefones de Chile ADR 5,441,313
14,200 Cristalerias de Chile SA ADR 275,125
46,900 Embotelladora Andina ADR Class A 1,151,981
46,900 Embotelladora Andina Class B ADR 1,084,563
368,700 Empresa Natl de Electricidad ADR 8,203,575
143,500 Enersis SA ADR 5,103,219
1,330,000 Five Arrows Chile Investment Trust Ltd 4,295,900
156,100 Maderas Y Sinteticos Soc ADR 2,263,450
45,500 Soc Quinica Y Minera de Chile Sponsored ADR 2,747,063
71,400 Vina Concha Y Torosa Sponsored ADR 1,936,725
------------------
48,525,982
------------------
China - 0.8%
6,466,000 Dongfang Electrical Machinery Class H 3,045,670
930,000 Guangdong Kelon Elec Holding H 1,158,149
7,034,000 Harbin Power Equipment Class H 2,337,405
59,650 Huaneng Power International ADR * 1,409,231
1,465,800 Nanjing Posts & Telephone Class B * 750,965
4,140,000 Northeast Electrical Transmission & Transformation Machinery
Manufacturing Co Ltd Class H 1,389,082
5,004,000 Qingling Motor Co Ltd Class H 2,825,203
81,498 Shanghai Haixing Class B Rights * 163
797,832 Shanghai Haixing Shipping Co Ltd Class B 588,800
760,000 Tianjin Bohai Chemical Industry (Group) Co Ltd Class H * 240,289
2,190,000 Yizheng Chemical Fibre Co 1,596,787
------------------
15,341,744
------------------
</TABLE>
2 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Colombia - 0.1%
26,200 Banco Ganadero SA Sponsored ADR 949,750
------------------
Czech Republic - 1.7%
20,983 AGB Podilovy Fond * 503,152
34,000 Alpha Effect 784,904
50,000 Cez 2 1,194,483
19,000 CKD Praha Holding AS * 585,773
60,934 Czech Republic Fund Inc 830,226
9,300 IF Bohatstvi * 252,647
38,397 IF Zivnobanka 543,284
212,249 IPS Praha 1,517,374
197,800 Komercni Bank AS GDR 144A 4,005,450
8,600 Komercni Banka AS GDR 174,150
9,800 Komercni Banka IF * 190,331
2,870 Leciva AS * 208,255
7,092 Metrostav AS 529,824
64,000 PF IKS KB Plus 371,273
31,000 PIF (Privat Inv Fond) 421,078
62,300 Restitucni IF 1,659,057
16,624 Sepap AS * 616,016
111,231 Skoda Koncernplzen * 2,919,023
367,188 SP Vseobecny * 929,701
27,366 Spif Cesky 322,807
212,476 Spif Vynosovy 1,193,045
17,000 Sporitelni Privatizacni * 395,490
64,470 SPT Telecom AS * 8,102,199
1,926 Stavby Silnic A Zeleznic SA 50,716
28,350 Synthesia * 193,386
441,700 Unipetrol (d) * 1,435,318
74,433 Zivnobanka Preferred 911,262
------------------
30,840,224
------------------
Egypt - 1.0%
84,000 Al Ahram Beverages Co GDR * 2,142,000
23,000 Alexandria Cement 441,048
98,000 Ameriyah Cement Co 2,422,602
83,000 Commercial International Bank GDR 2,079,150
43,990 Eastern Tobacco Co 1,113,343
14,800 Egyptian International Pharm Investment 958,211
117,800 Helwan Portland Cement Co 2,446,135
41,750 Middle Egypt Flour Mills 485,322
104,500 Misr International Bank Sae GDR 144A * 1,645,875
18,000 Suez Cement Co 376,633
122,881 Suez Cement Co GDR 144A 2,562,069
60,250 Torrah Portland Cement 1,595,792
28,935 Upper Egypt Flour Mills 666,323
------------------
18,934,503
------------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greece - 2.7%
374,170 Aegek 1,876,731
99,445 Alpha Credit Bank (Registered) 6,505,321
149,480 Alpha Leasing (Registered) 3,590,350
32,730 Aluminum of Greece Common (Registered) 2,080,958
35,900 Aluminum of Greece Preferred 10.41% 2,211,494
673,470 Balkan Export * 442,462
236,900 Boutaris and Son Holdings * 214,215
378,446 Commercial Bank of Greece (Registered) 15,091,856
75,740 Delta Dairy SA Common 1,043,361
530 Delta Dairy SA Preferred 5,008
8,940 Econ Viomihanies (d) * 7,200
41,267 Ergo Bank SA (Registered) 2,412,380
105,144 Etba Leasing (Registered) 958,184
87,500 Etma Rayon Manufacturing 148,661
330,820 Hellenic Sugar Industry 1,875,476
59,365 Ionian Bank (Registered) * 1,164,821
15,020 Klonatex SA GDR 232,375
390,432 Michaniki SA Common (Registered) 2,413,394
18,072 Michaniki SA Preferred (Registered) 82,346
103,000 Naoussa Spinning Mills SA GDR 360,178
33,432 National Bank of Greece (Registered) * 3,910,497
6,875 National Investment Bank for Industrial Development (Registered) 369,115
33,900 National Mortgage Bank of Greece 1,997,287
14,500 Petzetakis SA Common * 66,582
26,750 Petzetakis SA Preferred * 63,211
41,000 Strintzis Lines SA 128,021
------------------
49,251,484
------------------
Hungary - 0.9%
3,280 Cofinec Sponsored GDR 144A * 74,620
38,972 Danubus Hotel (Registered) * 1,075,227
21,414 Egis Gyogysergyar 1,044,852
1,865,951 Fotex (Registered) * 2,278,515
27,046 Graboplast (Registered) 1,803,297
8,293 Matav (Registered) * 3,516,766
100,000 Mol Magyar Olaj GDR 144A 1,995,000
20,661 Pannonplast Muanyagipari 1,013,389
24,226 Pick Szeged (Bearer) 1,763,804
7,316 Richter Gedeon Vegyeszeti Gyar 723,283
15,000 Tiszai Vegyi Kombinat GDR (Registered) 292,500
22,751 Zalakeramia AG 947,353
52,000 Zalakeramia Reszveny GDR 144A 436,800
------------------
16,965,406
------------------
India - 7.9%
13,980 Arvind Mills Ltd 43,175
439,600 Ashok Leyland Ltd GDR 2,406,810
25,000 Ashok Leyland Ltd GDR 144A 136,875
50,000 Bajaj Auto GDR 144A 1,237,500
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
India - continued
379,100 Ballarpur Industries 491,484
295,000 Bank of India * 496,539
460,300 Bombay Dyeing & Manufacturing Co Ltd GDR * 1,472,960
905,000 BSES Ltd 4,817,699
697,000 Cesc Ltd GDR 836,400
591,804 Core Healthcare Ltd GDR 147,951
45,000 DCW Ltd GDR 112,500
1,002,000 Escorts 2,675,310
20,600 Excel Industries 123,413
255,520 Garden Silk Mills Ltd GDR 319,400
373,000 Glaxo India Ltd 4,240,270
76,500 Grasim Industries 764,474
2,757,785 Great Eastern Shipping Co 3,203,373
45,000 Great Eastern Shipping Co GDR 144A 282,375
131,000 Great Eastern Shipping Co Ltd GDR 822,025
114,300 Hindalco Industry GDR 3,383,280
4,480 Hindustan Ciba Geigy 450,096
100,000 Hindustan Development Corp GDR 20,000
494,000 Hindustan Development Corp GDR 144A 98,800
513,000 Hindustan Petroleum 6,827,291
6,000 Housing Development Finance 571,594
469,770 India Cements GDR 1,526,753
600,000 India Fund Class B 963,349
186,300 India Fund Inc 1,548,619
17,900 Indian Hotels 304,000
270,100 Indian Petrochemical Co Ltd GDR 2,836,050
135,000 Indian Rayon & Industries GDR 1,451,250
250,000 Indo Gulf Fertilizer 340,628
1,265,000 Indo Gulf Fertilizers GDR 1,834,250
90,000 Indo Gulf Fertilizers GDR 144A 130,500
211,130 Industrial Credit & Investment GDR 144A 2,955,820
803,600 Industrial Development Bank of India 2,210,840
593,000 Industrial Finance Corp of India 509,265
1,976,600 Industry Credit & Investment Corp 4,842,208
699,912 ITC Ltd 9,588,390
100,000 Jain Irrigation Systems Ltd EDR 10,000
2,630,900 Jaiprakash Industries Ltd 1,079,009
201,000 JCT Ltd GDR Class S 301,500
325,000 JK Corp GDR (Registered) 81,250
350,000 Kirloskar Cummins Ltd 4,951,830
401,000 Larsen & Toubro 2,510,527
314,200 Larsen & Toubro GDR 3,927,500
1,870 Madras Cement Ltd 417,572
283,000 Mahanagar Telephone 1,912,373
227,000 Mahindra & Mahindra 2,511,808
2,162,000 National Aluminum 2,588,687
50,000 NEPC Micon Ltd GDR 144A 5,000
</TABLE>
See accompanying 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
India - continued
262,500 NIIT 3,612,355
1,634,000 Oriental Bank of Commerce 3,098,888
14,000 Parke Davis & Co Ltd 71,619
27,600 Raymond Woolens GDR 129,030
1,929,000 Reliance Industries 17,564,360
680,800 Reliance Industries GDR (Registered) 13,360,700
83,000 Sanghi Polyesters GDR 144A (Registered) * 41,500
50,000 Sanghi Polyesters GDS 144A 25,000
120,000 Siemens India 983,485
572,500 Siv Industries GDR 429,375
88,000 Smithkline Beecham Plc 763,248
225,000 Southern Petrochem GDR 144A 781,875
346,000 Southern Petrochem Industry Corp 246,191
762,450 State Bank of India 6,108,205
63,932 State Bank of India GDR 144A 1,262,657
75,000 Steel Authority of India GDR 540,000
54,000 Steel Authority of India GDR 144A 388,800
313,000 Sterlite Industries Ltd 2,071,159
46,000 Sterlite Industries Ltd GDR 230,000
789,545 Tata Iron & Steel 3,933,599
1,359,500 Uti Masterplus 1991 Unit * 690,415
736,600 Videocon International 786,680
205,000 Videocon International Ltd GDR 358,750
13,350 Videsh Sanchar Nigam GDR 144A 197,246
25,000 Videsh Sanchar Nigam Ltd 656,482
7,500 Videsh Sanchar Nigam Ltd GDR (Registered) * 110,813
95,150 Zuari Agrochemicals Rights 8/13/97 298,571
95,150 Zuari Argochemicals Ltd 324,762
------------------
146,386,337
------------------
Indonesia - 0.0%
171,000 Ciputra Development New (Foreign Registered) 47,822
226,076 Indah Kiat Pulp & Paper (Foreign Registered) Warrants Exp 4/13/01 * 17,243
1,834,000 Pakuwon Jati (Foreign Registered) 512,898
200,000 Tambang Timah Persero (Foreign Registered) 264,407
50 Ungul Indah Corp (Foreign Registered) 51
------------------
842,421
------------------
Israel - 1.1%
1,046,161 Bank Hapoalim 2,260,290
358,355 Clal Industries Ltd 1,986,075
37,718 Elbit Medical Imaging Ltd 293,684
33,200 Elbit Medical Imaging Ltd * 259,375
90,998 Formula Systems Ltd * 2,017,006
1,400,000 Israel Chemical Ltd 1,730,605
24,950 Koor Industries 2,687,439
31,100 Koor Industries Ltd ADR 666,706
3,568,650 Leumi Bank Le Israel 5,628,306
59,300 Tadiran Ltd Sponsored ADR * 2,049,556
------------------
19,579,042
------------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - 7.3%
3,224 ANAM Industrial Co 56,201
89,570 ANAM Industrial Co Preferred 5.15 565,705
13,435 ANAM Industrial Ltd Preferred 93,189
286,730 Cheil Industries 3,170,710
47,431 Cheil Jedang Corp 1,960,294
84,300 Choongnam Spinning * 1,008,798
70,280 Chosun Brewery Co Ltd 1,534,090
19,520 Chosun Brewery Co Ltd Preferred 131,936
82,300 Coryo Securities Preferred * 255,335
43,000 Dae Chang Industrial Co * 948,144
5,760 Daelim Industrial Co Ltd 50,420
675,970 Daewoo Corp 5,317,880
190,400 Daewoo Heavy Ind Ltd Preferred 727,845
159,250 Daewoo Securities Ltd Preferred * 1,146,953
24,600 Daihan Investment and Finance Preferred 98,127
140,900 Daishin Securities Preferred * 494,906
268,000 Dong Shin Construction 504,820
55,900 Dongbu Construction Co Preferred 306,598
59,700 Dongbu Steel Co 965,784
102,340 Dongbu Steel Preferred 644,090
210,600 Dongsuh Securities Preferred 784,062
12,000 Dongwon Securities Co 146,260
33,500 Dongwon Securities Co Preferred 167,036
24,800 Doosan Beverage Co Ltd 769,418
175,000 Hanil Synthetic Fiber Industry Co Preferred * 298,615
360,690 Hanil Synthetic Fiber Industry Co * 1,438,763
61,500 Hanshin Construction Preferred * 33,391
231,000 Hanshin Construction * 273,873
984 Hansol Paper Manufacturing Ltd 24,205
32,800 Hansol Paper Manufacturing Ltd Preferred 297,290
75,700 Hanwha Chemical Corp Preferred * 201,308
39,050 Hanwha Chemical Corp * 279,083
232,406 Hanwha Corp 2,400,027
10,840 Hanwha Corp Preferred 49,726
198,200 Housing & Commercial Bank Korea 3,960,925
247,800 Housing & Commercial Bank Korea GDR 4,355,085
1,436 Hyosung T+C Co Ltd 40,574
5,029 Hyundai Engineering & Construction GDR 144A 21,373
328,745 Hyundai Engineering & Construction GDR (Registered) 1,397,166
110 Hyundai Engineering & Construction * 2,316
363,325 Hyundai Motor Service Co GDR 144A 2,770,353
53,123 Hyundai Motor Service Co Ltd 1,035,972
63,700 Hyundai Motor Service Co Preferred 465,839
1,400 Jindo Corp 10,828
70,000 Jindo Corp Preferred 162,105
50 Jinro Ltd Preferred 111
19,000 Kang Won Industrial Co 218,947
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - continued
71,930 Kang Won Industrial Preferred (Non Voting) 294,893
61,746 Kolon Construction 523,387
39,500 Kolon Construction Co Ltd Preferred 126,925
59,400 Kolon Industries Preferred 355,413
7,861 Kolon International Corp 50,432
21,200 Kolon International Corp Preferred 81,981
11,751 Kookmin Bank 183,179
183,152 Kookmin Bank GDR 2,655,704
9,670 Korea Container Terminal 621,452
64,000 Korea Electric Power Corp 1,673,573
20,000 Korea Electric Power Sponsored ADR 326,250
32,175 Korea Long Term Credit Bank 361,134
13,170 Korean Air Lines Preferred * 82,908
213,840 Korean Air Lines * 3,222,409
168,700 Kumho Construction & Engineering Co Ltd Preferred 401,889
177,500 Kumho Petrochemical Preferred 727,701
69,600 Kumho & Co Inc Preferred * 184,315
600 Kun Sul Chemical Industry 44,809
100,590 Kun Young Construction * 120,374
8,008 Kyungbang Co Ltd 496,895
11,910 Kyungnam Wool Textile Preferred * 49,883
122,400 LG Chemical Ltd Preferred 840,864
17,746 LG Merchant Banking Corp 186,800
306,000 LG Metals Corp 5,492,742
65,000 LG Securities Co Preferred 374,515
12,130 Lotte Chilsung Beverage 1,417,967
25,000 Mando Machinery Preferred 332,410
6,440 Miwon Petrochemical Preferred * 16,484
16,500 Monami Co Ltd * 486,316
37,400 Oriental Brewing Co Ltd Preferred * 239,940
67,728 Oriental Chemical Preferred 525,314
34,520 Ottogi Foods 1,407,575
26,840 Pang Rim Spinning 1,026,017
118,834 Pohang Iron & Steel 10,254,025
3,480 Pusan Bank 20,244
7,440 Sam Whan Corp 98,925
31,000 Sam Whan Corp Preferred 140,144
143 Sam Yang 3,201
7,170 Sam Yang Preferred 50,051
194,100 Samho International * 726,934
65,800 Sammi Corp Preferred * 22,602
778 Samsung Display Devices 41,078
49,310 Samsung Display Devices Preferred 1,202,017
24,700 Samsung Electro Mechanics Co Preferred 287,368
180,658 Samsung Electronics GDS (Non Voting) 4,651,944
51,094 Samsung Electronics Ltd 5,431,193
490,323 Samsung Electronics Preferred (Non Voting) 20,748,405
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - continued
55,407 Seah Steel Corp 1,258,552
41,922 Shin Sung Corp 250,835
4,785 Shin Wha Engineering & Construction Co 21,102
13,380 Shin Wha Engineering & Construction Co Preferred 44,328
86,161 Shinhan Bank 857,218
54,552 Shinsegae Department Store 1,910,076
49,340 Shinwon Preferred 262,418
101,300 Shinyoung Securities Preferred 583,668
20,846 SK Telecom 15,567,631
9,700 SK Telecom Ltd Sponsored ADR 87,300
156,540 Ssangyong Cement 1,453,524
28,940 Ssangyong Investment Securities Co Preferred * 96,199
27,100 STC Corp Preferred (Non Voting) * 126,116
15,140 Sung Chang Enterprise Co * 654,249
26,460 Sungwon Construction Preferred 103,788
39,000 Sunkyong Industries Ltd Preferred * 211,745
1,170 Sunkyong Industries * 20,483
86 Sunkyong Ltd 1,201
70,700 Sunkyong Securities Preferred 13.11% (Non Voting) * 235,014
1,100 Taihan Textile Co Ltd * 162,105
160,810 Tong Kook Spinning Co Ltd * 734,113
59,060 Tong Yang Cement Corp Preferred 365,812
22,700 Tong Yang Investment & Financial Preferred 100,609
42,000 Tong Yang Securities Co Preferred 77.36% * 130,305
-----------------
135,435,448
-----------------
Lebanon - 0.2%
121,508 Banq Libanaise GDR Class B * 2,867,589
90,000 Solidere GDR (Registered) * 1,518,750
-----------------
4,386,339
-----------------
Malaysia - 3.7%
198,000 Affin Holdings Berhad 228,187
383,000 AMMB Holdings Berhad 1,366,215
243,666 Amsteel Corp Warrants Expires 5/19/00 * 71,040
3,132,000 Amsteel Corporation Berhad 1,396,536
120,000 Arab Malaysia Finance Berhad 28,400
429,000 Arab Malaysian Corp 585,635
120,000 Arab Malaysian Finance (Foreign Registered) 113,188
255,000 Bandar Raya Development 181,924
1,348,000 Berjaya Group 781,382
340,000 Berjaya Sports Toto 932,945
841,000 Cement Industries of Malaysia Berhad 1,199,986
788,000 Cold Storage 708,132
125,000 Diversified Resources Berhad 168,925
741,000 Edaran Otomobil Berhad 2,668,667
536,000 Esso Malaysia Berhad 955,994
3,382,000 Golden Hope Plantations Berhad 4,454,426
895,000 Hicom Holdings Berhad 1,215,641
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
1,277,000 Highlands and Lowlands Berhad 1,265,831
188,000 Hong Leong Industries Berhad 415,915
3,996,000 IGB Corp Berhad 2,741,211
1,807,000 Kuala Lumpur Kepong Berhad 3,687,755
2,164,000 Kumpulan Guthrie Berhad 2,286,098
194,000 Landmark Berhad 125,097
2,543,000 Lion Land Berhad 1,447,909
1,407,000 Malayan Cement Berhad 1,718,031
5,159,000 Malayan United Industries Berhad 2,654,262
976,600 Malaysia Mining Corp Berhad 837,421
242,000 Malaysian Airline Systems 460,676
1,088,000 Malaysian International Ship (Alien Market) 2,239,067
897,000 Malaysian Tobacco Co Berhad 839,928
13,000 MBF Capital Berhad 12,217
2,154,000 Metroplex Berhad Warrants 11/04/98 * 531,943
270,000 Nestle Malaysia 1,713,257
298,200 Oriental Holdings Berhad 1,073,950
849,000 Perlis Plantations 2,096,656
464,000 Perusahaan Otomobil 1,352,770
116,000 Petronas Gas Berhad 320,288
429,000 Public Bank Berhad (Alien Market) 403,176
686,000 Rothmans of Pall Mall Malaysia Berhad 5,529,412
362,000 Shell Refinery Co 819,482
3,201,200 Sime Darby Berhad 7,576,155
1,281,100 Sime UEP Properties Berhad 1,713,699
5,620,000 TA Enterprise Berhad 3,739,599
419,000 Tan Chong Motor Holdings Berhad 442,641
926,000 Tractors Malaysia Holdings Berhad 740,038
133,600 UMW Holding Berhad Warrants 1/26/00 * 109,978
411,000 UMW Holdings Berhad 1,106,620
3,818,000 Westmont Industries Berhad 2,160,761
-----------------
69,219,066
-----------------
Mexico - 14.6%
1,116,175 Alfa SA Class A 8,551,746
3,992,000 Altos Hornos De Mexico * 10,725,389
167,000 Cementos Mexicanos (Cemex) Class A (Registered) 815,786
3,475,000 Cemex SA Class B 19,164,096
5,847,000 Cemex SA CPO 28,562,283
430,273 Cintra SA CPO Class A (Registered) * 439,178
1,291,000 Controladora Coml Mexicana Class B 1,324,358
3,331,480 Cydsa SA Class A 10,064,247
622,000 Dina (Consorcio Grupo Dina) 724,427
324,100 Empresas ICA Soc Controladora ADR 5,185,600
83,000 Grupo Celanese Mexicana Class B 224,598
4,323,600 Grupo Financiero Banamex Class B 11,588,515
103,529 Grupo Financiero Banamex Class L 268,837
57,326,000 Grupo Financiero Bancomer SA Class B 35,004,306
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mexico - continued
328,963 Grupo Financiero Bancomer SA Class L 169,154
95,181 Grupo Financiero Invermexico Class B * 121,133
700 Grupo Financiero Serfin SA de CV Class B * 297
25,693,320 Grupo Gigante SA Class B * 9,578,433
70,600 Grupo Iusacell Sponsored ADR * 1,085,475
3,067,000 Grupo Mexico Class B 11,985,705
38,886 Grupo Mexico Class B Warrants 8/9/01 * 124,721
280,200 Grupo Mexico Desarollo Class B ADR * 175,125
584,800 Grupo Mexico Desarollo Class L ADR * 584,800
10,000 Grupo Posadas SA 144A GDR * 143,977
679,000 Grupo Posadas SA Class L * 471,346
660,000 Grupo Simec SA Class B * 117,085
6,310,000 Grupo Situr SA de CV Class B 251,459
2,282,900 Grupo Tribasa SA ADR * 12,698,631
74,000 Grupo Tribasa SA * 214,038
6,275,000 Herdez Class B 4,517,290
904,000 Hylsamex SA 6,531,019
973,340 International de Ceramic * 1,864,348
10,000 Ispat International NV Class A (Registered) * 268,125
693,300 Telefonos de Mexico ADR Class L 31,805,138
39,000 Tolmex SA de Con Class B 266,718
437,000 Transportation Maritima Mexicana SA Class A 2,370,665
25,000 Transportation Maritima Mexicana SA Class L 189,613
962,100 Tubos de Acero de Mexico SA * 17,463,494
8,000 TV Azteca SA ADR * 144,000
2,680,280 Vitro SA 11,818,178
1,765,400 Vitro SA ADR 22,729,525
-----------------
270,332,858
-----------------
Pakistan - 2.4%
1,452,000 Fauji Fertilizer 3,228,301
697,910 Hub Power Co Ltd GDR 20,064,913
4,983,000 Hub Power Co Ltd * 5,921,079
910,000 Japan Power Generation Ltd * 219,185
961,000 Karachi Electric Supply * 528,224
720,000 Pakistan State Oil 6,314,307
1,229,000 Pakistan Telcom Corp Ltd Class A 1,115,768
5,000 Pakistan Telecommnction GDR 440,000
1,395,000 Southern Electric Power Co * 465,236
5,139,500 Sui Northern Gas Pipelines * 4,062,896
2,277,400 Sui Southern Gas Pipelines Ltd * 1,519,036
-----------------
43,878,945
-----------------
Peru - 0.0%
100,218 Cervecerias 85,011
58 Milpo Minera T Shares 569
-----------------
85,580
-----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Poland - 2.0%
65,791 Agros Holdings Class C * 1,874,468
1,513,000 Bank Inicjatyw Gospodarczych 1,763,479
44,900 Bank Slaski SA 3,320,901
20,313 Budimex SA * 102,888
12,556 Debica Class A 348,703
63,240 Drosed * 1,219,391
433,540 Elektrim SA (Bearer) 3,992,598
96,200 Elektrobudowa SA * 1,522,699
145,345 Exbud SA * 1,731,717
141,078 Gorazdze 5,765,329
2,076,718 International UNP Holdings * 299,151
12,100 Izolacja SA * 800,921
95,890 Jelfa * 2,042,121
84,060 Jutrzenka (Prezedsib Cukiernicze) 1,935,333
109,000 Kghm Polska Miedez SA GDR 144A * 1,330,890
275,200 Mostostal Export (Bearer) 894,959
12,500 Mostostal Zabrze-Holding SA 74,106
45,950 Polfa Kunto Class A * 1,560,429
149,610 Polifarb Cieszyn (Bearer) 835,293
226,170 Polifarb Wroclaw 904,745
2 Rafako SA (Raciborska Fabryka) * 6
16,500 Relpol SA 560,328
5,230 Rolimpex SA 20,319
390,000 Sokolow 471,401
122,679 Stomil-Olsztyn SA 1,232,174
50,900 Vistula 139,161
101,636 Wielkopolski 555,748
13,145 Wolczanka SA 66,581
20,200 Zaklady Piwowarski (Bearer) 1,569,609
-----------------
36,935,448
-----------------
Portugal - 3.1%
18,999 Atlantis Cristais de Alcobaca 323,894
122,853 Banco Commercial Portugues (Registered) 2,283,995
311,540 Banco Espirito Santo e Commercial de Lisboa (Registered) 7,672,559
343,800 Banco Totta & Acores (Registered) 6,190,357
338,400 BPI Sgps SA (Registered) 6,665,398
15,400 Cel-Cat Fabrica Nacional de Condutores Electricos SA 257,060
60,900 Cimpor Cimentos De Portugal SA (Registered) 1,466,506
6,600 CIN (Corp Ind Norte) 384,687
36,800 Electricidade De Portugal * 574,523
285,000 Empresa Fabril de Maquinas Electricas 2,269,456
40,000 Engil Sociedade Gestora 480,955
15,900 Est Jeronimo Martins Filho Admin 982,438
44,500 Fisipe Fibra Sint 281,535
77,500 Inparsa Industrias Participacoes * 1,552,375
177,000 Lisnave Navais De Lisboa * 390,384
61,300 Modelo Continente 2,432,273
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Portugal - continued
25,000 Mundial Confianca * 437,144
403,600 Portucel Industrial Empresa 3,034,952
277,200 Portugal Telecom SA 10,316,112
77,500 Portugal Telecom Sponsored ADR 2,848,125
4,400 Salvador Caetano Industrias 103,667
117,000 Semapa Society Investment 2,638,775
80,750 Soares Da Costa 627,545
16,200 Soja De Portugal Sociedada Gest 117,475
81,381 Somague 934,866
14,848 Sonae Industria 182,350
13,000 Sonae Industria Sociedade * 159,654
62,000 Sonae Investimentos 2,314,142
18,000 Unicer-Uniao Cervjeira SA (Registered) 262,533
-----------------
58,185,735
-----------------
Romania - 0.3%
4,500 Romanian Investment Fund (e) 4,725,000
-----------------
Russia - 11.1%
8,189 Chelabinsky Tube Work * 1,080,948
17,100 Dalmoreproduct * 153,900
64,000 Electrocila * 902,400
28,221 Elisb * 400,738
672,700 Irkutskelectrosviaz * 1,096,501
303,100 Irkutskenergo Ao Sponsored ADR * 4,622,275
580 Irkutskenergo RDC * 35,960,000
4,931,400 Irkutskenergo (Registered) 1,518,871
2,000 Izhorskie Zavody Preferred * 69,000
58,456 Izhorskie Zavody * 4,851,848
119,730 Kirovsky Plant * 1,544,517
110,000 Komineft * 580,800
100,800 Krasny Red Oct Preferred 144A * 1,612,800
501,900 Lukoil Holding Preferred 7,653,975
121 Lukoil Holding RDC 144A * 13,461,250
102,675 Lukoil Holding Sponsored ADR ORD 9,240,750
169,500 Lukoil Holding Sponsored ADR Preferred (Foreign Registered) 5,254,500
4,500 Morgan Stanley Russia & New Europe Fund 139,500
2,339 Moscow City Telephone Network Preferred 2,806,800
600 Moscow City Telephone Network * 1,500,000
10,000 Mosenergo AO Sponsored ADR 144A * 450,000
10,000,000 New Century Holdings LP (e) 23,035,000
1,832,525 Norilsk Nickel * 22,081,926
220,000 Norlisk Nickel Preferred 1,760,000
30 Rostelekom Preferred 2.5 77
135,000 Russia Petroleum * 1,080,000
19,700 Seversky Tube Works ADR * 667,556
4,085,000 St Petersburg Telephone 9,068,700
1,834,100 St Petersburg Telephone Preferred 2,017,510
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Russia - continued
85,000 Surgutneftegaz ADR 4,250,000
36,811 Tatneft Sponsored ADR 144A 4,656,592
67,000 Torgoviy Dom Gum Sp ADR 536,000
68,714,250 Unified Energy System 27,279,557
17,200,000 Unified Energy Systems Preferred 5,142,800
1,577,500 Uralmash Zavody (d) * 10,096,000
6,000 Uralmash * 132,000
-----------------
206,705,091
-----------------
South Africa - 3.6%
363,281 AECI Ltd 1,955,205
37 Amalgamated Bank of South Africa 240
7,900 Anglo American Coal Corp 459,704
73,103 Anglo American Industrial Ltd 3,073,551
329,420 Avgold Ltd * 300,526
56,725,000 Consolidated Mining Corp * 5,199,137
383,400 De Beers Centenary Link Units 12,217,478
9,000 De Beers Consolidated Mines Ltd ADR 288,563
335,300 Del Monte Royal Foods Ltd 192,968
235,475 Driefontein Consolidated Ltd 1,719,070
35,000 Driefontein Ltd Sponsored ADR 262,500
379,592 Engen Ltd 2,022,765
211,100 Free State Cons Gold Mines 1,068,661
120,000 Goldfields South Africa 2,455,505
71,617 Impala Platinum Holdings Ltd 793,794
11,132,896 ISCOR 6,857,949
1,973,100 Joel HJ Mining Co Ltd 1,745,362
71,300 Kloof Gold Mining Co 376,143
564,700 Malbak Ltd 775,161
434,400 Murray & Roberts Holdings Ltd 1,162,042
1,561,400 Oryx Gold Holdings Ltd * 1,447,744
78,637 Polifin Ltd 150,519
164,000 Randgold Resources Ltd GDR 144A * 2,255,000
323,500 Randgold & Exploration Co * 1,137,749
811,228 Sappi Ltd 7,504,486
640,000 Sasol Ltd 8,526,058
75,000 St Helena Gold Mines 303,741
873,900 Sun International Ltd 558,819
9,500 Vaal Reefs Exploration & Mining 473,836
163,935 Western Areas Gold Mining Co Ltd 1,371,512
14,500 Western Deep Levels 347,703
-----------------
67,003,491
-----------------
Sri Lanka - 0.2%
131,500 Aitken Spence & Co 399,258
4,269,926 Blue Diamonds Jewelry Ltd 648,213
46,500 Development Finance Corp 227,461
115,599 Hayleys Ltd 458,223
228,244 John Keells Holdings Ltd 1,289,732
333,600 Lanka Walltile Ltd 149,117
304,000 National Development Bank 1,415,265
-----------------
4,587,269
-----------------
</TABLE>
14 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taiwan - 0.7%
801,800 Ambassador Hotel 798,450
122,000 Cheng Loong Co * 79,861
3,089,022 Chia Hsin Flour * 1,457,390
684,000 Chia Hsin Livestock * 414,401
675 China Steel Corp 703
214,675 China Steel Corp GDR 144A 4,336,435
252,740 Chung Hwa Pulp Corp 230,564
1,078,000 Chung Shing Textile * 465,432
348,390 Feng An Metal Industrial Co Ltd 224,416
304,662 Formosa Chemicals and Fiber Co 399,922
341,600 Formosan Rubber Group * 472,198
941,000 International Commercial Bank of China 1,883,966
759 Li Peng * 869
564,620 Taipei Business Bank 965,280
343,000 Taiwan Pulp and Paper Co * 269,910
85,860 Universal Cement 51,719
616,000 Wan Yu Paper * 255,237
346,000 Yieh Loong Co * 169,868
-----------------
12,476,621
-----------------
Thailand - 1.3%
2,851,500 Bangchak Petro (Foreign Registered) 834,016
822,000 Bangkok Expressway Plc (Foreign Registered) * 697,221
74,800 Bangkok Insurance (Foreign Registered) 1,142,018
5,633,400 Bangkok Rubber Public Co Ltd (Foreign Registered) * 626,116
437,000 Bec World Public Co (Foreign Registered) 2,786,370
393,700 CP Feedmill Public Co Ltd (Foreign Registered) 898,175
227,600 GFPT Public Co Ltd (Foreign Registered) 36,613
372,500 Hana Microelectronic Plc (Foreign Registered) 1,830,360
1,324,850 International Broadcasting Plc (Foreign Registered) * 387,496
23,000 International Cosmetics Public Co Ltd (Foreign Registered) 66,262
1,100 Karat Sanitaryware Plc (Foreign Registered) * 394
421,000 KR Precision Plc (Foreign Registered) 3,053,758
1,559,100 Krisda Mahanakorn Public Co Ltd (Foreign Registered) * 132,243
2,675,400 National Petrochemical (Foreign Registered) 1,604,144
512,700 NTS Steel Group Pcl (Foreign Registered) * 19,494
5,985,750 Padaeng Industry Plc (Foreign Registered) * 1,505,629
75,000 Pranda Jewelry (Foreign Registered) * 38,937
87,200 Prasit Development Public Co Ltd (Foreign Registered) 22,189
1,500,000 Ruam Pattana Fund (Registered) 324,656
1,859,000 Ruang Khao Fund (Foreign Registered) * 315,361
32,400 Saha Pathana International Holdings Plc (Foreign Registered) 59,702
70,000 Saha Pathanapibul (Foreign Registered) 110,559
2,511,300 Saha Union Public Co Ltd (Foreign Registered) 1,469,026
513,000 Siam Pulp & Paper (Foreign Registered) 705,206
201,512 Singer Thailand Plc (Foreign Registered) 341,846
3,108,050 Star Block Co Ltd (Foreign Registered) (d) * 45,453
24,000 Swedish Motor (Foreign Registered) 8,775
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - continued
1,581,150 Thai German Ceramics Industry (Foreign Registered) * 601,198
8,336,880 Thai Petrochemical (Foreign Registered) 2,621,277
112,700 Thai Plastic & Chemical (Foreign Registered) 270,295
378,600 Thai Telephone & Telecommunications (Foreign Registered) * 119,039
70 Thailand International (Foreign Registered) 822,500
-----------------
23,496,328
-----------------
Turkey - 2.1%
17,500,000 Akal Tekstil 772,627
95,700,000 Aksigorta SA 5,852,425
12,912,000 Alcatel Teletas Telekomunikasyon 3,042,921
26,713,000 Eczacibasi Ilac * 1,306,883
47,323,000 Eregli Demir ve Celik Fabrikalari 7,764,349
2,519,000 Goodyear Lastikleri 931,794
46,100,000 Izmir Demir Celik * 536,334
30,307,870 Mardin Cimento 795,625
12,774,000 Netas Telekomunik * 3,391,462
4,015,000 Petkim 1,604,946
22,924,668 Petrol Ofisi 4,103,216
5,124,000 Raks Elektronik SA 1,192,268
125,300 Sabanci Holding GDR (Registered) * 1,033,725
43,500,000 Tofas Otomobil Fab 2,413,639
35,320,000 Tupras Turkiye Petrol * 2,950,182
288,000 Usas Ucak Servisi A.S. 773,224
-----------------
38,465,620
-----------------
Ukraine - 0.1%
25,000 Societe Generale Thalmann Ukrania Fund (e) * 2,525,000
-----------------
Venezuela - 1.2%
1,257,051 Banco Provincial 2,453,399
564,370 Ceramica Carabobo Class A ADR 620,807
1,987,332 Ceramica Carabobo Class B ADR 2,345,052
85,300 Cia Anonima Tel De Ven Sponsored ADR 3,518,625
1,922,332 Electricidad De Caracas 3,252,880
35,181 Mantex SA Class A Sponsored ADR 1,407,240
1,203,000 Siderurgica Venezolana ADR 6,231,540
349,950 Siderurgica Venezolana Sivensa Class A 186,593
112,545 Siderurgica Venezolana Sivensa Registered ADR B 573,980
75,490 Vencemos 177,713
1,159,454 Venepal SA Class A GDR 144A 2,029,045
162,122 Venezolana de Cementos 386,548
2,333 Venprcar CA GDS 14,278
-----------------
23,197,700
-----------------
TOTAL STOCK AND EQUIVALENTS (Cost $1,532,457,490) 1,630,392,516
-----------------
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY LINKED SECURITIES - 1.7%
Chile - 1.4%
2,630,074 Chilean Equity Time Deposit due 4/15/98 (e)(f) 2,971,195
2,168,200 Chilean Equity Time Deposit due 4/16/98 (e)(f) 2,427,300
4,043,627 Chilean Equity Time Deposit due 4/17/98 (e)(f) 4,318,998
1,158,098 Chilean Equity Time Deposit due 4/17/98 (e)(f) 1,260,010
5,000,000 Chilean Equity Time Deposit due 5/8/98 (e)(f) 5,298,000
10,000,000 Chilean Equity Time Deposit due 6/19/98 (e)(f) 9,570,000
-----------------
25,845,503
-----------------
Russia - 0.3%
1 Renaissance Sber Note (e)(g) * 5,579,636
-----------------
TOTAL EQUITY LINKED SECURITIES (Cost $30,854,166) 31,425,139
-----------------
CONVERTIBLE SECURITIES - 2.1%
India - 0.3%
3,092,000 Mahindra & Mahindra CV, 5.00% due 7/9/01 144A 3,184,760
1,500,000 Reliance Industries Convertible, 3.50% due 11/03/99 1,717,500
-----------------
4,902,260
-----------------
Korea - 0.1%
2,000,000 Daewoo Corp Convertible, 0.00% due 12/31/07 2,308,890
108,350 Hanbo Steel & General Construction Convertible, 3.375% due 01/31/99 254,517
-----------------
2,563,407
-----------------
Pakistan - 0.0%
500,000 Pakistan Telecom Convertible, 6.00% due 2/26/02 485,000
-----------------
Portugal - 0.5%
125,700 Banco Commercial Portugues Preferred Class A 8,704,725
-----------------
Russia - 0.7%
10,800,000 Lukinter Fin Convertible, 3.50% due 5/6/02 144A 15,336,000
-----------------
South Africa - 0.1%
1,100,000 Rangold Finance Convertible, 7.00% due 10/03/01 1,001,000
-----------------
Thailand - 0.3%
5,730,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 3,079,875
358,000 Bangkok Land Ltd Convertible, 4.50% due 10/13/03 125,300
1,814,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 163,260
2,800,000 NTS Steel Group Convertible, 1.00% due 12/16/03 339,611
534,000 NTS Steel Group Convertible, 4.00% due 12/16/08 80,100
2,724,000 Sahaviriya Steel Convertible, 3.50% due 7/26/05 1,089,600
630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 63,000
-----------------
4,940,746
-----------------
Venezuela - 0.1%
1,460,000 Global Investment Financial Corp, 11.00% due 3/19/01 1,460,000
-----------------
TOTAL CONVERTIBLE SECURITIES (Cost $45,022,094) 39,393,138
-----------------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 8.4%
Cash Equivalents - 5.0%
48,624,600 The Boston Global Investment Trust (b) 48,624,600
$ 45,400,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 45,400,000
------------------
94,024,600
------------------
U.S. Government - 3.4%
$ 63,600,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 62,437,674
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $156,406,766) 156,462,274
------------------
TOTAL INVESTMENTS - 100.0%
(Cost $1,764,740,516) 1,857,673,067
Other Assets and Liabilities (net) - (0.0%) (574,486)
------------------
TOTAL NET ASSETS - 100.0% $ 1,857,098,581
==================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
(a) This security is held as collateral for open
futures contracts.
(b) Represents investment of security lending
collateral (Note 1).
(c) Bankrupt issuer.
(d) Valued by management (Note 1).
(e) Security is restricted as to public resale.
The aggregate market value of restricted
securities is $56,130,503 or 3.02% of net
assets.
(f) A derivative security whose price is linked
to the return on a basket of Chilean asset
investments.
(g) A derivative security whose price is linked
to the return on a Russian basket of
securities.
144A Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional
buyers.
* Non-income producing security. A dividend has not been
declared for the twelve months ended August 31, 1997.
18 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1997, industry sector diversification
of the Fund's investments (excluding short-term
investments) was as follows:
<TABLE>
<CAPTION>
Industry Sector
<S> <C>
Utilities 12.2%
Metals and Mining 11.2
Oil and Gas 10.0
Banking 9.8
Miscellaneous 9.6
Construction 9.1
Telecommunications 8.1
Conglomerates 6.4
Textiles 3.4
Electronic Equipment 3.2
Consumer Goods 2.7
Machinery 2.3
Chemicals 2.1
Financial Services 1.9
Automotive 1.8
Food and Beverage 1.8
Paper and Allied Products 1.1
Transportation 1.0
Real Estate 0.7
Health Care 0.4
Communications 0.4
Services 0.3
Retail Trade 0.2
Computers 0.2
Insurance 0.1
--------
100.0%
========
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $1,764,740,516) (Note 1) $ 1,857,673,067
Foreign currency, at value (cost $20,331,338) (Note 1) 20,301,930
Cash 5,349,629
Receivable for investments sold 43,183,486
Receivable for Fund shares sold 8,500,000
Dividends and interest receivable 5,755,811
Receivable for open forward foreign currency contracts (Notes 1 and 5) 3,764,387
Receivable for open swap contracts (Notes 1 and 5) 5,267,459
Receivable for expenses waived or borne by Manager (Note 2) 339,619
-----------------
Total assets 1,950,135,388
-----------------
Liabilities:
Payable for investments purchased 34,780,514
Payable for Fund shares repurchased 1,518,861
Payable for open forward foreign currency contracts (Notes 1 and 5) 3,343,992
Written options outstanding, at value (premiums $1,479,681) (Note 5) 1,138,596
Accrued capital gain taxes payable 892,743
Payable upon return of securities loaned 48,624,600
Payable to affiliate for (Note 2):
Management fee 1,685,821
Shareholder service fee 253,458
Accrued expenses 798,222
-----------------
Total liabilities 93,036,807
-----------------
Net assets $ 1,857,098,581
=================
Net assets consist of:
Paid-in capital $ 1,610,877,014
Accumulated undistributed net investment income 8,738,768
Accumulated net realized gain 138,645,144
Net unrealized appreciation 98,837,655
-----------------
$ 1,857,098,581
=================
Net assets attributable to:
Class I Shares $ 4,937,233
=================
Class III Shares $ 1,852,161,348
=================
Shares outstanding:
Class I 380,176
=================
Class III 142,323,805
=================
Net asset value per share:
Class I $ 12.99
=================
Class III $ 13.01
=================
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
---------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,504,941) $ 22,460,903
Interest (including security lending income of $594,994) 3,513,832
---------------
Total income 25,974,735
---------------
Expenses:
Management fee (Note 2) 9,162,184
Custodian fees 1,712,212
Stamp duties and transfer taxes 426,144
Legal fees 38,180
Audit fees 35,972
Transfer agent fees 23,828
Trustees fee (Note 2) 8,004
Miscellaneous 131,300
Fees waived or borne by Manager (Note 2) (1,849,559)
---------------
9,688,265
Shareholder service fee (Note 2)
Class I 3,916
Class III 1,372,230
---------------
Net expenses 11,064,411
---------------
Net investment income 14,910,324
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 135,211,249
Closed swap contracts 2,528,864
Foreign currency, forward contracts and foreign
currency related transactions 4,715,310
---------------
Net realized gain 142,455,423
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (45,356,227)
Open swap contracts 2,881,519
Written options 341,085
Foreign currency, forward contracts and foreign
currency related transactions (5,495,406)
---------------
Net unrealized loss (47,629,029)
---------------
Net realized and unrealized gain 94,826,394
---------------
Net increase in net assets resulting from operations $ 109,736,718
===============
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
----------------------- -----------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 14,910,324 $ 17,549,883
Net realized gain 142,455,423 47,250,695
Change in net unrealized appreciation (depreciation) (47,629,029) 173,776,577
---------------------- ----------------------
Net increase in net assets
resulting from operations 109,736,718 238,577,155
---------------------- ----------------------
Distributions to shareholders from:
Net investment income
Class I (27,559) --
Class II -- (178,659)
Class III (17,697,960) (15,814,130)
----------------------- ----------------------
Total distributions from net investment income (17,725,519) (15,992,789)
----------------------- ----------------------
Net realized gains
Class I (32,080) --
Class III (20,601,532) --
----------------------- ---------------------
Total distributions from net realized gains (20,633,612) --
----------------------- ---------------------
(38,359,131) (15,992,789)
----------------------- ---------------------
Net share transactions: (Note 4)
Class I 3,249,799 1,542,386
Class II -- (2,994,394)
Class III 55,072,204 599,087,113
----------------------- ---------------------
Increase in net assets resulting from net share transactions 58,322,003 597,635,105
----------------------- ---------------------
Total increase in net assets 129,699,590 820,219,471
Net assets:
Beginning of period 1,727,398,991 907,179,520
----------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $8,738,768 and
$11,553,963, respectively) $ 1,857,098,581 $ 1,727,398,991
======================= =====================
</TABLE>
See accompanying notes to the financial statements
22
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
-------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.48 $ 10.86
-------------------- --------------------
Income (loss) from investment operations:
Net investment income 0.10 0.01
Net realized and unrealized gain (loss) 0.69 1.61
-------------------- --------------------
Total from investment operations 0.79 1.62
-------------------- --------------------
Less distributions to shareholders from:
Net investment income (0.13) --
Net realized gains (0.15) --
-------------------- --------------------
Total distributions (0.28) --
-------------------- --------------------
Net asset value, end of period $ 12.99 $ 12.48
==================== ====================
Total Return (a) 6.15% 14.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,937 $ 1,748
Net expenses to average
daily net assets 1.36% **(c) 1.45% **(c)
Net investment income to average
daily net assets 1.41% ** 0.77% **
Portfolio turnover rate 36% 41%
Average broker commission rate per equity share (d) $ 0.0021 $ 0.0004
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01 (b)
</TABLE>
* Period from January 2, 1997 (commencement of operations) to February 28,
1997.
** Annualized
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Fees and expenses voluntarily waived or borne by the manager were less than
$0.01 per share.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .20% of average daily net assets for the period
ended February 28, 1997, and .05% of average daily net assets for the six
months ended August 31, 1997.
(d) The average broker commission rate will vary depending on the markets in
which trades are executed.
See accompanying notes to the financial statements. 23
<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.
24 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>
Six Months Ended Year Ended February 28/29
August 31, 1997 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 *
---------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.49 $ 10.54 $ 9.52 $ 12.13 $ 10.00
------------ ------------ ----------- ----------- ------------
Income (loss) from investment operations:
Net investment income 0.11 0.13 0.10 0.05 0.02
Net realized and unrealized gain (loss) 0.69 1.96 1.06 (2.37) 2.11
------------ ------------ ----------- ----------- ------------
Total from investment operations 0.80 2.09 1.16 (2.32) 2.13
------------ ------------ ----------- ----------- ------------
Less distributions to shareholders from:
Net investment income (0.13) (0.14) (0.01) (0.07) (0.00)(c)
Net realized gains (0.15) -- (0.13) (0.22) --
------------ ------------ ----------- ----------- ------------
Total distributions (0.28) (0.14) (0.14) (0.29) (0.00)
------------ ------------ ----------- ----------- ------------
Net asset value, end of period $ 13.01 $ 12.49 $ 10.54 $ 9.52 $ 12.13
============ ============ =========== =========== ===========
Total Return (a) 6.31% 19.98% 12.24% (19.51%) 21.35%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,852,161 $ 1,725,651 $ 907,180 $ 384,259 $ 114,409
Net expenses to average
daily net assets 1.21%**(e) 1.24%(e) 1.35% 1.58% 1.64%*
Net investment income to average
daily net assets 1.63%** 1.40% 1.31% 0.85% 0.87%**
Portfolio turnover rate 36% 41% 35% 50% 2%
Average broker commission rate per equity share (b) $ 0.0021 0.0004 N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 0.02 (d) -- (d)
</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 for the year
ended February 28, 1997 and .05% for the six months ended August 31,
1997.
See accompanying notes to the financial statements. 25
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks long-term capital appreciation consistent with a prudent level
of risk through investment in equity and equity-related securities traded in
the securities markets of newly industrializing countries in Asia, Latin
America, the Middle East, Southern Europe, Eastern Europe and Africa.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class I and Class III are the only
active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.
26
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and sell
a currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange rates.
Forward currency contracts are marked to market daily and the change in value
is recorded by the Fund as an unrealized gain or loss. When a forward
currency contract is extinguished through delivery or offset by entering into
another forward currency contract, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it was extinguished or
offset. These contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are unable
to meet the terms of the contracts or if the value of the currency changes
unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the
Fund has committed to sell is shown under Note 5, and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 31, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure to
the equity markets. The Fund enters into equity swap agreements which involve
a commitment by one party in the agreement to pay interest in exchange for a
market linked return based on a notional amount. To the extent that the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Equity
swaps are marked to market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gain or loss in the Statement
of Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets
27
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform or that there may be
unfavorable changes in the price of the security or index underlying these
transactions. See Note 5 for a summary of all open swap agreements as of
August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to the
premium received is recorded as a liability and subsequently marked to market
to reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or closed are offset against the
proceeds or amounts paid on the transaction to determine the realized gain or
loss. If a written put option is exercised, the premium reduces the cost
basis of the securities purchased by the Fund. The Fund as a writer of an
option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. See Note 5 for a summary of open
written option contracts as of August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 1997, the Fund loaned securities having a market value of
$43,386,900 collateralized by cash in the amount of $48,624,600, which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its taxable net
investment income and net realized short-term and long-term capital gains, if
any, after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise tax
is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
28
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis earnings
and profits, if any, are reported in the Fund's financial statements as a
return of capital. Differences in the recognition or classification of income
for financial statement and tax purposes which result in temporary over-
distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis and
is adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds. Investment income, common expenses and
realized and unrealized gains and losses are allocated pro-rata among the
classes based on the relative net assets of each class. Shareholder service
fees, which are directly attributable to a class of shares, are charged to
that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.60% of the amount invested.
In the case of cash redemptions, the fee is .40% of the amount redeemed.
Effective June 1, 1996, the Manager will reduce such premium or fee only when
any portion of a purchase is offset by a corresponding redemption occurring
on the same day. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the six months ended August 31,
1997, the Fund received $1,987,611 in purchase premiums and $287,896 in
redemption fees. There is no premium for reinvested distributions.
29
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Investment risk
Investments in emerging countries present certain risks that are not inherent
in many other securities. Many emerging countries present elements of
political and/or economic instability. Further, countries may impose various
types of foreign currency regulations or controls which may impede the fund's
ability to repatriate amounts it receives. The fund may acquire interests in
securities in anticipation of improving conditions in the related countries.
These factors may result in significant volatility in the values of its
holdings. The markets for emerging countries are relatively illiquid.
Accordingly, the fund may not be able to realize in an actual sale amounts
approximating those used to value its holdings.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of 1.00% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder service
fee for client and shareholder service, reporting and other support. Pursuant
to the Shareholder Services Plan, the shareholder service fee is calculated
based on the average daily net assets of each class at the annual rate of
.28% for Class I shares, .22% for Class II shares and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),
shareholder service fees and extraordinary expenses) exceed .81% of average
daily net assets. Prior to June 1, 1996, a similar waiver existed for annual
expenses exceeding 1.20%.
The Manager has entered into a Consulting Agreement with Dancing Elephant,
Ltd. (the "Consultant") with respect to the management of the portfolio.
Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1997, was $8,004. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
30
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the six months ended August 31, 1997, aggregated
$609,432,897 and $709,556,192, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follow:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- --------------------- -------------------- ------------------ ---------------
<S> <C> <C> <C>
$1,764,740,516 $329,931,776 $236,999,225 $92,932,551
</TABLE>
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
Six Months Ended (commencement of operations)
August 31, 1997 to February 28, 1997
---------------------- -------------------------------
Class I: Shares Amount Shares Amount
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 235,688 $ 3,190,477 140,068 $ 1,542,386
Shares issued to
shareholders in
reinvestment
of distributions 4,420 59,322 - -
Shares
repurchased - - - -
--------- ---------- ---------- -------------
Net increase 240,108 $ 3,249,799 140,068 $ 1,542,386
========= ========== ========== =============
</TABLE>
31
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Share Transactions - 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)
============= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
------------------------------ --------------------------------
Class III: Shares Amount Shares Amount
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 12,026,360 $ 155,432,291 54,549,584 $ 626,535,006
Shares issued to
shareholders in
reinvestment
of distributions 2,242,086 30,156,055 759,519 8,422,271
Shares
repurchased (10,059,786) (130,516,142) (3,248,382) (35,870,164)
------------ ------------- ------------ ------------
Net increase 4,208,660 $ 55,072,204 52,060,721 $ 599,087,113
============ ============= ============ ============
</TABLE>
32
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
-------------- ------------------- ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Buy
01/07/98 DEM 82,105,000 $ 45,981,228 $ (3,343,992)
===============
Sale
01/07/98 DEM 82,105,000 $ 45,996,219 $ 3,764,387
===============
</TABLE>
Swap agreements
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------ ------------- ----------------------------------------------- ---------------
<S> <C> <C> <C>
$ 7,000,000 10/29/97 Agreement with Barclays Bank PLC dated $ 519,468
4/28/97 to receive (pay) the notional amount
multiplied by the return on the Chile IPSA
Index and to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
2,000,000 10/30/97 Agreement with Barclays Bank PLC dated 5/1/97 121,111
to receive (pay) the notional amount
multiplied by the return on the Colombia IFC
Index and to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
</TABLE>
33
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------ ------------- ----------------------------------------------- ---------------
<S> <C> <C> <C>
$ 10,000,002 01/09/98 Agreement with Union Bank of Switzerland $ (315,343)
dated January 14, 1997 to receive (pay) the
notional amount multiplied by the change in
market value (including dividends) of
Telecomunicacoes Brasileiras ("Telebras")
Ordinary Shares and to pay (receive) the
notional amount multiplied by the change in
market value (including dividends) of
Telecomunicacoes Brasileiras ("Telebras") ADR
adjusted by a specified amount.
1,600,053 01/16/98 Agreement with Robert Fleming & Co. Limited (57,207)
dated January 24, 1997 to receive (pay) the
notional amount multiplied by the change in
market value of State Bank of India common
stock and to pay the notional amount
multiplied by a fixed rate.
10,000,000 03/09/98 Agreement with Barclays Bank PLC dated 1,509,812
3/13/97 to receive (pay) the notional amount
multiplied by the return on the Taiwan
Weighted Index and to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
10,000,000 03/11/98 Agreement with Goldman Sachs dated 3/11/97 to 1,463,079
receive (pay) the notional amount multiplied
by the return on the Taiwan Weighted Index
and to pay the notional amount multiplied by
12 month LIBOR adjusted by a specified spread.
</TABLE>
34
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------ ------------- ----------------------------------------------- ---------------
<S> <C> <C> <C>
$ 5,000,000 04/01/98 Agreement with Barclays Bank PLC dated 4/2/97 $ 785,478
to receive (pay) the notional amount
multiplied by the return on the Taiwan
Weighted Index and to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
10,000,001 04/06/98 Agreement with Goldman Sachs dated 4/2/97 to 1,576,809
receive (pay) the notional amount multiplied
by the return on the Taiwan Weighted Index
and to pay the notional amount multiplied by
12 month LIBOR adjusted by a specified spread.
5,184,028 04/28/98 Agreement with Robert Fleming & Co. Limited 87,798
dated 4/28/97 to receive (pay) the notional
amount multiplied by the return on a basket
of selected Indian securities (including
dividends) and to pay the notional amount
multiplied by a fixed rate.
4,004,212 06/27/98 Agreement with W.I. Carr dated 6/27/97 to (500,189)
receive the notional amount multiplied by the
change in market value of Pohang Iron and
Steel common stock and to pay the notional
amount multiplied by 6 month LIBOR adjusted
by a specified spread.
</TABLE>
35
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------ ------------- ----------------------------------------------- ---------------
<S> <C> <C> <C>
$ 4,004,599 06/27/98 Agreement with W.I. Carr dated 6/27/97 to $ 76,643
receive the notional amount multiplied by the
change in market value of SK Telecom common
stock and to pay the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
--------------
Net unrealized appreciation $ 5,267,459
==============
</TABLE>
Written call option transactions
<TABLE>
<CAPTION>
Number
of Contracts Premiums
----------------- ---------------
<S> <C> <C>
Outstanding, beginning of
period - $ -
Options written 348,065 1,479,681
Options exercised - -
Options expired - -
----------------- ---------------
Outstanding, end of period 348,065 1,479,681
================= ===============
</TABLE>
Summary of written call options outstanding
<TABLE>
<CAPTION>
Number of Exercise Expiration
Contracts Price Date Value
----------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Unified Energy Systems ADR 243,161 $ 50.00 02/27/98 $ 646,617
Lukoil ADR 104,904 $120.00 02/27/98 491,979
-----------
$ 1,138,596
===========
</TABLE>
36
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK AND EQUIVALENTS - 91.2%
Austria - 1.8%
777 Allgemeine Baugesellschaft AG 60,720
888 Allgemeine Baugesellschaft AG Preferred 7.00% 27,758
8,000 Austrian Airlines * 188,816
11,700 Bank Austria AG (Participating Certificate) 331,556
700 Bau Holding AG Preferred 2.42% (Non Voting) 34,037
1,150 Brau Union AG 64,560
200 BWT AG 33,895
2,800 Creditanstalt-Bankverein 171,955
1,200 Creditanstalt-Bankverein Preferred 1.65% 58,719
100 EA-Generali AG 23,562
1,100 EA-Generali AG Preferred 6.00% 114,615
600 EVN Energie-Versorgung Niederoesterreich AG 71,753
2,300 Flughafen Wien AG 88,961
5,500 Jenbacher Werke AG 138,928
200 Lenzing AG * 12,535
300 Leykam-Muerztaler Papier und Zellstoff AG * 7,057
800 Miba Holding AG Class B Preferred 1.34% 42,184
7,000 OEMV AG 924,975
1,100 Oesterreichische Brau Beteiligungs AG 58,176
3,000 Oesterreichische Elektrizitaetswirtschafts AG 204,082
7,200 Oesterreichische Laenderbank AG 358,055
700 Oesterreichische Laenderbank AG Preferred (Non Voting) 26,799
110 Perlmooser Zementwerke AG 6,512
18,658 Radex-Heraklith AG 720,196
300 RAS Versicherungs AG 35,877
2,400 Steyr-Daimler-Puch AG 71,232
1,942 Strabag Oesterreich AG 113,438
3,662 Universale Bau AG 118,517
1,700 VA Technologie AG (Bearer) 311,929
200 Wiener Allianz Versicherungs AG 21,313
----------------
4,442,712
----------------
Canada - 7.3%
6,000 Abitibi Consolidated Inc 105,009
1,000 Agnico Eagle Mines Ltd 8,751
57,200 Air Canada Inc 449,048
36,000 Anderson Exploration Ltd 448,558
5,000 Avenor Inc 93,630
26,800 BCE Mobile Communications 972,826
1,300 Biochem Pharma Inc 33,707
700 Bombardier Inc Class A 13,814
10,600 CAE Industries Inc 81,306
1,400 Cambior Inc 14,974
18,900 Cameco Corp 655,432
6,600 Canadian Airlines Corp 13,310
14,700 Canadian Hotel Inc 726,821
3,100 Canadian Marconi Co 45,212
39,800 Canadian Tire Corp Ltd Class A 746,725
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
Canada - continued
1,200 Canfor Corp 12,964
3,400 CCL Industries Class B 41,629
31,900 Cominco Ltd 827,109
92,400 Corel Corp 539,047
15,700 Co-Steel Inc 266,293
2,000 Cott Corp 19,086
10,800 Dofasco Inc 220,130
18,100 Dominion Textile Inc 97,771
43,400 Domtar Inc 359,466
6,700 Donohue Inc Class A 152,487
126,000 Echo Bay Mines Ltd * 635,241
4,200 Edperbrascan Corp Class A Ltd (Voting Shares) 71,389
8,600 Elan Energy Inc 55,746
400 Extendicare (Voting Shares) 6,338
5,700 Fletcher Challenge Canada Class A 97,501
45,400 Gulf Canada Resources Ltd * 371,126
6,400 Hudsons Bay Co 161,331
100 Inco Ltd Class VBN Shares 1,851
13,000 Inmet Mining Ltd 73,031
13,900 International Comfort Products Corp 110,123
5,500 International Forest Products A 37,236
6,000 IPL Energy Inc 214,340
21,100 Ipsco Inc 881,415
1,265 Laidlaw Inc 18,495
18,300 Macmillan Bloedel Ltd 229,335
8,900 MDS Inc Class B 185,891
33,400 Methanex Corp 280,248
10,100 Mitel Corp 70,197
15,300 Molson Co Ltd, Class A 280,997
2,900 Molson Co Ltd, Class B 52,739
14,500 Moore Corporation Ltd 291,368
800 Noma Industries Ltd Class A 2,881
92,500 Noranda Forest Inc 626,238
8,500 Noranda Inc 166,211
1,700 Norcen Energy Resource 40,956
39,800 Nova Scotia Power Inc 412,777
141,600 Numac Energy Inc 673,096
15,800 Oshawa Group Ltd Class A 243,523
1,100 Pegasus Gold Inc * 4,674
10,600 Power Corp of Canada Ltd 291,253
9,600 Provigo Inc 52,548
7,100 Quebecor Inc Class B 132,443
7,600 Ranger Oil Ltd 73,074
5,900 Repap Enterprises Inc * 1,020
21,200 Rio Algom Ltd 492,420
10,000 Rogers Cantel MBL Class B (Registered) 199,863
12,800 Rogers Communications Inc Class B 88,963
167,100 Royal Oak Mines 304,486
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------
<C> <S> <C>
Canada - continued
10,200 Sears Canada Inc 147,661
10,700 Semi-Tech Class A * 26,818
4,880 Slocan Forest Products Ltd 41,649
1,400 Southam Inc 25,712
700 Spar Aerospace Ltd 5,521
29,700 Stelco Inc Class A 252,411
12,400 Suncor Energy Inc 388,937
2,100 Teck Corp Class B 39,324
100 Tele Metropole Inc Class B 1,675
27,400 Telus Corp 544,665
6,700 Torstar Corp Class B 214,495
6,600 Total Petroleum North America 65,361
48,200 Transalta Corp 600,569
25,600 TVX Gold Inc * 134,596
8,300 United Dominion Industries Ltd 225,665
11,400 Westcoast Energy Inc 217,991
1,000 Weston (George) Ltd 67,593
-------------
17,878,112
-------------
Denmark - 0.0%
800 Hafnia Holdings Class A (c)* 1
-------------
Finland - 0.4%
29,200 Kesko OY 377,129
37,400 Partek OY 683,149
-------------
1,060,278
-------------
France - 0.4%
120 Accor SA 18,003
300 Bertrand Faure SA 14,640
360 BIC SA 26,056
25 Bongrain 8,862
360 Bouygues 28,845
400 Cap Gemini SA 24,400
750 Casino Guichard-Perrachon 37,342
190 Castorama Dubois Investment 22,335
80 CGIP 22,422
70 Clarins 8,413
220 Club Mediterranee SA * 17,646
70 Comptoirs Modernes 31,495
140 Eridania Beghin-Say SA 18,234
130 Essilor International 32,192
7,600 Euro Disney SCA (Bearer) * 10,776
10,400 Eurotunnel SA Units (Bearer) * 12,088
15 Fromageries Bel La Vache 10,154
31 Gaz Et Eaux 13,263
30 Guyenne Et Gascogne 10,016
250 Havas 15,287
210 Hermes International 17,553
170 Imetal 23,767
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
1,675 Lagardere Groupe 44,875
150 Pathe SA 28,044
830 Pechiney SA Class A 35,907
700 Pernod-Ricard 32,718
230 Primagaz 19,528
30 Sagem Applic Gen D Electric 14,675
190 Salomon SA 13,313
130 Seb SA 20,361
1,030 Seita 31,755
220 Sidel (Bearer) 15,959
70 Sodexho Alliance 31,679
120 Sylea (Bearer) 10,683
180 Technip SA (Compagnie Francaise) 21,782
700 Thomson CSF 18,823
280 TV Francaise 22,851
3,500 Usinor Sacilor 60,762
760 Worms et Compagnie SA 41,436
-----------
888,940
-----------
Germany - 2.8%
2,100 AGIV AG * 48,996
200 Ava Allgemeine Handelsgesellschaft der Verbraucher AG * 54,218
550 Bayerische Motorenwerke AG 391,079
2,500 Berliner Kraft & Licht Class A 52,426
2,400 Bilfinger & Berger 99,858
150 Brau und Brunnen * 11,916
7,600 Continental AG 184,918
3,000 Degussa AG 146,655
550 Deutsche Babcock & Wilcox * 34,983
150 Didier-Werke AG 11,082
900 Douglas Holdings AG 31,447
100 Draegerwerk AG Preferred 2,111
50 Dyckerhoff AG 17,499
50 Dyckerhoff AG (Non Voting) 17,221
2,000 FAG Kugelfischer 36,441
150 Friedrich Grohe AG Preferred (Non Voting) 41,663
1,800 Friedrich Krupp AG 385,968
150 GEA AG Preferred 3.13% 49,538
3,355 Heidelberg Port-Zement 250,672
1,100 Henkel KGAA Preferred 55,668
850 Henkel KGAA (Bearer) 39,286
100 Herlitz AG 8,099
150 Herlitz AG Preferred 11,374
2,450 Hochtief AG 115,685
100 Holsten-Brauerei 22,220
200 Holzmann (Philipp) * 60,551
250 Ind-Werke Karl-Aug 61,106
450 Karstadt AG 155,737
250 Kaufhalle AG * 24,304
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Germany - continued
2,900 Klockner Humboldt Deutz * 23,923
300 Klockner-Werke AG * 19,498
1,450 Kolbenschmidt * 22,151
50 Krones Preferred 19,471
250 Leirheit AG 8,846
550 Linde AG 371,219
150 Linotype Hell AG * 7,499
14,250 Lufthansa AG 286,560
800 MAN AG 219,982
300 MAN AG Preferred 67,744
3,360 Metro AG 153,987
600 Metro AG Preferred 21,298
300 Papierwerke Waldhof 55,329
1,350 Phoenix AG 23,623
750 Preussag AG 211,024
150 Reutgerswerke AG * 23,748
6,100 Schering AG 595,378
300 Schmalbach-Lubeca 62,328
200 Strabag Bau AG * 15,688
100 TH Goldschmidt AG 32,608
1,850 Thyssen AG 426,492
100 Varta AG * 16,110
1,500 Viag AG 624,531
250 Villeroy and Boch AG * 40,136
1,000 Volkswagen AG 719,385
550 Volkswagen AG Preferred .79% 296,364
----------------
6,787,643
----------------
Hong Kong - 7.3%
2,856,000 Allied Properties Ltd 685,529
571,200 Allied Properties Warrants 7/3/00 62,656
102,000 Amoy Properties Ltd 102,671
129,000 Asia Financial Holdings 72,000
245,000 Asia Standard International Group Ltd 118,564
102,000 ASM Pacific Technology 73,713
250,000 Associated International Hotels 174,216
256,000 Chinese Estates Holdings Ltd 227,952
143,000 Cross Harbour Tunnel Co Ltd 293,419
258,666 Dickson Concept International Ltd 981,389
11,214 Evergo China Holdings 1,910
118,580 Furama Hotel Enterprises Ltd 494,275
218,000 Grand Hotel Holdings Ltd Class A 84,398
270,000 Great Eagle Holdings Ltd 789,199
624,000 Hang Lung Development Co Ltd 1,127,371
265,000 Henderson Investment Ltd 280,423
126,300 Hongkong Aircraft Engineering Co Ltd 415,621
245,000 Hysan Development Co Ltd 711,382
13,000 IMC Holdings 6,207
84,000 Jardine International Motor Holdings Ltd 95,393
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
113,937 Jardine Strategic Warrants 5/02/98 50,132
26,400 Johnson Electric Holdings Ltd 59,280
106,800 Kowloon Motor Bus Co Ltd 289,431
353,000 Kumagai Gumi Hong Kong Ltd 662,815
283,000 Kwong Sang Hong International Ltd 136,953
944,400 Lai Sun Development 938,404
278,000 Lai Sun Garment International Ltd 335,437
189,544 Lai Sun Hotel International Warrants 4/30/99 13,698
292,000 Liu Chong Hing Investment Ltd 408,853
80,620 Mandarin Oriental 90,294
1,134,000 Mingly Corp 362,195
146,000 New Asia Realty & Trust A Shares 535,088
340,000 Oriental Press Group 117,370
12,800 Oriental Press Group Warrants 10/2/98 496
667,000 Pacific Concord Holdings Ltd 406,707
35,100 Realty Development Corp Ltd Class A 134,983
4,087,810 Regal Hotels International Ltd 1,120,996
1,062,000 Ryoden Development 599,594
9,200 Semi Tech Global Warrants 7/31/98 2,232
92,000 Semi Tech (Global) Co Ltd 138,315
132,000 Shell Electric Co Ltd 74,100
112,000 Shun Tak Holdings Ltd 63,234
1,770,000 South China Morning Post Ltd 1,416,183
21,595 Stelux Holdings International 5,267
4,319 Stelux Holdings International Warrants 2/28/98 206
460,000 Swire Pacific Ltd Class B 667,828
343,101 Tsim Sha Tsui Properties Ltd 717,284
162,000 Wing On Co 186,063
20,000 Wing On International Holdings Ltd 36,134
163,500 Winsor Properties Holdings Ltd 261,634
1,464,000 World Trade Centre Group Ltd 689,586
637,000 Yizheng Chemical Fibre Co 464,454
---------------
17,783,534
---------------
Italy - 6.3%
192,300 Alitalia Linee Aeree Italiane Class A * 116,317
118,000 Alitalia Linee Aeree Italiane Class B Preferred * 55,961
31,400 Ansaldo Transporti SPA * 33,438
355,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 844,804
36,500 Banca Nazionale dell'Agricoltura SPA Preferred 12,749
1,064,200 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 366,881
3,120 Benetton Group SPA 45,275
8,000 Bulgari SPA 47,481
75,000 Caffaro SPA 63,043
33,500 Cartiere Burgo SPA 190,645
200,000 Cementir Cementerie del Tirreno SPA 137,445
172,900 Cia Italiana del Grandi Alberghi Cigahotels SPA * 80,818
42,100 COFIDE SPA (Non Convertible) * 9,564
129,600 COFIDE SPA * 43,207
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
9,000 Cogefar Impresit Costruzioni Generali SPA * 5,960
167,500 Comau Finanziaria SPA 522,277
5,000 Compart SA * 2,025
37,500 Compart SPA * 17,848
8,800 Danieli and Co SPA 64,474
38,000 Danieli and Co SPA (Non Convertible) 134,889
5,100 Edison SPA 23,868
250 Ericsson SPA 4,309
22,000 Falck Acciaierie and Ferriere Lombarde 86,215
240,900 Fiat SPA Preferred 374,203
337,700 Fiat SPA (Non Convertible) 564,846
700 Fila Holding SPA ADR 21,394
439,500 Finmeccanica SPA (Non Convertible) * 230,645
2,500 Finmeccanica SPA * 1,761
102,000 Fornara SPA (c)* 4,171
51,780 Gemina SPA 18,233
23,000 Gemina SPA Di Risp Convertible 13,246
75,833 Gilardini SPA 125,333
213,400 Grassetto SPA (c)* 1
207,000 Holding Di Partecipazione 78,299
466,020 HPI SPA 211,478
29,300 IFI Istituto Finanziario Preferred 2.46% 333,653
96,300 IFIL Finanziaria di Partecipazioni SPA 299,723
108,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 183,467
100,400 Industriali Riunite SPA (Non Convertible) * 37,350
170,200 Industriali Riunite SPA * 120,156
800 Industrie Natuzzi SPA ADR 22,000
33,500 Italcementi Fabbriche Riunite Cemento SPA 220,327
53,000 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 128,383
117,400 Italgas SPA 361,394
400 Italmobiliare SPA 6,350
4,400 Luxottica Group Sponsored ADR 256,850
4,000 Marzotto and Figli SPA 38,905
35,300 Mondadori Editore 208,507
190,000 Montedison SPA 115,465
165,000 Montedison SPA (Non Convertible) 81,530
139,433 Montefibre SPA 81,567
60,000 Montefibre SPA (Non Convertible) 29,647
24,320 Olivetti and Co SPA Preferred * 20,747
166,000 Olivetti and Co SPA (Non Convertible) * 57,040
460,000 Olivetti SPA * 186,800
319,560 Parmalat Finanziaria SPA 496,390
9,000 Permafin Finanziaria * 2,515
74,750 Pirelli and Co 109,108
77,000 Pirelli and Co (Non Convertible) 87,334
110,000 Pirelli SPA 277,701
31,000 Pirelli SPA (Non Convertible) 43,312
16,000 Recordati Industria Chimica e Farmaceutica SPA 119,861
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
75,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 291,588
30,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 183,336
220,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 477,934
140,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 397,568
19,500 Rinascente Warrants 12/31/99 14,331
167,000 SAFFA SPA * 280,751
3,200 SAFILO SPA 71,971
7,500 Saipem SPA 35,994
11,700 Sasib SPA 34,421
72,500 Seat SPA di Risp 17,788
44,000 Sirti SPA 236,155
355,200 SMI (Societa Metallurgica Italy) * 143,637
115,000 Snia BPD SPA 109,990
605,000 Snia BPD SPA (Non Convertible) 418,864
42,000 Sorin Biomedica SPA 143,125
39,000 Stefanel SPA * 59,584
45,000 Telecom Italia Mobile SPA (Non Convertible) 75,396
641,104 Telecom Italia SPA (Non Convertible) 2,268,454
1,000 Unione Cementi Marchino Emiliane e di Augusta-Casale 7,114
584,774 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 1,511,168
-------------
15,258,354
-------------
Japan - 16.9%
3,000 Aida Engineering Ltd 16,510
27,000 Aisin Seiki Co Ltd 368,110
7,000 Ajinomoto Co Inc 64,012
20,000 Alps Electric Co Ltd 237,759
35,000 Amada Co Ltd 237,426
2,000 Amano Corp 17,790
3,000 Anritsu Corp 44,393
253,000 Aoki Corp * 151,434
2,000 Aoki International 26,436
5,000 Aoyama Trading 134,675
31,000 Asahi Breweries Ltd 461,302
6,000 Asahi Denka Kogyo 32,422
6,000 Asahi Optical Co 18,206
1,000 Asatsu Inc 26,187
8,000 Asics Corp * 12,836
11,000 Atsugi Nylon Industrial 25,971
4,000 Bandai Co 86,458
3,000 Bank of Kyoto Ltd 16,710
19,000 Bank of Yokohama Ltd 80,871
6,000 Banyu Pharmaceutical Co Ltd 100,757
2,000 Best Denki Co Ltd 15,429
6,000 Brother Industries Ltd 20,949
11,000 Canon Sales Co Inc 223,127
13,000 Casio Computer Co 113,476
14,000 Chiba Bank Ltd 73,323
9,000 Chiyoda Corp * 24,990
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
2,000 Chudenko Corp 45,889
23,000 Chugai Pharmaceutical Co Ltd 193,117
3,000 Chugoku Bank Ltd 44,393
23,000 Citizen Watch Co 177,629
68,000 Cosmo Oil Co Ltd 220,467
28,800 CSK Corp 979,234
46,000 Daicel Chemical Industries Ltd 130,784
8,000 Daido Steel Co Ltd 19,553
17,000 Daiichi Seiyaku Co Ltd 289,717
7,000 Daikin Industries Ltd 50,744
33,000 Dainippon Ink & Chemicals Inc 121,806
5,000 Dainippon Pharmaceutical Co Ltd 28,681
4,000 Dainippon Screen Manufacturing Co Ltd 37,576
3,000 Daio Paper Corp 18,455
14,800 Daito Trust Construction Co Ltd 163,638
23,000 Daiwa Bank Ltd 121,415
8,000 Denki Kagaku Kogyo 15,629
1,000 Denny's Japan Co Ltd 26,769
2,000 Descente Ltd 7,648
8,000 Eisai Co Ltd 152,299
4,000 Ezaki Glico Co Ltd 30,094
4,000 Fuji Electric Co 13,733
37,000 Fuji Heavy Industries Ltd 163,330
8,000 Fujikara Ltd 67,171
105,000 Fujisawa Pharmaceutical Co Ltd 1,021,282
34,000 Fujita Corp 29,113
3,000 Fujitec Co 35,165
60,000 Fujiya Co Ltd * 162,607
1,000 Fukuoka City Bank Ltd 3,982
24,000 Fukuyama Transporting Co Ltd 119,711
11,000 Furukawa Co Ltd 27,982
41,000 Furukawa Electric Co Ltd 231,773
167,000 Gakken Co Ltd * 713,592
40,000 General Sekiyu (KK) 232,771
39,000 Godo Shusei Co Ltd 105,370
30,000 Green Cross Corp 107,241
7,000 Gunze Ltd 27,001
5,000 Hankyu Department Stores Inc 40,943
207,000 Hanwa Co Ltd * 357,935
175,000 Haseko Corp * 164,394
19,000 Hazama-Gumi Ltd 24,640
1,000 Heiwa Corp 17,957
4,000 Higo Bank Ltd 28,265
8,000 Hiroshima Bank Ltd 27,799
8,000 Hitachi Cable Ltd 58,525
50,600 Hitachi Ltd 466,922
22,000 Hitachi Maxell Ltd 497,465
10,000 Hitachi Metals Ltd 52,789
</TABLE>
See accompanying notes to the fiancial statements. 9
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
7,000 Hokuetsu Paper Mills 35,963
8,000 Hokuriku Bank Ltd 24,740
6,000 Honen Corp 16,061
3,000 House Foods Corp 50,877
25,000 Hyogo Bank Ltd (c)* 2
8,000 INAX Corp 39,239
46,000 Intec Inc 523,901
7,000 Isetan Co Ltd 68,667
11,000 Ishihara Sangyo Kaisha * 28,440
13,000 Itoham Foods Inc 54,468
7,000 Izumiya Co Ltd 67,504
25,000 Japan Airport Terminal Co Ltd 263,946
3,000 Japan Radio Co 26,935
119,000 Japan Synthetic Rubber Co Ltd 910,134
3,000 Japan Wool Textile 17,957
11,000 JGC Corp 46,637
35,000 Joshin Denki Co Ltd 249,938
2,000 Kaken Pharmaceutical Co Ltd 8,330
23,000 Kamigumi Co Ltd 106,119
3,000 Kandenko Co 20,575
7,000 Kaneka Corp 43,528
4,000 Kansai Paint Co Ltd 13,002
7,000 Kao Corp 103,583
3,000 Katokichi Co Ltd 48,632
38,000 Keihin Electric Express Railway Co Ltd 157,320
49,000 Keio Teito Electric Railway Co Ltd 211,821
7,000 Kikkoman Corp 39,571
9,000 Kinden Corp 124,948
2,000 Kissei Pharmaceutical Co Ltd 36,578
16,000 Koito Manufacturing Co Ltd 117,051
59,000 Kokusai Kogyo Co Ltd 350,694
5,000 Kokuyo Co Ltd 119,295
34,000 Komatsu Ltd 211,140
4,000 Komori Corp 84,130
23,000 Konica Corp 132,696
58,000 Koyo Seiko Co Ltd 398,753
44,000 Kumagai Gumi Co Ltd 48,649
123,000 Kurabo Industries Ltd 260,745
14,000 Kuraray Co 124,532
268,000 Kureha Chemical Industry Co Ltd 893,408
4,000 Kyodo Printing Co Ltd 28,598
15,000 Kyowa Hakko Kogyo Co Ltd 87,913
1,000 Kyudenko Corp 6,667
3,000 Kyushu Matsushita Electric 36,412
28,000 Lion Corp 108,006
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
1,900 Mabuchi Motor Co 101,405
66,000 Maeda Corp 288,054
23,000 Maeda Road Construction 149,713
61,000 Makino Milling Machine Co Ltd 424,449
9,000 Makita Corp 123,452
50,000 Marubeni Corp 181,644
3,000 Marudai Food Co Ltd 10,200
2,000 Maruichi Steel Tube 29,096
15,000 Matsushita Electric Works Ltd 162,108
29,000 Matsushita Refrigeration Co 150,437
7,000 Matsuzakaya Co Ltd 41,317
206,000 Mazda Motor Corp * 702,137
7,000 Meiji Seika Kaisha Ltd 31,831
9,000 Mercian Corp 42,048
3,000 Misawa Homes 14,166
32,000 Mitsubishi Gas Chemical Co Inc 121,307
200 Mitsubishi Kasei Corp 524
37,000 Mitsubishi Materials Corp 117,807
80,000 Mitsubishi Oil Co Ltd * 279,325
10,000 Mitsubishi Paper Mills Ltd 26,187
20,000 Mitsubishi Rayon Co Ltd 76,149
6,000 Mitsubishi Steel Manufacturing * 12,021
8,000 Mitsubishi Warehouse & Transportation Co Ltd 93,108
54,000 Mitsuboshi Belting Ltd 172,832
13,000 Mitsui Mining Co Ltd * 19,669
15,000 Mitsui Petrochemical Industries Ltd 51,750
25,000 Mitsui Toatsu Chemicals Inc 48,009
22,000 Mitsui Trust & Banking Co Ltd 126,744
6,000 Mitsui-Soko Co Ltd 27,234
3,000 Mizuno Corp 15,014
5,000 Mori Seiki Co Ltd 61,934
2,000 MOS Food Services 30,094
3,000 Nagase & Co 18,854
60,000 Nagoya Railroad Co Ltd 221,964
2,000 Namco Ltd 67,670
36,000 Nankai Electric Railway Co Ltd 173,581
3,000 National House Industrial 39,155
6,000 NCR Japan Ltd 39,305
23,000 NGK Spark Plug Co 196,941
11,000 NHK Spring Co Ltd 37,859
3,000 Nichicon Corp 37,160
155,000 Nichiei Co Ltd 253,845
16,000 Nichii Co Ltd 182,226
17,000 Nihon Cement Co Ltd 50,594
8,000 Nippon Beet Sugar Manufacturing Co Ltd 18,888
121,000 Nippon Chemi-Con Corp 563,305
5,000 Nippon Comsys 71,078
6,000 Nippon Denko Co Ltd 10,774
</TABLE>
See accompanying 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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
8,000 Nippon Flour Mills Co Ltd 22,479
3,000 Nippon Hodo Co 20,426
13,000 Nippon Kayaku Co Ltd 62,141
12,000 Nippon Light Metal 32,122
8,000 Nippon Meat Packers Inc 96,434
12,000 Nippon Metal Industry Co Ltd 22,446
174,000 Nippon Oil Co Ltd 779,666
7,000 Nippon Paint Co 18,913
13,000 Nippon Piston Ring Co Ltd 27,775
23,000 Nippon Sheet Glass Co Ltd 59,082
7,000 Nippon Shokubai Corp 51,210
17,000 Nippon Suisan Kaisha Ltd * 38,158
9,000 Nippon Synthetic Chemical 19,079
14,000 Nippon Yakin Kogyo Co Ltd * 19,786
27,000 Nishimatsu Construction 159,365
52,000 Nissan Fire & Marine Insurance Co Ltd 229,113
7,000 Nisshin Flour Milling Co Ltd 51,850
7,000 Nisshin Oil Mills Ltd 27,409
28,000 Nisshin Steel Co Ltd 58,193
48,000 Nisshinbo Industries Inc 311,248
66,000 Nissho Iwai Corp 248,549
4,000 Nissin Food Products Co Ltd 93,108
19,000 Nitto Boseki Co Ltd 56,073
59,000 Nitto Denko Corp 1,025,106
35,000 NSK Ltd 181,270
13,000 NTN Corp 60,520
17,000 Okamoto Industries Inc 53,704
17,000 Oki Electric Industry 60,770
8,000 Okumura Corp 44,892
16,000 Olympus Optical Co Ltd 114,124
3,000 Ono Pharmaceutical Co Ltd 93,524
25,000 Onoda Cement Co Ltd 74,611
15,000 Onward Kashiyama Co Ltd 230,693
44,000 Pioneer Electronics Corp 877,879
3,000 Q.P. Corp 24,940
385,000 Renown Inc * 662,524
2,000 Rinnai Corp 37,243
62,000 Royal Co Ltd 1,061,767
10,000 Ryobi Ltd 30,260
2,000 Ryosan Co 40,402
25,000 Sanden Corp 171,461
10,000 Sankyo Aluminum Industry Co Ltd 20,783
35,000 Sanrio Co Ltd * 264,777
11,000 Sanwa Shutter Corp 85,044
145,000 Sanyo Securities Co Ltd * 144,650
13,000 Sapporo Breweries Ltd 92,510
16,000 Seino Transportation Co Ltd 159,614
72,000 Sekisui Chemical Co Ltd 610,525
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
6,000 Settsu Corp * 5,088
2,000 Shimachu Co 45,224
4,000 Shimano Inc 86,125
10,000 Shimazu Corp 43,478
44,000 Shionogi and Co Ltd 296,650
14,000 Shiseido Co Ltd 229,279
13,000 Shokusan Jutaku Sogo Co Ltd * 12,536
134,000 Showa Denko 260,670
8,000 Showa Electric Wire & Cable 20,151
40,000 Showa Shell Sekiyu 277,662
5,000 Skylark Co Ltd 69,416
10,000 Snow Brand Milk Products Co Ltd 41,317
17,000 Stanley Electric Co Ltd 73,065
3,000 Sumitomo Bakelite Co Ltd 20,151
7,000 Sumitomo Coal Mining Co Ltd 15,188
3,000 Sumitomo Forestry Co Ltd 28,930
39,000 Sumitomo Osaka Cement Co Ltd 75,867
22,000 Sumitomo Trust & Banking Co Ltd 213,983
9,000 Sumitomo Warehouse Co Ltd 43,919
6,000 SXL Corp Ltd 25,738
34,000 Taisei Corp 133,976
37,000 Taiyo Yuden Co Ltd 433,702
7,000 Takara Shuzo Co Ltd 40,677
6,000 Takara Standard Co 46,188
4,000 Tanabe Seiyaku Co Ltd 30,127
45,000 Teikoku Oil Co Ltd 172,458
16,000 The Japan Steel Works Ltd * 22,213
9,000 Toagosei Chemical Industry Co Ltd 23,718
64,000 Tobu Railway Co Ltd 260,171
18,000 Toda Corp 100,258
7,000 Toei Co Ltd 37,302
880 Toho Co Ltd 121,440
7,000 Toho Gas Co 14,257
13,000 Tokai Carbon Co Ltd 43,769
7,000 Tokuyama Corp 27,700
18,000 Tokyo Broadcasting System Inc 303,766
113,000 Tokyo Construction Co Ltd 147,485
90,000 Tokyo Electric Co Ltd 323,967
17,000 Tokyo Ink Manufacturing Co Ltd 52,008
43,000 Tokyo Rope Manufacturing Co Ltd 94,729
8,000 Tokyo Sowa Bank Ltd * 26,602
8,000 Tokyo Steel Manufacturing Co 65,242
5,000 Tokyo Style Co Ltd 59,024
13,000 Tokyotokeiba Co Ltd 30,260
84,000 Tokyu Corp 443,428
16,000 Tokyu Department Store Co Ltd 39,904
35,000 Toppan Printing Co Ltd 503,367
28,000 Toshiba Tungaloy Co Ltd 105,911
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
4,000 Tostem Corp 83,465
7,000 Toto Ltd 73,905
19,000 Toyo Engineering Corp 66,340
1,000 Toyo Exterior Co Ltd 9,893
5,000 Toyo Kanetsu (KK) 7,316
9,000 Toyo Seikan Kaisha Ltd 155,624
6,000 Toyo Suisan Kaisha 59,855
10,000 Toyo Trust & Banking Co Ltd 81,470
3,000 Tsubakimoto Chain 16,086
3,000 Tsugami Corp * 6,135
4,000 Tsumura and Co 30,892
4,000 Uniden Corp 56,198
4,000 UNY Co Ltd 73,489
193,000 Victor Co of Japan Ltd 2,342,506
10,000 Wacoal Corp 115,554
4,000 Yakult Honsha Co Ltd 39,239
3,000 Yamaguchi Bank Ltd 42,148
9,000 Yamaha Corp 139,164
10,000 Yamanouchi Pharmaceutical Co Ltd 239,421
5,000 Yamatake Honeywell 86,873
27,000 Yamato Transport Co Ltd 325,464
6,000 Yamazaki Baking Co Ltd 82,800
19,000 Yasuda Trust and Banking Co Ltd 71,078
8,000 Yodogawa Steel Works 43,162
3,000 Yokogawa Bridge Corp 16,086
19,000 Yokogawa Electric Corp 125,414
13,000 Yokohama Rubber Co 37,285
4,000 Yoshitomi Pharmaceutical Industries Lt 26,104
--------------------
41,138,893
--------------------
Malaysia - 1.1%
18,000 Aluminum Co Malaysia 16,052
87,000 Amalgamated Steel Mills Berhad 38,793
28,000 Aokam Perdana Berhad * 15,654
8,000 Ayer Hitam Tin Dredging * 8,506
116,000 Berjaya Group 67,241
69,000 Berjaya Industrial Berhad 32,897
73,000 Berjaya Leisure Berhad (d) 136,460
6,000 Boustead Holdings Berhad 9,600
21,000 Carlsberg Brew Malaysia 79,232
18,000 Cement Industries of Malaysia Berhad 25,683
23,000 DMIB Berhad 12,859
32,000 Ekran Berhad 37,537
37,000 Esso Malaysia Berhad 65,992
20,000 Golden Plus Holdings 20,580
41,000 Guinness Anchor Berhad 70,314
15,000 Hong Leong Industries Berhad 33,185
4,000 Hume Industries Berhad 8,506
42,000 IJM Corp Berhad Class A 45,810
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
31,000 Innovest Berhad 77,620
67,000 IOI Corporation Berhad 60,209
4,000 Jaya Tiasa Holdings Berhad 10,701
42,000 Johan Holdings Berhad 23,481
57,000 Kedah Cement Berhad 56,697
16,000 Kelanamas Industries 14,378
50,000 Kemayan Corporation Berhad 36,700
16,000 Kian Joo Can Factory 47,745
30,000 Kulim Berhad 35,901
45,000 Land & General Berhad 33,802
57,000 Landmark Berhad 36,755
35,000 Leader Universal Holdings 33,733
56,250 Malayan Cement Berhad 68,685
114,000 Malayan United Industries Berhad 58,652
18,000 Malayawata Steel 17,843
76,000 Malaysian Helicopter Berhad 37,798
38,000 Malaysian Mosaics 28,283
19,000 Malaysian Oxygen Berhad 72,989
29,000 Malaysian Pacific Industries 79,077
44,000 Malaysian Plantations 26,561
4,000 Matsushita Electric 23,324
157,000 MBF Holdings Berhad 53,312
104,000 Mulpha International 44,589
23,000 Multi Purpose Holdings 17,908
24,000 New Straits Times 107,014
22,000 Oriental Holdings Berhad 79,232
3,000 OYL Industries Berhad 13,788
101,000 Pan Malaysia Cement 86,953
24,000 Perlis Plantations 59,269
92,000 Pernas International Hotel & Property 47,649
45,000 Petronas Dagangan Berhad 63,282
28,000 Pilecon Engineering Berhad 25,066
35,000 PJ Development Holdings 17,767
73,000 Promet Berhad * 37,307
36,000 RJ Reynolds Berhad 59,269
24,000 Sarawak Enterprises Corp 17,781
33,000 Shell Refinery Co 74,704
36,000 Sime Darby 39,024
23,000 Sistem Television Malaysia 36,920
24,000 Sungei Way Holdings 28,318
70,000 Tan Chong Motor Holdings Berhad 73,950
64,000 Time Engineering Berhad 46,977
16,000 Tractors Malaysia Holdings Berhad 12,787
28,000 UMW Holdings Berhad 75,390
19,000 Uniphone Telecommunications 10,753
32,000 Westmont Industries Berhad 18,110
--------------------
2,752,954
--------------------
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
New Zealand - 0.2%
36,700 Air New Zealand Ltd Class B 99,238
4,500 Ceramco Corp Ltd 4,603
164,500 DB Group Ltd 229,241
15,510 Fernz Corp Ltd 49,078
42,500 Fletcher Challenge Ltd 49,989
14,500 Independent Newspapers Ltd 75,543
25,300 Lion Nathan Ltd 63,883
2,500 Steel and Tube Holdings Ltd 11,507
--------------------
583,082
--------------------
Norway - 0.0%
842 Bona Shipholding Ltd * 10,619
1 SAS Norge ASA Class B 14
--------------------
10,633
--------------------
Singapore - 2.4%
4,200 Asia Food & Properties Ltd Warrants 7/12/02 * 1,365
2,391,000 Chuan Hup Holdings Ltd 1,383,223
25,200 Fraser and Neave Ltd 133,289
494,000 Hai Sun Hup Group Ltd 316,813
16,500 Haw Paw Brothers International Ltd 31,636
1,650 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 1,222
145,000 Hotel Properties Ltd 202,281
122,000 Inchcape Berhad 407,339
226,437 Jardine Strategic Holdings Ltd 837,817
24,000 Natsteel Ltd 65,375
170,000 Neptune Orient Lines Ltd 128,132
94,000 Parkway Holdings Ltd 354,248
97,000 Prima Ltd 287,312
223,000 Robinson and Co Ltd 1,039,438
34,000 Straits Trading Co Ltd 62,942
245,000 Times Publishing Ltd 518,347
46,000 Wearne Brothers Ltd 115,570
--------------------
5,886,349
--------------------
Spain - 4.2%
12,155 Acerinox SA 2,004,380
36,403 Asturiana del Zinc SA * 793,764
9,300 Azucarera de Espana SA 484,483
27,600 Banco Zaragozano SA 713,465
1,125 Bodegas Y Bebidas SA 45,213
15,650 Cristaleria Espanola SA 1,219,841
22,000 Empresa Nacional de Celulosa SA 392,159
40,400 Ercros SA * 43,049
138,100 Espanola de Tubos por Extrusion SA * 400,593
3,500 Fabricacion de Automoviles Renault de Espana SA 72,519
3,783 Grupo Anaya SA 72,161
27,400 Grupo Duro Felguera SA * 342,432
1,010 Koipe SA 67,829
275,820 Sarrio SA 1,023,235
55,799 Tableros Defibras Class B 833,150
167,515 Uralita SA 1,680,329
--------------------
10,188,602
--------------------
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Sweden - 5.6%
4,057 Assi Doman 123,504
8,400 Avesta Sheffield AB 79,710
37,400 Bilspedition AB Class B * 153,393
40,700 Celsius Industrier AB Class B 762,061
1,000 Custos AB Series Class B 21,271
11,742 Diligentia AB * 147,318
3,800 Electrolux AB Class B 271,050
40,700 Enator AB 668,747
1,600 Esselte AB Class A 39,740
1,600 Esselte AB Class B 41,371
21,400 Euroc Industri AB Class A 746,865
1,900 Granges AB 28,557
593 Incentive AB Class A 54,836
897 Industrivarden AB Class A 52,557
952 Industrivarden AB Class C (Bearer) 55,173
2,100 Kinnevik Investment Class B 63,394
57,860 Marieberg Tidnings AB Class A 1,496,071
21,000 Mo Och Domsjo AB Class B 695,457
1,200 Perstorp AB Class B 21,552
2,200 PLM AB 33,907
117,420 Skandinaviska Enskilda Banken Class A 1,263,795
12,600 SKF AB Class B 341,844
6,200 Ssab Swedish Steel Class A 128,723
2,000 Ssab Swedish Steel Class B 41,778
295,400 Stena Line AB Class B * 1,245,421
14,950 Stora Kopparberg Bergslags Class A 238,029
7,150 Stora Kopparberg Bergslags Class B 112,018
3,353 Svedala Industries 72,604
5,600 Svenska Cellulosa Class B 124,469
40,600 Svenska Handelsbanken Class B 1,168,725
4,400 Svenska Kullagerfabriken AB 112,369
64,300 Sydkraft AB Class A 1,556,117
55,600 Sydkraft AB Class C 1,211,013
31,900 Trelleborg AB Class B 491,648
2,650 Volvo AB Class A 67,677
--------------------
13,732,764
--------------------
Switzerland - 7.3%
900 Adia SA (Bearer) 307,469
30,100 Alberta Energy Ltd 669,877
500 Ascom Holding AG (Registered) * 128,365
2,840 Bobst SA (Registered) 2,200,734
500 Danzas Holding AG 98,379
350 Elektrowatt AG (Bearer) 126,647
500 Hero Lenzburg (Registered) 62,329
1,050 Hilti AG, Schaan (Participating Certificate) 721,674
550 Holderbank Financiere Glarus AG (Bearer) 461,406
2,400 Holderbank Financiere Glarus AG (Registered) 426,940
1,160 Kuoni Reisen Holdings AG (Registered) 4,787,575
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland - continued
830 Magazine zum Globus (Participating Certificate) * 595,634
300 Magazine zum Globus (Registered) * 235,504
586 Novartis AG (Bearer) 837,115
4,260 Saurer Group Holdings (Registered) * 3,134,611
190 Schindler Holding AG (Participating Certificate) 240,693
270 Schindler Holding AG (Registered) 345,676
1,216 Sika Finanz AG (Bearer) 389,205
3,300 SMH AG (Registered) 434,723
250 Societe Generale de Surveillance Holdings Ltd (Bearer) 453,152
750 Societe Generale de Surveillance Holdings Ltd (Registered) 262,289
175 Sulzer Gebrueder AG (Registered) 122,991
950 Swiss Bank Corp (Registered) * 229,490
2,150 Swissair AG (Participating Certificate) * 478,084
90 Union Bank of Switzerland (Registered) 17,890
-------------------
17,768,452
-------------------
United Kingdom - 27.2%
119,600 Allied Colloids 221,123
165,700 AMEC 381,600
30,000 Anglian Water Plc 378,285
63,280 Argos Plc 637,830
134,800 Arjo Wiggins Appleton Plc 384,769
1,187,000 ASDA Group 2,772,110
79,100 Associated British Foods 664,513
80,900 Astec (BSR) 167,941
132,790 Barratt Development 552,395
22,060 Bass 295,160
63,500 Beazer Holmes Plc 173,271
102,212 Berisford International 250,309
42,566 Betacomm Plc 31,065
165,000 Blue Circle Industries 1,027,572
28,620 Boots Co 370,631
212,700 British Steel 596,775
102,135 Bunzl Co 389,260
595,125 Burton Group 1,194,402
26,375 Carlton Communications 210,025
332,600 Centrica Plc 477,379
27,700 Charter Plc (Registered) 345,465
89,100 Coats Viyella 171,235
55,848 Cobham Group Plc 692,440
89,502 Costain Group (d) 65,319
41,081 Dawson International 49,303
220,459 English China Clays Plc 833,069
6,200 First Leisure Plc 30,568
77,177 Grand Metropolitan 709,064
133,420 Greenalls Group Plc 1,021,316
16,609 Greycoat Plc 49,294
8,536 Hammerson 64,373
109,620 Hazlewood Foods 238,228
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
449,176 Hillsdown Holdings 1,180,127
25,083 Hyder Plc 339,675
12,618 Hyder Plc Cumulative Redem Preferred Shares 22,101
207,644 Inchcape 915,979
1,702,067 Ladbroke Group 7,149,468
35,334 Laing (John) 214,893
9,309 Laing (John) A (Non Voting) 56,766
1,395,817 Lasmo 5,800,824
88,060 Lex Service 632,674
210,687 London International 563,792
1,146,681 Lonrho 2,296,714
52,634 Marley 94,752
49,948 Meyer International 346,299
131,200 Mirror Group Plc 431,944
175,023 National Grid Holdings Plc 753,912
200,497 Norcros Plc 224,365
114,085 Northern Foods Plc * 403,350
44,480 Ocean Group 405,774
211,300 Peninsular & Oriental Steam Navigation Co 2,227,461
293,800 Pilkington * 693,285
19,600 Powergen 247,941
127,000 Racal Electronics 462,400
24,400 Rank Group Plc 140,085
92,634 Reckitt & Colman 1,430,226
38,300 Redland 180,133
221,800 Rexam Plc 1,062,959
666,902 Rolls-Royce 2,530,901
61,150 Safeway Plc 371,899
59,526 Sainsbury (J) 416,084
54,000 Scottish Hydro-Electric Plc 390,594
5,074 Scottish & Newcastle Plc 59,578
354,500 Sears 362,205
85,597 Securicor Plc 365,100
33,440 Severn Trent Plc 474,539
64,900 Siebe Plc 1,131,489
7,828,760 Signet Group (e) -
412,040 Signet Group Plc 210,498
110,825 Simon Engineering 68,300
45,716 Southwest Water 599,069
37,242 Storehouse Plc 138,314
302,606 T & N 787,680
1,399,864 Tarmac 2,690,305
831,680 Taylor Woodrow Plc 2,508,803
65,300 Thames Water 836,109
251,500 Tomkins Plc 1,219,569
117,600 Transport Development Group 317,555
261,263 United Biscuits 874,974
132,900 United Utilities 1,485,051
900 Vendome Luxury Group Plc Units 6,711
</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)
August 31, 1997 - (Unaudited)
<TABLE>
<CAPTION>
Par Value/
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
96,926 Viglen Technology 102,177
84,800 Waste Management International 341,071
96,400 Wessex Water Plc 742,622
109,410 Whitbread Plc Class A 1,431,063
128,180 Wilson (Connolly) Holdings 359,636
622,535 Wimpey (George) 1,342,804
5,368 Wolseley 38,741
45,900 Yorkshire Water Plc 326,050
-------------------
66,253,479
-------------------
TOTAL STOCK AND EQUIVALENTS (Cost $211,610,064) 222,414,782
-------------------
DEBT OBLIGATION - 0.1%
United Kingdom - 0.1%
GBP 157,989 Viglen Tech Floating Rate Notes, 6.75% due 9/1/2000 299,273
-------------------
TOTAL DEBT OBLIGATION (Cost $178,828) 299,273
-------------------
SHORT-TERM INVESTMENTS - 15.1%
Cash Equivalents - 12.9%
$ 8,500,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 8,500,000
13,827,112 The Boston Global Investment Trust (b) 13,827,112
$ 9,000,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 9,000,000
-------------------
31,327,112
-------------------
U.S. Government - 2.2%
$ 5,550,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 5,448,571
-------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $36,773,122) 36,775,683
-------------------
TOTAL INVESTMENTS - 106.4%
(Cost $248,562,014) 259,489,738
Other Assets and Liabilities (net) - (6.4%) (15,604,241)
-------------------
TOTAL NET ASSETS - 100.0% $ 243,885,497
===================
</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) Represents investment of security lending collateral
(Note 1).
(c) Bankrupt issuer.
(d) Valued by management (Note 1).
(e) Pending corporate action, quantification of rate per
share to be determined.
* Non-income producing security.
20 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 - (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1997, industry sector diversification of the
Fund's equity investments was as follows:
<TABLE>
<CAPTION>
Industry Sector
<S> <C>
Services 13.0 %
Construction 9.9
Machinery 8.0
Retail Trade 5.8
Consumer Goods 5.8
Conglomerates 5.5
Oil and Gas 5.3
Transportation 4.0
Metals and Mining 4.0
Paper and Allied Products 3.4
Real Estate 3.2
Utilities 3.1
Communications 2.9
Chemicals 2.5
Banking 2.4
Health Care 2.4
Food and Beverage 2.4
Electronic Equipment 2.0
Aerospace 2.0
Telecommunications 2.0
Automotive 1.6
Textiles 1.4
Computers 0.5
Financial Services 0.4
Insurance 0.2
Miscellaneous 6.3
--------------
100.0 %
==============
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $248,562,014) (Note 1) $ 259,489,738
Foreign currency, at value (cost $1,554,398) (Note 1) 1,541,228
Cash 83,825
Receivable for investments sold 324,360
Dividends and interest receivable 279,562
Receivable for open forward foreign currency contracts (Notes 1 and 5) 895,617
Receivable for variation margin on open futures contracts (Notes 1 and 5) 445,590
Foreign withholding taxes receivable 93,963
Receivable for expenses waived or borne by Manager (Note 2) 169,401
--------------
Total assets 263,323,284
--------------
Liabilities:
Payable for open forward foreign currency contracts (Notes 1 and 5) 2,659,231
Payable upon return of securities loaned (Note 1) 13,827,112
Payable for fund shares repurchased 1,072,232
Payable for investments purchased 1,429,542
Payable to affiliate for (Note 2):
Management fee 262,754
Shareholder service fee 31,530
Accrued expenses 155,386
--------------
Total liabilities 19,437,787
--------------
Net assets $ 243,885,497
===============
Net assets consist of:
Paid-in capital $ 218,976,717
Accumulated undistributed net investment income 2,451,312
Accumulated net realized gain 12,217,970
Net unrealized appreciation 10,239,498
--------------
$ 243,885,497
==============
Net assets attributable to Class III Shares $ 243,885,497
==============
Shares outstanding - Class III 17,418,562
==============
Net asset value per share - Class III $ 14.00
==============
</TABLE>
22 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $420,358) $ 3,340,334
Interest (including securities lending income of $59,745) 662,844
---------------
Total income 4,003,178
---------------
Expenses:
Management fee (Note 2) 1,481,188
Custodian fees 145,176
Audit fees 33,120
Transfer agent fees 15,180
Stamp duties and transfer taxes 7,728
Legal fees 5,246
Registration fees 1,932
Trustees fee (Note 2) 1,104
Miscellaneous 1,380
Fees waived or borne by Manager (Note 2) (973,354)
---------------
718,700
Shareholder service fee - Class III (Note 2) 177,748
---------------
Net expenses 896,448
---------------
Net investment income 3,106,730
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 12,765,161
Closed futures contracts 2,530,067
Foreign currency, forward contracts and foreign
currency related transactions (941,705)
---------------
Net realized gain 14,353,523
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (6,686,748)
Open futures contracts (945,517)
Foreign currency, forward contracts and foreign
currency related transactions (1,555,434)
---------------
Net unrealized loss (9,187,699)
---------------
Net realized and unrealized gain 5,165,824
---------------
Net increase in net assets resulting from operations $ 8,272,554
===============
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
--------------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,106,730 $ 4,054,564
Net realized gain (loss) 14,353,523 (6,729,282)
Change in net unrealized appreciation (depreciation) (9,187,699) 15,655,726
------------------ ----------------
Net increase in net assets resulting from operations 8,272,554 12,981,008
------------------ ----------------
Distributions to shareholders from:
Net investment income - Class III - (1,160,606)
Net realized gains - Class III - (3,372,778)
In excess of net realized gains - Class III - (30,591)
------------------ ----------------
- (4,563,975)
------------------ ----------------
Net share transactions - Class III (Note 4) (39,861) 8,272,041
------------------ ----------------
Total increase in net assets 8,232,693 16,689,074
Net assets:
Beginning of period 235,652,804 218,963,730
------------------ ----------------
End of period (including accumulated undistributed
net investment income of $2,451,312 and
distributions in excess of net investment income of
$655,418, respectively) $ 243,885,497 $ 235,652,804
================== ================
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------
(Unaudited) 1997 1996
----------- ----------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.46 $ 12.95 $ 11.95
----------- ----------- --------------
Income (loss) from investment operations:
Net investment income 0.18 0.23 0.18
Net realized and unrealized gain (loss) 0.36 0.55 1.16
----------- ----------- --------------
Total from investment operations 0.54 0.78 1.34
----------- ----------- --------------
Less distributions to shareholders from:
Net investment income - (0.07) (0.17)
In excess of net investment income - (0.02)
Net realized gains - (0.20) (0.15)
In excess of net realized gains - (0.00) -
----------- ----------- --------------
Total distributions - (0.27) (0.34)
----------- ----------- --------------
Net asset value, end of period $ 14.00 $ 13.46 $ 12.95
=========== =========== ==============
Total Return (a) 4.01% 5.99% 11.43%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 243,885 $ 235,653 $ 218,964
Net expenses to average
daily net assets 0.76%*(c) 0.76%(c) 0.76%(c)
Net investment income to average
daily net assets 2.62%* 1.75% 1.84%
Portfolio turnover rate 18% 13% 13%
Average broker commission rate per equity share (b) $ 0.0075 $ 0.0015 N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.06 $ 0.10 $ 0.07
<CAPTION>
Year Ended February 28/29,
-------------------------------------------------
1995 1994 1993
----------- ------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.45 $ 8.91 $ 9.62
----------- ------------- --------------
Income (loss) from investment operations:
Net investment income 0.18 0.15 0.35
Net realized and unrealized gain (loss) (1.52) 5.59 (0.68)
----------- ------------- --------------
Total from investment operations (1.34) 5.74 (0.33)
----------- ------------- --------------
Less distributions to shareholders from:
Net investment income (0.20) (0.12) (0.38)
In excess of net investment income - - -
Net realized gains (0.96) (0.08) -
In excess of net realized gains - - -
----------- ------------- --------------
Total distributions (1.16) (0.20) (0.38)
----------- ------------- --------------
Net asset value, end of period $ 11.95 $ 14.45 $ 8.91
=========== ============= ==============
Total Return (a) (9.66%) 64.67% (3.30%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 186,185 $ 132,645 $ 35,802
Net expenses to average
daily net assets 0.76%(c) 0.75% 0.75%
Net investment income to average
daily net assets 1.45% 1.50% 4.02%
Portfolio turnover rate 58% 38% 20%
Average broker commission rate per equity share (b) N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.08 $ 0.09 $ 0.09
</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 periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund
is required to disclose its average commission rate per share
for security trades on which commissions are charged. The
average broker commission rate will vary depending on the
markets in which trades are executed.
(c) Includes stamp duties and taxes not waived or borne by the
Manager, which approximate .01% of average daily net assets.
See accompanying notes to the financial statements. 25
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Small Companies Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into
classes.
The Fund seeks maximum total return through investment primarily in equity
securities of small capitalization foreign companies traded on a major
stock exchange of a foreign country.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets
invested with GMO, as more fully described in the Trust's prospectus.
Class III shares are the continuation of the Trust's shares that existed
prior to June 1, 1996, and bear the same total operating expenses (after
the voluntary expense waiver) as those shares. At August 31, 1997, Class
III was the only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost
which approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
26
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the prevailing
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at prevailing exchange rates when
accrued or incurred. The Fund does not isolate realized and unrealized
gains and losses attributable to changes in exchange rates from gains and
losses that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss
on investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains and losses on disposition of
foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions and the difference
between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities.
A forward currency contract is an agreement between two parties to buy
and sell a currency at a set price on a future date. The market value of
a forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or
loss. Realized gains or losses equal to the difference between the value
of the contract at the time it was opened and the value at the time it
was closed are recorded upon delivery or receipt of the currency or, if a
forward currency contract is offset by entering into another forward
currency contract with the same broker, upon settlement of the net gain
or loss. These contracts may involve market risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. In addition, the Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the
value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy and sell is
shown under Note 5, and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1997.
27
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Futures contracts
The Fund may purchase or sell index futures contracts. Stock index
futures contracts represent commitments for future delivery of cash based
upon the level of a specified index of equity securities at a specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock and currency markets. Buying futures tends to
increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying
instrument or hedge other Fund instruments. Upon purchase of a futures
contract, the Fund is required to deposit with its custodian, in a
segregated account in the name of the futures broker, an amount of cash
or U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is subsequently settled. Gains or losses are recognized but
not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument,
if there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 5 for all open
futures contracts held as of August 31, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated
by another instrument. The Fund may enter into swap agreements to manage
its exposure to the equity markets. The Fund enters into equity swap
agreements which involve a commitment by one party in the agreement to
pay interest in exchange for a market linked return based on a notional
amount. To the extent that the total return of the security or index
underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. Equity swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement
period are recorded as realized gain or loss in the Statement of
Operations. Entering into these agreements involves, to varying degrees,
elements of credit and market risk in excess of the amounts recognized on
the Statement of Assets and Liabilities. Such risks involve the
possibility that there is no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform
or that there may be unfavorable changes in the price of the security or
index underlying these transactions. There were no open swap agreements
as of August 31, 1997.
28
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund loaned securities
having a market value of $13,484,347 collateralized by cash in the amount
of $13,827,112, which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss
carryovers for federal income tax purposes. Therefore, no provision for
federal income or excise tax is necessary. Taxes on foreign interest and
dividend income have been withheld in accordance with the applicable
country's tax treaty with the United States. Dividends received by
shareholders of the Fund which are derived from foreign source income and
foreign taxes paid by the Fund are to be treated, to the extent allowable
under the Code, as if received and paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes
are classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual
basis, and is adjusted for the accretion of discounts. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
29
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.00% of the amount
invested. In the case of cash redemptions, the fee is .60% of the amount
redeemed. Prior to June 1, 1996, the premium on cash purchases and fee on
cash redemptions was 1.25% and .75% of the amount invested or redeemed,
respectively. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the six months ended August
31, 1997, the Fund received $229,673 in purchase premiums and $158,655 in
redemption fees. There is no premium for reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of 1.25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .28% for Class I shares, .22% for Class II
shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including
the management fee but excluding brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees, and extraordinary expenses) exceed .60% of average daily net
assets. Prior to June 1, 1996, a similar waiver existed for annual
expenses exceeding .75%; thus, the net annual expense ratio after the
waiver for a Class III shareholder is unchanged.
30
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $1,104. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $38,429,740 and $40,412,803, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$248,562,014 $38,893,850 $27,966,126 $10,927,724
</TABLE>
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>
Six Months Ended Year Ended
Class III: August 31, 1997 February 28, 1997
---------------------------------------- -----------------------------------------
Shares Amount Shares Amount
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Shares sold 1,918,864 $ 27,683,118 1,509,544 $ 20,156,083
Shares issued to shareholders
in reinvestment of
distributions - - 302,311 4,040,065
Shares repurchased (2,009,194) (27,722,979) (1,205,784) (15,924,107)
----------------- ------------------ ------------------ ------------------
Net increase/(decrease) (90,330) $ (39,861) 606,071 $ 8,272,041
================= ================== ================== ==================
</TABLE>
31
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
---------------- --------------------- ----------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
Buys
9/12/97 ATS 39,491,490 $ 3,118,454 $ (208,546)
11/07/97 ATS 8,240,994 653,019 (28,981)
12/05/97 AUD 8,789,859 6,467,871 (46,373)
11/07/97 BEF 301,061,320 8,128,152 (294,324)
12/05/97 CAD 2,579,424 1,867,440 (18,560)
11/07/97 DEM 4,729,813 2,638,766 (140,860)
11/07/97 ESP 1,504,580,628 9,898,720 (460,623)
11/07/97 FRF 83,337,501 13,796,419 (534,280)
12/05/97 HKD 17,659,468 2,262,903 (12,268)
9/12/97 IEP 1,595,930 2,370,860 (60,140)
11/07/97 NLG 2,842,678 1,408,434 (55,566)
9/12/97 NOK 18,927,026 2,539,453 (167,547)
11/07/97 NOK 52,216,563 7,024,965 (269,690)
11/07/97 SEK 105,016,001 13,401,508 (192,612)
------------------
$ (2,490,370)
==================
Sales
9/12/97 AUD 2,320,727 $ 1,705,378 $ 94,622
12/05/97 AUD 6,344,405 4,672,077 97,168
11/07/97 CAD 7,763,351 5,614,574 (19,568)
</TABLE>
32
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - 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 - continued
11/07/97 CHF 7,888,786 $ 5,360,091 $ 204,405
11/07/97 FRF 31,621,093 5,236,364 164,335
9/12/97 GBP 5,156,051 8,360,595 70,405
11/07/97 GBP 5,119,475 8,281,264 (149,293)
11/07/97 HKD 10,820,117 1,389,927 6,073
12/05/97 HKD 134,784,236 17,287,196 73,259
11/07/97 NOK 14,841,173 1,998,677 35,475
9/12/97 NZD 877,561 560,881 45,119
11/07/97 SEK 68,950,680 8,808,437 104,756
------------------
$ 726,756
==================
</TABLE>
Currency Abbreviations
ATS Austrian Schilling GBP British Pound
AUD Australian Dollar HKD Hong Kong Dollar
BEF Belgian Franc IEP Irish Punt
CAD Canadian Dollar NLG Netherlands Guilder
CHF Swiss Franc NOK Norwegian Kroner
DEM German Mark NZD New Zealand Dollar
ESP Spanish Peseta SEK Swedish Krona
FRF French Franc
33
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Futures Contracts
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Number of Contracts Type Expiration Date Contract Value (Depreciation)
---------------------- ------------ --------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Buys
14 All-Ords September 1997 $ 659,867 $ (23,007)
128 CAC- 40 September 1997 11,695,320 (276,515)
90 GXU7 September 1997 19,623,364 98,797
19 MIB 30 September 1997 2,300,238 (107,889)
4 TOPIX September 1997 473,522 (28,265)
39 TXM 7 September 1997 4,866,398 (159,444)
-------------------
$ (496,323)
===================
Sells
68 Hang Seng September 1997 $ 6,098,851 $ 770,819
80 IBEX September 1997 3,439,847 132,198
214 OMX INDEX September 1997 6,599,125 492,132
30 FTSE 100 September 1997 5,867,680 196,645
-------------------
$ 1,591,794
===================
</TABLE>
At August 31, 1997 the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
34
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 95.1%
Australia - 5.0%
178,341 Adelaide Brighton Ltd 248,212
421,300 Advance Property Fund 467,230
75,400 Amalgamated Holdings Ltd 384,874
83,000 Amcor Ltd 502,305
3,114,275 Australia and New Zealand Banking Group Ltd 22,369,591
110,000 Australian Gas & Light 692,366
1,175,334 Australian National Industries Ltd 1,346,630
3,467,667 Boral Ltd 10,110,907
113,100 Broken Hill Proprietary Ltd 1,418,772
1,131,740 Burns Philp & Co Ltd 1,986,583
263,569 Caltex Australia Ltd 768,506
86,050 Capcount Property Trust 58,775
239,800 Capital Property Trust 394,511
421,800 Capral Aluminum Ltd 1,347,591
133,900 Coca-Cola Amatil Ltd 1,364,999
3,573,987 Coles Myer Ltd 16,639,335
112,700 Comalco Ltd 562,853
207,187 Commonwealth Bank of Australia 2,288,614
528,162 Consolidated Rutile Ltd * 271,536
118,789 Cortecs International Ltd * 392,601
19,400 Coventry Group Ltd 79,078
89,300 CRA Ltd 1,318,942
97,100 CSL Ltd 606,178
3,545,496 CSR Ltd 12,551,230
751,600 Cultus Petroleum * 1,854,762
326,191 Email Ltd 1,003,802
99,253 Emperor Mines Ltd * 70,709
54,382 Energy Resources of Australia Class A 213,684
3,900 Faulding (FH) & Co Ltd 21,769
304,631 Foodland Associated 2,171,360
3,213,772 Fosters Brewing Group Ltd 6,066,112
56,990 G E Crane Holdings Ltd 596,452
1,036,428 General Property Trust Units 1,864,951
3,703,131 Goodman Fielder Ltd 5,303,541
672,307 Hardie (James) Industries Ltd 2,286,182
138,151 HIH Winterthur International Holdings 330,776
81,300 Incitec Ltd 355,279
176,000 Jupiters Ltd 411,057
92,500 KLZ Ltd 197,016
6,200 Mayne Nickless Ltd 35,427
120,780 Metal Manufactures Ltd 248,379
2,349,679 MIM Holdings Ltd 2,812,926
250,588 Mirvac Ltd 530,048
59,994 Mount Leyshon Gold Mines 72,703
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
482,870 National Australia Bank Ltd 6,702,769
260,800 National Mutual Property Trust 210,699
6,983,807 News Corp Ltd 31,452,604
2,981,736 News Corp Ltd Preferred 1.19% 11,365,768
153,411 Normandy Mining Ltd 185,910
303,639 North Broken Hill Peko Ltd 1,022,044
1,615,360 Pacific Dunlop Ltd 4,152,404
126,600 Pasminco Ltd 229,013
4,842,670 Pioneer International Ltd 16,289,681
400,221 PMP Communications Ltd 961,191
121,600 Portman Mining Ltd 283,110
903,679 Qantas Airways Ltd 1,977,847
3,300 QBE Insurance Group Ltd 17,887
535,682 QCT Resources Ltd 625,556
22,692 QNI Ltd 34,166
147,607 Rothmans Holdings Ltd 779,142
1,444,092 Santos Ltd 6,862,169
1,513,239 Schroders Property 2,489,532
228,069 Sea World Property Trust 234,507
11,300 Seven Network Ltd 45,646
145,640 Simsmetal Ltd 1,069,653
3,400 Smith (Howard) Ltd 31,092
381,800 Southcorp Holdings Ltd 1,317,941
239,892 Stockland Trust Group 599,042
115,600 Sydney Harbour Casinos Preferred * 157,070
155,484 Ticor Ltd * 91,356
18,199 W H Soul Pattison & Co Ltd 588,115
296,148 Walker Corp 252,307
37,500 Western Mining Corp Holdings Ltd 190,039
79,500 Westfarmers Ltd 772,484
1,330,708 Westfield Trust Units 2,492,213
671,691 Westpac Banking Corp 3,892,322
173,200 Westpac Property Trust 218,796
82,700 Woodside Petroleum Ltd 662,055
------------------
202,875,284
------------------
Austria - 1.2%
78,980 Austrian Airlines * 1,864,081
47,014 Bank Austria AG (Participating Certificate) 1,332,288
44,265 Bau Holding AG Preferred 2.42% (Non Voting) 2,152,374
54,007 Brau Union AG 3,031,924
80,638 Creditanstalt-Bankverein 4,952,174
60,861 Creditanstalt-Bankverein Preferred 1.65% 2,978,086
6,426 EA-Generali AG 1,514,124
33,029 EVN Energie-Versorgung Niederoesterreich AG 3,949,886
59,556 OEMV AG 7,869,688
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Austria - continued
20,516 Oesterreichische Brau Beteiligungs AG 1,085,036
101,814 Oesterreichische Elektrizitaetswirtschafts AG 6,926,128
114,581 Oesterreichische Laenderbank AG 5,698,095
38,638 Oesterreichische Laenderbank AG Preferred (Non Voting) 1,479,220
59,382 Radex-Heraklith AG 2,292,135
11,248 RAS Versicherungs AG 1,345,131
10,948 Wienerberger Baustoffindustrie AG 2,125,918
------------------
50,596,288
------------------
Canada - 2.8%
115,319 Abitibi-Price Inc 2,018,259
91,300 Anderson Exploration Ltd * 1,137,592
46,400 Avenor Inc 868,883
51,500 BC Telecom Inc 1,238,863
254,604 BCE Inc 7,215,721
42,400 Biochem Pharma Inc * 1,099,355
3,100 Bombardier Inc Class A 61,176
192,400 Bombardier Inc Class B 3,734,510
37,500 Canadian Hotel Inc 1,854,136
8,012 Canadian Imperial Bank of Commerce 207,448
18,900 Canadian Natural Resources * 486,640
147,200 Canadian Tire Corp Ltd Class A 2,761,756
53,000 Canfor Corp 572,581
149,011 Cominco Ltd 3,863,586
16,500 Cott Corp 157,460
227,600 Dofasco Inc 4,639,044
396,418 Domtar Inc 3,283,379
88,700 Donohue Inc Class A 2,018,740
83,400 Edperbrascan Corp Class A Ltd (Voting Shares) 1,417,581
5,500 Extendicare (Voting Shares) * 87,148
157,307 Fletcher Challenge Canada Ltd Class A 2,690,800
190,402 Gulf Canada Resources Ltd * 1,556,457
17,900 Hollinger Inc 164,374
59,010 Hudsons Bay Co 1,487,522
136,400 Imasco Ltd 3,875,530
110,107 Imperial Oil Ltd 6,066,611
100,000 Inco Ltd 2,704,455
149,500 Inmet Mining Ltd * 839,857
110,735 Laidlaw Inc 1,619,014
339,919 Macmillan Bloedel Ltd 4,259,851
19,300 Magna International Class A 1,278,836
49,400 MDS Inc Class B 1,031,798
297,000 Methanex Corp * 2,492,023
82,100 Molson Co Ltd, Class A 1,507,832
118,000 Moore Corporation Ltd 2,371,133
121,500 Newbridge Networks Corp * 5,534,859
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
98,202 Norcen Energy Resource 2,365,845
420,100 Nova Corp of Alberta 3,555,169
129,100 Nova Scotia Power Inc 1,338,932
19,100 Pegasus Gold Inc * 81,162
11,400 Potash Corp of Saskatchewan 844,460
57,000 Provigo Inc * 312,003
39,800 Quebecor Inc Class B 742,425
59,500 Ranger Oil Ltd 572,095
66,100 Rogers Cantel Mobile Communications Class B * 1,321,095
135,600 Seagram Ltd 4,736,649
6,900 Slocan Forest Products Ltd 58,889
3,600 Southam Inc 66,117
3,600 Spar Aerospace Ltd 28,391
45,100 Suncor Energy Inc 1,414,603
93,106 Teck Corp Class B 1,743,495
119,500 Telus Corp 2,375,455
42,900 Thomson Corp 977,914
47,600 Total Petroleum North America 471,389
251,700 Transalta Corp 3,136,166
184,100 Transcanada Pipelines Ltd 3,447,441
73,401 United Dominion Inds Ltd 1,995,670
1 Westaim Corp * 5
181,100 Westcoast Energy Inc 3,463,002
14,300 Weston George Ltd 966,585
------------------
114,219,767
------------------
Finland - 0.3%
13,000 Cultor OY Class 1 659,606
341,000 Enso OY Class A 2,988,524
22,638 Instrumentarium OY, Class A 760,183
7,891 Instrumentarium OY, Class B 232,949
41,100 Kesko OY 530,822
37,100 Metra AB Class A 1,115,759
16,800 Metra AB Class B 468,053
76,000 Partek OY 1,388,217
187,494 Rautaruukki OY 1,857,678
2,000 Stockmann AB Class A 110,703
700 Stockmann AB Class B 36,938
90,100 Valmet OY 1,306,640
------------------
11,456,072
------------------
France - 8.8%
37,749 Accor SA 5,663,439
11,947 Air Liquide L Shares 1,829,818
58,431 Alcatel Alsthom Cie Generale d'Electricite SA 7,167,202
300,591 Assurances Generales De France (Bearer) 10,753,977
443,293 Banque Nationale de Paris 18,928,841
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
36,642 Bertrand Faure SA 1,788,151
41,560 Bouygues 3,330,007
14,554 Canal Plus 2,349,084
2,085 Carrefour 1,258,459
73,878 Casino Guichard-Perrachon 3,678,370
58,929 Cerus * 340,040
17,628 CGIP 4,940,664
173,541 Cie Bancaire SA 19,140,867
26,888 Ciments Francais 1,006,277
18,016 Club Mediterranee SA * 1,445,023
136,499 Credit Commercial de France 6,767,002
53,837 Credit Local de France SA 4,650,991
159,043 Credit Lyonnais * 8,600,462
33,582 Credit National 1,993,161
287,130 Elf Aquitaine SA 31,953,301
241 Elf Gabon 55,308
13,772 Elf Sanofi SA 1,323,729
50,158 Eridania Beghin-Say SA 6,532,820
660,500 Euro Disney SCA (Bearer) * 936,493
1,497,128 Eurotunnel SA Units (Bearer) * 1,740,129
159,353 Financiere de Paribas SA 10,992,217
113,942 FINEXTEL 1,927,368
143,199 GAN (Group Assurances National) * 3,305,228
2,305 Gaz Et Eaux 986,147
60,617 Generale Des Eaux 6,775,752
24,647 Generale Des Eaux Warrants 5/2/2001 * 13,816
49,500 Groupe Danone 7,377,463
5,158 Labinal SA 1,233,056
324,474 Lafarge Coppee SA 20,970,045
33,240 Lagardere Groupe 890,528
70,478 Lyonnaise Des Eaux 7,099,507
174,420 Michelin SA Class B 9,805,823
53,266 Nord-Est 1,049,425
140,507 Peugeot SA 15,775,330
6,690 Pinault Printemps Redoute 2,858,871
128,430 Renault SA * 3,260,773
542,468 Rhone Poulenc SA Class A 19,926,118
104,856 Saint-Gobain 14,417,592
66,730 Seita 2,057,293
79,180 SGS Thomson Microelectronics * 7,323,383
21,630 Societe Eurafrance 8,201,962
212,770 Societe Generale Paris 26,449,358
85,516 Sommer Allibert 3,038,282
138,511 SPIE Batignolles 7,382,838
12,360 Synthelabo 1,493,674
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
France - continued
13,180 Technip SA (Compagnie Francaise) 1,594,942
110,983 Thomson CSF 2,984,309
131,520 Total SA 12,337,792
182,820 Usinor Sacilor 3,173,843
21,622 Vallourec 1,290,440
95,605 Worms et Compagnie SA 5,212,526
------------------
359,379,316
------------------
Germany - 8.0%
52,750 Adidas AG 6,373,427
218,445 AGIV AG * 5,096,625
376,250 Bankgesellschaft Berlin AG 9,238,258
581,600 BASF AG 19,998,911
422,950 Bayer AG 15,603,205
196,550 Bayerische Hypotheken und Wechsel - Bank AG 7,206,233
850 Bayerische Motorenwerke AG 604,394
153,140 Berliner Kraft & Licht Class A 3,211,418
321,895 BHF Bank AG 8,985,487
4,650 Brau und Brunnen * 369,386
817,166 Continental AG 19,882,716
34,936 Deutsche Babcock & Wilcox * 2,222,133
1,750 DLW AG * 179,749
365,900 Douglas Holdings AG 12,785,107
38,440 Draegerwerk AG Preferred 811,444
303,828 FAG Kugelfischer 5,535,960
34,050 Fresenius AG Preferred .82 (Non Voting) 6,620,282
11,550 Friedrich Krupp AG 2,476,627
28,750 Gerresheimer Glas AG 367,331
6,537 Hamburgische Electricitaets-Werke AG 1,597,800
46,655 Heidelberg Port-Zement 3,485,875
165,350 Henkel KGAA Preferred 8,367,850
28,250 Hochtief AG 1,333,917
394,563 Klockner Humboldt Deutz * 3,254,874
21,714 Klockner-Werke AG * 1,411,292
17,000 Kolbenschmidt * 259,701
2,464,550 Lufthansa AG 49,560,709
23,400 MAN AG 6,434,464
435,172 Metallgesellschaft * 9,790,554
97,800 Phoenix AG 1,711,357
7,066 Porsche AG Preferred (Non Voting) .12% 10,205,594
11,050 Preussag AG 3,109,088
69,550 Puma AG Preferred 1,734,742
164,000 RWE Preferred 6,331,695
172,609 Schering AG 16,847,152
61,550 Schwarz Pharma AG 4,523,548
274,950 Siemens AG 16,908,016
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
291,642 SKW Trostberg AG 9,720,590
5,450 Strabag Bau AG * 427,487
1,100 Suedzucker AG 504,125
10,700 Thyssen AG 2,466,739
240,200 Veba AG 13,076,466
52,850 Viag AG 22,004,319
5,274 Villeroy and Boch AG * 846,699
------------------
323,483,346
------------------
Hong Kong - 9.3%
1,990,000 Allied Group Ltd * 558,556
18,490,000 Allied Properties Ltd 4,438,173
3,617,200 Allied Properties Ltd Warrants 7/3/00 * 396,776
10,851,500 Amoy Properties Ltd 10,922,919
418,000 ASM Pacific Technology 302,078
13,322,000 Cathay Pacific Airways Ltd 21,661,789
3,470,500 Century City International 1,074,874
224,000 Champion Technology Holdings 63,595
1,241,600 Champion Technology Holdings Warrants 6/30/98 * 201,886
2,287,000 Cheung Kong Holdings 24,274,842
2,944,500 China Light & Power Co 13,641,444
7,770,000 China Overseas Land & Investment Ltd 5,715,447
1,394,122 Chinese Estates Holdings Ltd 1,241,378
3,470,000 CP Pokphand Co 1,130,694
4,000 Dah Sing Financial Services 16,725
1,193,800 Dao Heng Bank 5,083,933
1,129 Denway Investments * 299
769,766 Dickson Concept International Ltd 2,920,521
3,341,300 Elec & Eltek International Holdings Ltd 1,142,656
276,100 Furama Hotel Enterprises Ltd 1,150,862
1,094,000 Gold Peak Industry 656,485
293,200 Gold Peak Industry Warrants 12/31/25 * * 28,378
4,124,509 Great Eagle Holdings Ltd 12,055,766
1,452,700 Guoco Group 5,642,827
9,756,700 Hang Lung Development Co Ltd 17,627,281
176,000 Harbour Centre Development Ltd 272,551
14,630,000 Henderson Investment Ltd 15,481,481
3,362,000 Henderson Land Development Co Ltd 27,875,661
2,263,280 HKR International Ltd 2,891,531
648,700 Hong Kong Ferry Co Ltd 1,268,268
65,186 Hong Kong Land Holdings 188,388
1,299,600 Hongkong Aircraft Engineering Co Ltd 4,276,655
7,412,800 Hongkong Electric Holdings Ltd 25,972,063
1,223,000 Hysan Development Co Ltd 3,551,103
26,000 Innovative International 8,556
403,324 Jardine Strategic Warrants 5/02/98 * 177,463
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
25,740 Johnson Electric Holdings Ltd 57,798
4,310,622 Kumagai Gumi Hong Kong Ltd 8,093,890
2,468,800 Lai Sun Development 2,453,189
828,700 Lai Sun Garment International Ltd 999,916
585,855 Lai Sun Hotel International Warrants 4/30/99 * 42,338
71,887 Leading Spirit Warrants 12/31/99 * 32,933
826,000 Liu Chong Hing Bank Ltd 2,201,174
1,386,000 Liu Chong Hing Investment Ltd 1,940,650
1,422,462 Mandarin Oriental 1,593,157
1,589,800 New Asia Realty & Trust A Shares 5,826,600
3,738,467 New World Development Co Ltd 23,350,342
1,263,000 Oriental Press Group 435,995
729,000 Oriental Press Group Warrants 10/2/98 * 28,223
18,000 Pacific Concord Holdings Ltd 10,976
4,120,000 Paul Y- ITC Construction Holdings Ltd 1,222,867
112,000 Realty Development Corp Ltd Class A 430,714
49,650,371 Regal Hotels International Ltd 13,615,568
1,172,000 Shanghai Petrochemical Co Class H 487,766
368,000 Shangri LA Asia 377,546
1,219,000 Shaw Brothers Ltd 1,211,292
449,000 Shell Electric Co Ltd 252,052
7,983,000 Shun Tak Holdings Ltd 4,507,114
9,975,000 South China Morning Post Ltd 7,981,030
2,791,000 Sun Hung Kai Properties Ltd 31,695,445
1,185,600 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 325,126
595,000 Swire Pacific Ltd Class A 4,549,458
4,297,500 Swire Pacific Ltd Class B 6,239,112
1,235,907 Tai Cheung Holdings Ltd 917,082
24,000 Texwinca Holdings Ltd 17,499
3,936,000 Wharf Holdings Ltd 14,247,619
11,974,800 Wheelock & Co Ltd 24,879,892
165,804 Wing Lung Bank 1,016,349
279,900 Winsor Industrial Corp Ltd 79,466
183,550 Winsor Properties Holdings Ltd 293,718
68,000 World Trade Centre Group Ltd 32,030
2,667,000 Yizheng Chemical Fibre Co 1,944,580
1,099,200 Yue Yuen Industrial Holdings 2,475,292
------------------
379,779,702
------------------
Italy - 4.6%
2,363,166 Alitalia Linee Aeree Italiane Class A * 1,429,411
197,000 Alleanza Assicurazioni SPA 1,644,739
886,500 Assicurazioni Generali SPA 18,729,884
2,349,222 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 5,590,511
955,000 Banca Commerciale Italiana SPA 2,386,544
151,000 Banca Commerciale Italiana SPA (Non Convertible) 301,022
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
6,466,357 Banca di Roma * 5,765,975
1,189,263 Banca Fideuram SPA 4,120,227
80,400 Banca Popolare di Bergamo Credit 1,079,942
462,000 Banca Popolare di Milano 2,471,760
199,200 Banca Toscana 442,364
1,934,650 Banco di Napoli di Risp * 928,480
206,000 Bulgari SPA 1,222,635
461,300 Cartiere Burgo SPA 2,625,213
715,500 Cementir SPA 491,709
1,348,343 COFIDE SPA * 449,523
154,250 Comau Finanziaria SPA 480,962
1,552,500 Credito Italiano 3,218,384
1,991,000 Credito Italiano (Non Convertible) 2,295,518
1,976,700 Dalmine SPA * 471,524
21,300 Edison SPA 99,683
44,150 Ericsson SPA 761,032
399,600 Falck Acciaierie and Ferriere Lombarde 1,565,986
1,965,200 Fiat SPA 6,049,499
3,072,700 Fiat SPA Preferred 4,772,994
5,259,720 Fiat SPA (Non Convertible) 8,797,542
310,000 Finmeccanica SPA * 218,322
1,109,940 Gilardini SPA 1,834,450
588,000 Grassetto SPA (c) * 3
3,691,570 HPI SPA * 1,675,218
754,900 IFI Istituto Finanziario Preferred 2.46% 8,596,412
1,999,850 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 3,384,754
1,327,000 Industriali Riunite SPA (Non Convertible) * 493,657
1,876,100 Industriali Riunite SPA * 1,324,465
815,500 Istituto Bancario San Paolo 5,696,951
589,000 Istituto Mobilaire Italiano 5,484,539
5,058,792 Istituto Nazionale Delle Assicurazioni 7,398,394
477,650 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 1,157,024
46,400 Italmobiliare SPA 736,569
12,200 Luxottica Group Sponsored ADR 712,175
441,500 Mediobanco SPA 2,881,139
11,909,798 Montedison SPA 7,237,717
2,706,400 Montedison SPA (Non Convertible) 1,337,287
987,067 Montefibre SPA 577,427
3,923,593 Parmalat Finanziaria SPA 6,094,733
508,975 Pirelli and Co 742,922
195,500 RAS SPA 1,663,861
60,800 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 132,084
23,300 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 66,167
214,700 SAFFA SPA * 360,942
3,208,072 SMI (Societa Metallurgica Italy) * 1,297,291
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
234,336 Stefanel SPA * 358,018
6,327,500 Telecom Italia Mobile SPA 21,921,759
816,269 Telecom Italia Mobile SPA (Non Convertible) 1,367,630
2,598,220 Telecom Italia SPA di Risp 15,465,024
1,896,266 Telecom Italia SPA di Risp (Non Convertible) 6,709,663
33,500 Toro Assicurazioni 417,631
--------------------
185,537,291
--------------------
Japan - 15.7%
48,300 Advantest Corp 4,416,826
42,000 Aiwa Co 813,534
98,000 Alps Electric Co Ltd 1,165,018
400,000 Amada Co Ltd 2,713,443
1,418,000 Aoki Corp * 848,749
157,300 Aoyama Trading 4,236,861
303,000 Asahi Breweries Ltd 4,508,854
112,000 Asics Corp * 179,699
92,000 Bandai Co 1,988,528
320,000 Bank of Tokyo-Mitsubishi 5,825,921
226,000 Banyu Pharmaceutical Co Ltd 3,795,162
176,000 Canon Sales Co Inc 3,570,039
155,000 Casio Computer Co 1,352,980
106,100 Chubu Electric Power Co Inc 1,781,711
10,000 Chudenko Corp 229,446
330,000 Chugai Pharmaceutical Co Ltd 2,770,804
99,400 Chugoku Electric Power Co Inc 1,611,356
318,000 Citizen Watch Co 2,455,915
939,000 Cosmo Oil Co Ltd 3,044,393
43,700 Credit Saison Co 1,129,828
220,300 CSK Corp 7,490,456
715,000 Dai Ichi Kangyo Bank 8,321,556
1,115,000 Daicel Chemical Industries Ltd 3,170,089
285,000 Daiichi Seiyaku Co Ltd 4,857,012
116,000 Dainippon Pharmaceutical Co Ltd 665,392
271,000 Dainippon Printing Co Ltd 5,677,280
334,000 Dainippon Screen Manufacturing Co Ltd 3,137,584
288,800 Daito Trust Construction Co Ltd 3,193,150
90,000 Daiwa House Industry Co Ltd 1,039,987
519,000 Daiwa Securities Co Ltd 3,279,076
133,000 Denso Corp 2,874,719
913 East Japan Railway Co 4,174,495
116,000 Eisai Co Ltd 2,208,330
89,000 Ezaki Glico Co Ltd 669,590
112,400 Fanuc Co 4,316,967
196,000 Fuji Bank 2,395,212
936,000 Fuji Heavy Industries Ltd 4,131,815
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
286,900 Fuji Photo Film Co Ltd 11,066,722
344,000 Fujikara Ltd 2,888,353
542,000 Fujisawa Pharmaceutical Co Ltd 5,271,760
1,374,000 Fujitsu Ltd 16,448,250
29,000 Fukuyama Transporting Co Ltd 144,650
193,000 Furukawa Electric Co Ltd 1,091,030
84,000 Gakken Co Ltd * 358,933
105,000 General Sekiyu (KK) 611,023
374,000 Green Cross Corp 1,336,936
579,000 Hankyu Corp 2,878,394
1,011,000 Haseko Corp * 949,730
100,000 Heiwa Corp 1,795,660
300 Hirose Electric 21,074
2,268,300 Hitachi Ltd 20,931,191
106,000 Hitachi Maxell Ltd 2,396,874
252,000 Hitachi Metals Ltd 1,330,285
102,000 Hokkaido Electric Power 1,712,861
303,000 Hokuriku Bank Ltd 937,036
151,000 House Foods Corp 2,560,811
21,000 Hoya Corp 892,094
6,000 Hyogo Bank Ltd (c) * 1
225,000 INAX Corp 1,103,583
332,000 Industrial Bank of Japan 4,581,594
97,000 Intec Inc 1,104,747
95,000 Isuzu Motors Ltd 268,518
115,000 Ito-Yokado 6,214,149
18,000 Japan Airport Terminal Co Ltd 190,041
366,000 Japan Energy Co Ltd 648,084
597,000 Japan Synthetic Rubber Co Ltd 4,565,966
1,269 Japan Tobacco Inc 10,222,471
276,000 JGC Corp 1,170,172
157,000 Joshin Denki Co Ltd 1,121,149
155,000 Joyo Bank 876,216
379,000 Kamigumi Co Ltd 1,748,649
101,000 Kandenko Co 692,701
213,000 Kaneka Corp 1,324,499
179,200 Kansai Electric Power 3,351,900
42,000 Kansai Paint Co Ltd 136,520
465,000 Kao Corp 6,880,871
86,000 Keihin Electric Express Railway Co Ltd 356,040
135,000 Kenwood Corp 553,288
129,000 Kikkoman Corp 729,238
56,000 Kinden Corp 777,455
417,000 Kinki Nippon Railway Co Ltd 2,353,837
489,000 Kirin Brewery Co Ltd 3,971,677
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
83,000 Kissei Pharmaceutical Co Ltd 1,517,998
25,000 Kokusai Denshin Denwa 1,598,221
96,000 Kokusai Electric 1,691,911
97,000 Kokusai Kogyo Co Ltd 576,565
79,000 Kokuyo Co Ltd 1,884,862
62,000 Komori Corp 1,304,015
414,000 Konica Corp 2,388,528
208,000 Koyo Seiko Co Ltd 1,430,011
442,000 Kubota Corp 1,785,784
628,000 Kumagai Gumi Co Ltd 694,355
465,000 Kurabo Industries Ltd 985,743
25,000 Kurita Water Industries Ltd 660,903
105,000 Kyocera Corp 6,633,968
90,000 Kyowa Exeo Corp 867,903
331,000 Kyowa Hakko Kogyo Co Ltd 1,939,937
182,300 Kyushu Electric Power Co Inc 2,970,388
500 Long Term Credit Bank of Japan 2,482
36,400 Mabuchi Motor Co 1,942,705
114,000 Makino Milling Machine Co Ltd 793,233
130,000 Makita Corp 1,783,172
101,000 Matsushita Communications 3,299,776
914,000 Matsushita Electric Industrial Co Ltd 16,868,235
30,000 Matsushita Electric Works Ltd 324,217
67,000 Matsushita Kotubuki 2,188,960
235,000 Mazda Motor Corp * 800,981
140,000 Meiji Seika Kaisha Ltd 636,628
225,000 Minolta Co Ltd 1,290,631
883,000 Mitsubishi Electric Corp 4,059,348
640,000 Mitsubishi Gas Chemical Co Inc 2,426,137
674,000 Mitsubishi Oil Co Ltd * 2,353,313
395,000 Mitsubishi Paper Mills Ltd 1,034,375
219,000 Mitsubishi Rayon Co Ltd 833,835
344,000 Mitsubishi Steel Manufacturing * 689,201
459,000 Mitsui Engineering & Shipbuilding * 755,524
463,000 Mitsui Fudosan Co Ltd * 5,388,644
318,000 Mitsui Mining & Smelting Co Ltd 1,292,726
989,000 Mitsui OSK Lines * 1,743,021
8,000 Mochida Pharmaceutical Co Ltd 59,855
38,000 Murata Manufacturing Co Ltd 1,551,085
100,000 Nagoya Railroad Co Ltd 369,939
27,900 Namco Ltd 943,994
131,000 National House Industrial 1,709,785
937,000 NEC Corp 10,515,837
470,000 New Japan Securities Co Ltd * 898,662
405,000 New Oji Paper Co Ltd 2,053,787
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
143,000 NGK Spark Plug Co 1,224,458
107,000 Nichicon Corp 1,325,380
231,000 Nichii Co Ltd 2,630,892
179,000 Nichirei 611,597
390,000 Nihon Cement Co Ltd 1,160,695
941,000 Nikko Securities 4,451,151
45,000 Nikon Corp 744,451
128,000 Nintendo Co Ltd 10,577,105
362,000 Nippon Carbon Co Ltd * 827,583
143,000 Nippon Chemical 677,612
74,000 Nippon Comsys 1,051,958
1,384,000 Nippon Credit Bank 2,370,139
264,000 Nippon Light Metal 706,692
199,000 Nippon Meat Packers Inc 2,398,786
3,891,000 Nippon Oil Co Ltd 17,434,941
359,000 Nippon Paper Industries 2,083,149
185,000 Nippon Shokubai Corp 1,353,396
175,000 Nippon Soda Co Ltd 1,498,462
4,725 Nippon Telegraph & Telephone 44,386,483
3,400 Nippon Television Network 1,195,611
221,000 Nishimatsu Construction 1,304,431
1,417,000 Nissan Motor Co Ltd 9,164,735
383,000 Nisshinbo Industries Inc 2,483,498
937,000 Nissho Iwai Corp 3,528,647
63,000 Nissin Food Products Co Ltd 1,466,456
349,000 Nitto Denko Corp 6,063,763
301,000 Nomura Securities Co Ltd 4,003,658
171,000 Odakyu Electric Railway Co Ltd 865,733
631,000 Oki Electric Industry 2,255,632
112,000 Okuma Corp 689,002
254,000 Okumura Corp 1,425,306
206,000 Olympus Optical Co Ltd 1,469,349
249,000 Omron Corp 4,636,794
67,000 Ono Pharmaceutical Co Ltd 2,088,702
172,000 Onward Kashiyama Co Ltd 2,645,274
245,000 Pioneer Electronics Corp 4,888,187
24,000 Q.P. Corp 199,518
942,000 Renown Inc * 1,621,033
321,000 Ricoh Co Ltd 4,349,738
6,000 Rohm Co Ltd 623,493
164,000 Royal Co Ltd 2,808,546
86,000 Sagami Railway Co Ltd 275,252
284,000 Sakura Bank Ltd 1,676,282
144,000 Sanden Corp 987,613
100,000 Sankyo Co Ltd 3,042,647
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
143,000 Sanwa Bank Ltd 1,783,191
163,000 Sapporo Breweries Ltd 1,159,930
50,500 Secom Co Ltd 3,597,847
10,400 Sega Enterprises 297,415
61,000 Seino Transportation Co Ltd 608,529
146,000 Sekisui Chemical Co Ltd 1,238,008
398,000 Sharp Corp 4,003,492
169,000 Shikoku Electric Power 2,739,629
108,000 Shin-Etsu Chemical Co Ltd 2,765,317
350,000 Shionogi and Co Ltd 2,359,714
544,000 Shiseido Co Ltd 8,909,136
1,633,000 Showa Denko 3,176,673
372,000 Showa Shell Sekiyu 2,582,260
121,000 Skylark Co Ltd 1,679,857
97,000 Snow Brand Milk Products Co Ltd 400,773
187,000 Stanley Electric Co Ltd 803,716
285,000 Sumitomo Bank 4,217,308
1,000,000 Sumitomo Corp 8,313,243
8,000 Sumitomo Forestry Co Ltd 77,147
314,000 Sumitomo Heavy Industries Ltd 991,936
118,000 Taisho Pharmaceutical Co Ltd 2,893,840
147,000 Taiyo Yuden Co Ltd 1,723,086
35,000 Takashimaya Co 389,891
243,000 Takeda Chemical Industries Ltd 6,484,579
101,000 Takuma Corp 1,225,871
240,000 Tanabe Seiyaku Co Ltd 1,807,632
200 TDK Corp 15,396
189,000 Teijin Ltd 768,318
220,000 Teikoku Oil Co Ltd 843,129
191,000 Terumo Corp 3,493,225
1,420 Toho Co Ltd 195,960
191,600 Tohoku Electric Power Co Inc 3,121,922
51,000 Tokyo Broadcasting System Inc 860,670
481,000 Tokyo Construction Co Ltd 627,791
159,000 Tokyo Electric Co Ltd 572,342
9,400 Tokyo Electric Power 179,732
287,000 Tokyo Electron 15,627,650
135,000 Tokyo Steel Manufacturing Co 1,100,964
100,000 Tokyo Style Co Ltd 1,180,481
318,000 Tokyu Department Store Co Ltd 793,083
333,000 Toppan Printing Co Ltd 4,789,176
1,054,000 Toshiba Corp 5,835,597
62,000 Tostem Corp 1,293,707
48,000 Toyo Suisan Kaisha 478,843
441,000 Toyo Trust & Banking Co Ltd 3,592,817
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
210,000 Toyobo Co Ltd 415,496
133,000 Uniden Corp 1,868,568
124,000 Victor Co of Japan Ltd 1,505,030
174,000 Wacoal Corp 2,010,641
63,000 Yakult Honsha Co Ltd 618,007
148,000 Yamaha Corp 2,288,470
170,000 Yamaha Motor Co 1,540,444
526,000 Yamaichi Securities Co Ltd 1,031,973
305,000 Yamanouchi Pharmaceutical Co Ltd 7,302,353
209,000 Yamato Transport Co Ltd 2,519,328
115,000 Yamazaki Baking Co Ltd 1,586,998
182,000 Yokogawa Electric Corp 1,201,330
67,000 Yoshitomi Pharmaceutical Industries Lt 437,235
-------------------
637,350,516
-------------------
Malaysia - 2.3%
284,000 Aluminum Co of Malaysia 253,267
1,156,000 Amalgamated Steel Mills Berhad 515,452
319,000 AMMB Holdings Berhad 1,137,918
949,000 Arab Malaysian Finance (Foreign Registered) 895,130
27,000 Ayer Hitam Tin Dredging * 28,709
138,000 Berjaya Group 79,993
961,000 Berjaya Leisure Berhad (d) 1,796,416
1,537,300 Berjaya Sports Toto 4,218,282
324,000 Cement Industries of Malaysia Berhad 462,302
201,000 DMIB Berhad 112,375
901,800 Edaran Otomobil Berhad 3,247,779
888,000 Ekran Berhad 1,041,660
317,200 Esso Malaysia Berhad 565,749
143,400 Faber Group Berhad * 76,729
204,000 Golden Hope Plantations Berhad 268,688
118,000 Guinness Anchor Berhad 202,367
115,000 Highlands and Lowlands Berhad 113,994
314,400 Hong Leong Industries Berhad 695,551
2,504,000 Hong Leong Properties Berhad 1,820,779
429,600 IGB Corp Berhad 294,701
1,611,000 IOI Corporation Berhad 1,447,717
342,000 Johan Holdings Berhad 191,206
999,000 Kedah Cement Berhad 993,689
1,418,058 Kuala Lumpur Kepong Berhad (Singapore) 2,587,663
659,000 Kumpulan Guthrie Berhad 696,183
11,000 Magnum Corp Berhad 10,225
996,750 Malayan Cement Berhad 1,217,091
1,219,000 Malayan United Industries Berhad 627,165
307,000 Malayawata Steel 304,315
976,000 Malaysia Mining Corp Berhad 716,271
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
1,662,000 Malaysian Airline Systems 3,163,814
692,000 Malaysian Helicopter Berhad 344,161
1,513,600 Malaysian International Ship (Alien Market) 3,114,937
44,000 Malaysian Mosaics 32,749
187,000 Malaysian Oxygen Berhad 718,367
493,000 Malaysian Pacific Industries 1,344,315
19,000 Malaysian Plantations 11,470
1,937,333 Malaysian Resources Corp 1,561,562
66,100 Matsushita Electric 385,423
4,733,000 MBF Capital Berhad 4,448,095
1,222,000 MBF Holdings Berhad 414,948
339,000 Mulpha International 145,344
839,000 Multi Purpose Holdings 653,243
79,000 Nestle Malaysia 501,286
431,000 New Straits Times 1,921,797
1,239,500 Oriental Holdings Berhad 4,463,986
66,000 OYL Industries Berhad 303,344
1,489,600 Pan Malaysia Cement 1,282,420
858,500 Perlis Plantations 2,120,117
2,731,000 Perusahaan Otomobil 7,962,099
609,600 Petronas Dagangan Berhad 857,266
1,046,000 Petronas Gas Berhad 2,888,115
3,828,866 Public Bank Berhad (Alien Market) 3,598,385
1,051,000 Rashid Hussain Berhad 2,541,434
3,450,000 Renong Berhad 3,549,991
1,809,000 RHB Capital Berhad 3,102,384
312,000 RJ Reynolds Berhad 513,668
171,000 Rothmans of Pall Mall Malaysia Berhad 1,378,323
1,619,000 Sarawak Enterprises Corp 1,199,465
504,400 Shell Refinery Co 1,141,842
228,000 Sime Darby 247,155
1,691,000 TA Enterprise Berhad 1,125,207
4,308,000 Tan Chong Motor Holdings Berhad 4,551,068
240,000 Time Engineering Berhad 176,162
1,438,000 UMW Holdings Berhad 3,871,823
117,000 Uniphone Telecommunications 66,215
517,000 YTL Corp 826,349
--------------------
93,147,695
--------------------
Netherlands - 0.0%
53 Fortis Amev NV 2,168
29,600 Schroders International Property Fund 53,262
--------------------
55,430
--------------------
New Zealand - 0.0%
182,791 Trans Tasman Properties * 101,659
--------------------
</TABLE>
See accompanying notes to the financial statements. 16
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Norway - 1.2%
89,805 Bergesen D Y AS Class A 2,409,676
9,765 Bona Shipholding Ltd * 123,148
131,074 Leif Hoegh and Co AS 2,796,030
718,140 Norsk Hydro AS 39,020,446
50,540 Orkla-Borregaard AS Class A 3,586,898
100,634 SAS Norge ASA Class B 1,444,630
--------------------
49,380,828
--------------------
Singapore - 2.6%
101,959 Asia Food & Properties Ltd Warrants 7/12/02 * 33,137
1,359,461 Asia Food & Properties Ltd * 666,136
1,060,000 City Developments 6,692,893
130,000 Creative Technology Ltd * 2,612,893
1,602,096 DBS Land Ltd 4,109,840
721,000 Development Bank of Singapore (Foreign Registered) 7,627,107
1,144,309 First Capital Corp Ltd 2,557,200
565,577 Fraser and Neave Ltd 2,991,482
3,156,037 Hai Sun Hup Group Ltd 2,024,037
1,209,203 Haw Paw Brothers International Ltd 2,318,472
139,475 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 103,281
781,000 Highlands and Lowlands Berhad 795,200
1,372,104 Hotel Properties Ltd 1,914,142
3,227,421 Jardine Matheson Holdings Ltd 22,591,947
5,703,911 Jardine Strategic Holdings Ltd 21,104,471
358,712 Jurong Shipyard Ltd 1,589,005
1,126,000 Lum Chang Holdings Ltd 714,684
118,000 Marco Polo Developments Ltd 187,240
477,600 Metro Holdings Ltd 1,357,805
1,350,000 Natsteel Ltd 3,677,355
3,224,556 Neptune Orient Lines Ltd 2,430,409
476,000 Parkway Holdings Ltd 1,793,851
345,508 Prima Ltd 1,023,389
388,424 Robinson and Co Ltd 1,810,505
246,699 Shangri-La Hotel Ltd 603,495
369,000 Singapore Tech Industrial Corp 566,003
77,900 Singapore Technologies Aero (Foreign Registered) 118,460
2,303,168 Straits Trading Co Ltd 4,263,716
416,000 Times Publishing Ltd 880,132
240,000 United Engineers 277,686
6,592,960 United Industrial Corp Ltd 4,489,751
592,900 Wearne Brothers Ltd 1,489,600
--------------------
105,415,324
--------------------
Spain - 2.8%
344,378 Argentaria Corporacion Bancaria de Espana SA 17,147,546
3,500 Azucarera de Espana SA 182,332
2,031,237 Banco Bilbao Vizcaya SA 53,509,861
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Spain - continued
537,804 Banco Central Hispanoamericano SA 19,951,421
1,500 Dragados & Construcciones SA 28,169
2,115,856 FENOSA SA 16,422,483
16,780 Iberdrola SA 188,738
4,030 Repsol SA 159,578
233,043 Telefonica de Espana SA 6,054,857
-------------------
113,644,985
-------------------
Sweden - 5.0%
157,779 Assi Doman 4,803,136
471,200 Avesta Sheffield AB 4,471,357
463,200 Bilspedition AB Class B * 1,899,775
146,031 Celsius Industrier AB Class B 2,734,262
353,720 Electrolux AB Class B 25,230,475
448,500 Ericsson LM Class B 18,737,605
94,388 Esselte AB Class A 2,344,386
47,200 Esselte AB Class B 1,220,438
76,217 Euroc Industri AB Class A 2,659,991
95,669 Fastighets AB (Hufvudstaden) Class A * 438,684
158,510 Granges AB * 2,382,410
102,200 Hennes and Mauritz AB Class B 3,866,207
84,449 Hufvudstaden International * 81,750
2,700 Kinnevik Investment Class B 81,506
143,770 Marieberg Tidnings AB Class A 3,717,424
746,000 Mo Och Domsjo AB Class B 24,705,290
144,200 Nordbanken 4,591,801
260 Scancem AB Class B 8,958
365,508 Skandinaviska Enskilda Banken Class A 3,933,973
613,846 Skanska AB Class B 24,433,588
224,600 Sparbanken Sverige AB Class A 4,891,968
274,300 Ssab Swedish Steel Class A 5,694,967
439,873 Stena Line AB Class B * 1,854,527
1,233,550 Stora Kopparberg Bergslags Class A 19,640,139
298,350 Stora Kopparberg Bergslags Class B 4,674,218
827,872 Svenska Cellulosa Class B 18,400,788
291,489 Svenska Handelsbanken Class A 8,984,943
421,800 Trelleborg AB Class B 6,500,844
-------------------
202,985,410
-------------------
Switzerland - 1.6%
99,105 Alberta Energy Ltd 2,205,585
120 Ascom Holding AG (Bearer) * 162,447
383 Bobst SA (Registered) 296,789
30,300 CS Holdings (Registered) 3,649,557
1,360 Elektrowatt AG (Bearer) 492,113
450 Financiere Richemont AG Class A 606,449
2,260 Hilti AG, Schaan (Participating Certificate) 1,553,317
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland - continued
1,894 Holderbank Financiere Glarus AG (Bearer) 1,588,915
8,460 Holderbank Financiere Glarus AG (Registered) 1,504,963
225 Magazine zum Globus (Registered) * 176,628
27,470 Nestle AG (Registered) 32,022,573
7,317 Novartis AG (Registered) 10,393,340
970 Rieter Holdings AG (Registered) 434,002
123 Roche Holdings (Participating Certificate) 1,040,160
640 Sairgroup Namen AKT * 760,298
2,270 Schweizerische Rueckversicherungsgesellschaft (Bearer) 3,022,486
220 Sig Schweiz Industrie (Registered) 318,722
460 Sulzer Gebrueder AG (Registered) 323,291
12,000 Swiss Bank Corp (Registered) * 2,898,824
5,320 Zuerich Versicherungs Namen (Registered) 1,935,784
--------------------
65,386,243
--------------------
United Kingdom - 23.9%
1,232,700 Abbey National 16,553,317
1,407,350 Allied Domecq Plc 10,636,171
874,580 AMEC 2,014,119
536,400 Anglian Water Plc 6,763,733
1,248,500 Arjo Wiggins Appleton Plc 3,563,678
8,292,062 ASDA Group 19,365,215
267,740 Ashley (Laura) Holdings 247,506
608,446 Associated British Foods 5,111,509
427,100 Bank of Scotland 2,874,584
1,102,190 Barclays Bank Plc 25,204,198
1,058,230 Barratt Development 4,402,149
2,021,360 Bass * 27,045,494
2,786,500 BAT Industries 23,341,388
987,300 Beazer Holmes Plc 2,694,024
317,656 Betacomm Plc * 231,829
15,427,398 BG Plc 67,304,215
326,800 Blue Circle Industries 2,035,216
218,356 British Aerospace 5,113,634
1,924,103 British Airways 20,064,881
3,803,800 British Steel 10,672,375
1,452,400 British Telecom Plc 9,374,899
1,480,869 BTR 5,235,648
2,742,240 Burton Group 5,503,614
3,344,593 Coats Viyella 6,427,749
128,700 Commercial Union Plc 1,544,570
595,497 Cookson Group * 2,472,389
181,500 Costain Group (d) * 132,461
1,352,553 Dawson International 1,623,242
99,500 Electrocomponents Plc 743,912
1,680,382 English China Clays Plc 6,349,817
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
1,058,000 Enterprise Oil 11,856,623
2,395,400 Eurotunnel SA Units (Registered) * 2,641,705
64,840 Glaxo Wellcome Plc 1,298,695
784,735 Greenalls Group Plc 6,007,065
1,508,890 Harrisons & Crosfield 2,704,065
1,494,123 Hillsdown Holdings 3,925,533
291,680 HSBC Holdings 8,741,902
272,985 Hyder Plc 3,696,771
865,200 Imperial Chemical Industries Plc 14,003,750
610,320 Kingfisher 7,176,173
134,473 Kwik Save Group 697,883
7,262,850 Ladbroke Group 30,507,325
75,546 Laing (John) 459,452
477,100 Land Securities 6,925,159
4,917,050 Lasmo 20,434,584
1,063,725 Legal & General Group 7,806,300
5,059,148 Lloyds TSB Group 59,239,567
660,392 London International 1,767,189
4,877,642 Lonrho 9,769,541
241,740 Lucas Variety Plc 772,346
383,260 Meggitt 770,748
428,100 Meyer International 2,968,101
1,944,180 Mirror Group Plc 6,400,734
4,220,590 National Power 38,947,782
444,800 Next 5,352,615
868,700 Northern Foods Plc * 3,071,310
1,762,400 Orange Plc * 6,373,921
2,283,500 Peninsular & Oriental Steam Navigation Co 24,071,972
5,693,932 Pilkington * 13,436,080
1,648,274 Powergen 20,850,732
765,800 Prudential Corp 7,576,044
1,147,400 Railtrack Group Plc 14,375,092
45,989 Reckitt & Colman 710,049
722,479 Redland 3,397,978
3,626,100 Rentokil Plc 12,702,547
2,918,000 Reuters Holdings 29,624,902
159,060 RMC Group 2,589,954
844,036 Rolls-Royce 3,203,127
741,000 Sainsbury (J) 5,179,559
78,360 Schroders 2,405,069
1,353,500 Scottish Hydro-Electric Plc 9,790,174
3,575,598 Scottish Power Plc 25,196,242
7,112,700 Sears 7,267,287
762,182 Severn Trent Plc 10,815,934
553,650 Shell Transport & Trading (Registered) 3,753,262
1,787,824 Signet Group Plc * 913,341
41,903,056 Signet Group * (e) -
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value/
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
1,013,867 Simon Engineering 624,830
5,705,038 Smithkline Beecham Plc 49,407,980
1,301,945 Southern Electric Plc 9,755,104
1,513,547 Storehouse Plc 5,621,196
3,662,575 T & N 9,533,642
8,092,180 Tarmac 15,551,819
2,466,200 Taylor Woodrow Plc 7,439,411
7,557 Tesco 50,127
785,600 Thames Water 10,058,910
592,900 TI Group Plc 5,663,619
206,770 Tomkins Plc 1,002,665
623,690 Unilever Plc 17,286,543
2,057,475 United Biscuits 6,890,519
2,129,450 United Utilities 23,794,904
723,310 Viglen Technology * 762,492
1,899,470 Vodafone Group Plc 9,765,377
734,100 Waste Management International * 2,952,597
865,279 Wessex Water Plc 6,665,720
1,215,500 Whitbread Plc Class A 15,898,518
2,710,000 Wimpey (George) 5,845,454
1,136,032 Yorkshire Water 8,069,785
------------------
969,464,932
------------------
TOTAL STOCK AND EQUIVALENTS (Cost $3,723,403,747) 3,864,260,088
------------------
DEBT OBLIGATION - 0.1%
United Kingdom - 0.1%
GBP 1,178,995 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (d) 2,233,326
------------------
TOTAL DEBT OBLIGATION (Cost $1,334,817) 2,233,326
------------------
SHORT-TERM INVESTMENTS - 11.6%
Cash Equivalents - 10.0%
$ 162,900,000 Republic Bank of New York Time Deposit, 5.56% due 9/2/97 162,900,000
243,948,417 The Boston Global Investment Trust (b) 243,948,417
------------------
406,848,417
------------------
U.S. Government - 1.6%
$ 64,500,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 63,321,226
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $470,128,875) 470,169,643
------------------
TOTAL INVESTMENTS - 106.8%
(Cost $4,194,867,439) 4,336,663,057
Other Assets and Liabilities (net) - (6.8%) (274,610,315)
------------------
TOTAL NET ASSETS - 100.0% $ 4,062,052,742
==================
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) All or a portion of this security is held as
collateral for open futures contracts.
(b) Represents investment of security lending
collateral (Note 1).
(c) Bankrupt issuer.
(d) Valued by management (Note 1).
(e) Pending corporate action, quantification of rate
per share to be determined.
* Non-income producing security. A dividend has not been declared
for the twelve months ended August 31, 1997.
22 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1997, industry sector diversification
of the Fund's equity investments was as follows:
<TABLE>
<CAPTION>
Industry Sector
<S> <C>
Banking 12.4%
Utilities 7.6
Conglomerates 6.6
Services 6.6
Consumer Goods 5.9
Real Estate 5.4
Construction 5.0
Oil and Gas 4.7
Transportation 4.6
Electronic Equipment 4.1
Health Care 3.9
Chemicals 3.4
Telecommunications 3.4
Retail Trade 3.2
Machinery 2.9
Food and Beverage 2.8
Paper and Allied Products 2.6
Automotive 2.3
Metals and Mining 1.9
Communications 1.8
Insurance 1.8
Financial Services 1.5
Computers 0.6
Textiles 0.6
Aerospace 0.6
Miscellaneous 3.8
==========
100.0%
==========
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Assets:
<S> <C>
Investments, at value (cost $4,194,867,439) (Note 1) $ 4,336,663,057
Foreign currency, at value (cost $13,025,393) (Note 1) 13,041,199
Cash 21,864
Receivable for Fund shares sold 240,975
Receivable for investments sold 126,804,212
Dividends and interest receivable 10,572,242
Foreign withholding taxes receivable 5,423,232
Receivable for variation margin on open futures contracts (Notes 1 and 5) 18,228,093
Receivable for open forward foreign currency contracts (Notes 1 and 5) 28,841,965
Receivable for expenses waived or borne by Manager (Note 2) 1,051,188
-----------------
Total assets 4,540,888,027
-----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 243,948,417
Payable for investments purchased 124,151,508
Payable for open swap contracts (Note 1) 16,735,992
Payable for open forward foreign currency contracts (Notes 1 and 5) 63,606,630
Payable for Fund shares repurchased 25,703,957
Payable to affiliate for (Note 2):
Management fee 2,697,649
Shareholder service fee 542,414
Accrued expenses 1,448,718
-----------------
Total liabilities 478,835,285
-----------------
Net assets $ 4,062,052,742
=================
Net assets consist of:
Paid-in capital $ 3,665,441,907
Accumulated undistributed net investment income 41,323,670
Accumulated undistributed net realized gain 222,536,269
Net unrealized appreciation 132,750,896
-----------------
$ 4,062,052,742
=================
Net assets attributable to:
Class I Shares $ 3,466,361
=================
Class II Shares $ 40,429,382
=================
Class III Shares $ 4,018,156,999
=================
Shares outstanding:
Class I 141,965
=================
Class II 1,655,271
=================
Class III 164,337,155
=================
Net asset value per share:
Class I $ 24.42
=================
Class II $ 24.42
=================
Class III $ 24.45
=================
</TABLE>
See accompanying notes to the financial statements.
24
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Investment income:
<S> <C>
Dividends (net of foreign tax expense of $7,619,569) $ 72,836,835
Interest (including securities lending income of $1,308,291) 6,092,944
-----------------
Total income 78,929,779
-----------------
Expenses:
Management fee (Note 2) 16,233,860
Custodian fees 1,586,080
Stamp duties and transfer taxes 340,952
Legal fees 96,876
Audit fees 39,928
Transfer agent fees 29,164
Trustees fee (Note 2) 19,688
Miscellaneous 15,916
Fees waived or borne by Manager (Note 2) (6,333,133)
-----------------
12,029,331
Shareholder service fee (Note 2)
Class I 4,084
Class II 39,221
Class III 3,217,843
-----------------
Net expenses 15,290,479
-----------------
Net investment income 63,639,300
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 249,312,819
Closed futures contracts (32,853,672)
Closed swap contracts 56,831,896
Foreign currency, forward contracts and foreign
currency related transactions (40,323,188)
-----------------
Net realized gain 232,967,855
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (152,191,345)
Open futures contracts 45,991,544
Open swap contracts (39,328,192)
Foreign currency, forward contracts and foreign
currency related transactions (6,541,625)
-----------------
Net unrealized loss (152,069,618)
-----------------
Net realized and unrealized gain 80,898,237
-----------------
Net increase in net assets resulting from operations $ 144,537,537
=================
</TABLE>
See accompanying notes to the financial statements.
25
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
--------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 63,639,300 $ 103,049,778
Net realized gain 232,967,855 231,885,655
Change in net unrealized appreciation (depreciation) (152,069,618) (42,361,514)
--------------------- ---------------------
Net increase in net assets resulting from
operations 144,537,537 292,573,919
--------------------- ---------------------
Distributions to shareholders from:
Net investment income
Class I (27,297) (2,078)
Class II (268,136) (231,954)
Class III (31,242,846) (56,618,907)
--------------------- ---------------------
Total distributions from net investment income (31,538,279) (56,852,939)
--------------------- ---------------------
Net realized gains
Class I (75,824) (8,575)
Class II (780,290) (932,158)
Class III (90,918,336) (264,270,135)
--------------------- ---------------------
Total distributions from net realized gains (91,774,450) (265,210,868)
--------------------- ---------------------
Net share transactions: (Note 4)
Class I 3,181,300 206,837
Class II 15,183,268 25,522,151
Class III (235,983,925) (275,828,032)
--------------------- ---------------------
Decrease in net assets from net fund share transactions (217,619,357) (250,099,044)
--------------------- ---------------------
Total decrease in net assets (196,394,549) (279,588,932)
Net assets:
Beginning of period 4,258,447,291 4,538,036,223
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $41,323,670 and
$9,222,649, respectively) $ 4,062,052,742 $ 4,258,447,291
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
26
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from September 10, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
----------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period $ 24.36 $ 24.17
------------------ ----------------
Income (loss) from investment operations:
Net investment income 0.38(d) 0.14
Net realized and unrealized gain (loss) 0.43 1.38
------------------ ----------------
Total from investment operations 0.81 1.52
------------------ ----------------
Less distributions to shareholders:
From net investment income (0.20) (0.26)
From net realized gains (0.55) (1.07)
------------------ ----------------
Total distributions (0.75) (1.33)
------------------ ----------------
Net asset value, end of period $ 24.42 $ 24.36
================== ================
Total Return (a) 3.14% 6.38%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,466 $ 208
Net expenses to average
daily net assets 0.84%*(b) 0.85%*(b)
Net investment income to average
daily net assets 2.97%* 1.12%*
Portfolio turnover rate 42% 97%
Average broker commission rate (c) $ 0.0066 $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.04
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .03% of average daily net assets for the period
ended February 28, 1997 and .02% of average daily net assets for the six
months ended August 31, 1997.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
(d) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 27
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from September 26, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------------- --------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 24.36 $ 24.60
------------------ ----------------
Income (loss) from investment operations:
Net investment income 0.36(d) 0.14
Net realized and unrealized gain (loss) 0.44 0.96
------------------ ----------------
Total from investment operations 0.80 1.10
------------------ ----------------
Less distributions to shareholders:
From net investment income (0.19) (0.27)
From net realized gains (0.55) (1.07)
------------------ ----------------
Total distributions (0.74) (1.34)
------------------ ----------------
Net asset value, end of period $ 24.42 $ 24.36
================== ================
Total Return (a) 3.18% 4.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 40,429 $ 25,302
Net expenses to average
daily net assets 0.78%*(b) 0.80%*(b)
Net investment income to average
daily net assets 2.88%* 0.98%*
Portfolio turnover rate 42% 97%
Average broker commission rate (c) $ 0.0066 $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.05
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .04% of average daily net assets for the period
ended February 28, 1997 and .02% of average daily net assets for the six
months ended August 31, 1997.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
(d) Computed using average shares outstanding throughout the period.
28 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------------------
(Unaudited) 1997 1996 1995
---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.37 $ 24.62 $ 22.32 $ 25.56
---------------- ------------ ----------- -----------
Income (loss) from investment operations:
Net investment income 0.37 (d) 0.59 0.36 0.27
Net realized and unrealized gain (loss) 0.45 1.02 3.09 (1.57)
---------------- ------------ ----------- -----------
Total from investment operations 0.82 1.61 3.45 (1.30)
---------------- ------------ ----------- -----------
Less distributions to shareholders:
From net investment income (0.19) (0.33) (0.39) (0.35)
From net realized gains (0.55) (1.53) (0.76) (1.59)
---------------- ------------ ----------- -----------
Total distributions (0.74) (1.86) (1.15) (1.94)
---------------- ------------ ----------- -----------
Net asset value, end of period $ 24.45 $ 24.37 $ 24.62 $ 22.32
================ ============ =========== ===========
Total Return (a) 3.18% 6.72% 15.72% (5.31%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,018,157 $ 4,232,937 $ 4,538,036 $ 2,591,646
Net expenses to average
daily net assets 0.71%*(b) 0.71%(b) 0.71% (b) 0.70%
Net investment income to average
daily net assets 2.94%* 2.34% 1.93% 1.48%
Portfolio turnover rate 42% 97% 14% 53%
Average broker commission rate (c) $ 0.0066 $ 0.0062 N/A N/A
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following pershare amounts: $ 0.04 $ 0.06 $ 0.03 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
Year Ended February 28/29,
------------------------------
1994 1993
------------ ---------
<S> <C> <C>
Net asset value, beginning of period $ 18.51 $ 18.80
----------- ---------
Income (loss) from investment operations:
Net investment income 0.29 0.29
Net realized and unrealized gain (loss) 7.44 (0.04)
----------- ---------
Total from investment operations 7.73 0.25
----------- ---------
Less distributions to shareholders:
From net investment income (0.27) (0.20)
From net realized gains (0.41) (0.34)
----------- ---------
Total distributions (0.68) (0.54)
---------- ---------
Net asset value, end of period $ 25.56 $ 18.51
=========== =========
Total Return (a) 42.10% 1.43%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,286,431 $ 918,332
Net expenses to average
daily net assets 0.71%(b) 0.70%
Net investment income to average
daily net assets 1.48% 2.36%
Portfolio turnover rate 23% 23%
Average broker commission rate (c) N/A N/A
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following pershare amounts: $ 0.03 $ 0.03
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .02% of average daily net assets.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. The average broker commission rate
will vary depending on the markets in which trades are executed.
(d) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 29
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market- makers or estimates of market values obtained from
yield data relating to investments or securities with similar
characteristics.
30
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may purchase and sell stock index futures contracts. Stock index
futures contracts represent commitments for future delivery of cash based
upon the level of a specified index of equity securities at a specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock and currency markets. Buying futures tends to
increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. Upon purchase of a futures contract, the Fund is
required to deposit with its custodian, in a segregated account in the name
of the futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is subsequently settled. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 5 for all
open futures contracts held as of August 31, 1997.
31
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 5 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 5 for a
summary of the open swap agreement as of August 31, 1997.
32
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1997, the Fund loaned securities having a market
value of $225,737,354 collateralized by cash in the amount of $243,948,417,
which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss carryover
for federal income tax purposes. Therefore, no provision for federal income
or excise tax is necessary. Taxes on foreign interest and dividend income
have been withheld in accordance with the applicable country's tax treaty
with the United States. Dividends received by shareholders of the Fund
which are derived from foreign source income and foreign taxes paid by the
Fund are to be treated, to the extent allowable under the Code, as if
received and paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
33
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
the amount invested. All purchase premiums are paid to and recorded as paid
in capital by the Fund. For the six months ended August 31, 1997, the Fund
received $624,536 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO receives a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee until further notice to the
extent that the Fund's annual expenses (including the management fee but
excluding brokerage commissions, certain other transaction costs (including
stamp duties and transfer taxes), shareholder service fees and
extraordinary expenses) exceed .54% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for fees exceeding .69%; thus the
net annual expense ratio after the waiver for a Class III shareholder is
unchanged.
34
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $19,688. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchase and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997 aggregated
$1,716,136,961 and $2,067,610,352, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ------------------------- ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
$4,194,867,439 $416,311,147 $274,515,529 $141,795,618
</TABLE>
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 September 10, 1996
Six Months Ended (commencement of operations)
August 31, 1997 to February 28, 1997
---------------------------------------- --------------------------------------
Class I: Shares Amount Shares Amount
------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 129,487 $ 3,080,979 8,196 $ 198,184
Shares issued to
shareholders in reinvestment
of distributions 4,031 103,121 440 10,653
Shares repurchased (107) (2,800) (82) (2,000)
------------------- ------------------- ----------------- -----------------
Net increase 133,411 $ 3,181,300 8,554 $ 206,837
=================== =================== ================= =================
</TABLE>
35
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Period from September 26,1996
Six Months Ended (commencement of operations)
August 31, 1997 to February 28, 1997
-------------------------------------------- -----------------------------------------
Class II: Shares Amount Shares Amount
------------------- ---------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 575,487 $ 14,134,842 990,710 $ 24,358,040
Shares issued to
shareholders in reinvestment
of distributions 40,970 1,048,426 48,104 1,164,111
Shares repurchased - -
- -
------------------- ---------------------- ----------------- --------------------
Net increase 616,457 $ 15,183,268 1,038,814 $ 25,522,151
=================== ====================== ================= ====================
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
-------------------------------------------- -----------------------------------------
Class III: Shares Amount Shares Amount
------------------- ---------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 13,419,025 $ 342,145,965 26,694,331 $ 662,148,445
Shares issued to
shareholders in reinvestment
of distributions 4,282,384 109,671,851 12,151,121 296,116,351
Shares repurchased (27,037,410) (687,801,741) (49,513,521) (1,234,092,828)
------------------- ---------------------- ----------------- --------------------
Net decrease (9,336,001) $ (235,983,925) (10,668,069) $ (275,828,032)
=================== ====================== ================= ====================
</TABLE>
36
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
--------------- -------------------------- --------------------- -------------------- ------------------
Buys
<S> <C> <C> <C> <C>
9/12/97 ATS 565,890,380 $ 44,685,653 $ (2,988,347)
11/07/97 ATS 395,997,242 31,378,960 (1,252,040)
12/05/97 AUD 51,986,058 38,253,071 (608,319)
11/07/97 BEF 5,623,456,600 151,823,915 (4,851,481)
9/12/97 CAD 24,469,942 17,630,414 (424,586)
12/05/97 CAD 80,368,552 58,184,872 (524,128)
11/07/97 CHF 90,188,819 61,237,822 (2,332,292)
11/07/97 ESP 31,917,593,763 209,987,623 (9,317,610)
11/07/97 FIM 362,155,407 67,101,023 (3,044,996)
11/07/97 GBP 3,667,997 5,930,967 (145,033)
12/05/97 HKD 445,961,992 57,146,041 (335,386)
9/12/97 IEP 20,630,888 30,648,556 (777,444)
11/07/97 IEP 37,215,060 55,233,973 (22,027)
11/07/97 ITL 51,510,023,590 29,187,595 (969,616)
12/05/97 JPY 32,732,008,994 275,688,658 (17,593,505)
11/07/97 NLG 104,327,117 51,689,949 (2,123,051)
9/12/97 NOK 882,361,588 118,387,084 (7,810,916)
11/07/97 NOK 972,040,352 130,773,625 (5,347,048)
11/07/97 SEK 1,052,288,500 134,286,702 (1,855,647)
------------------
$ (62,323,472)
==================
</TABLE>
37
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
--------------- -------------------------- --------------------- -------------------- ------------------
Sales
<S> <C> <C> <C> <C>
9/12/97 AUD 95,633,939 $ 70,276,271 $ 3,899,229
12/05/97 AUD 219,503,547 161,644,409 1,721,128
11/07/97 BEF 2,142,471,090 57,909,580 3,112,097
11/07/97 CHF 91,586,959 62,229,407 (1,070,108)
11/07/97 ESP 2,424,145,741 15,960,928 247,712
11/07/97 FIM 19,973,671 3,704,568 150,609
9/12/97 GBP 172,830,742 280,247,040 2,359,960
11/07/97 GBP 9,606,169 15,538,938 96,062
10/09/97 HKD 1,428,954,700 183,838,040 469,987
11/07/97 HKD 1,040,295,141 133,633,871 657,228
12/05/97 HKD 103,937,236 13,330,813 43,299
12/12/97 HKD 913,202,000 117,081,349 535,662
12/05/97 JPY 26,214,923,000 220,919,099 15,093,921
11/07/97 NOK 75,837,000 10,213,050 (213,050)
11/07/97 SEK 243,180,870 31,066,311 455,071
------------------
$ 27,558,807
==================
</TABLE>
<TABLE>
<CAPTION>
Currency Abbreviations
<S> <C> <C> <C>
ATS Austrian Schilling IEP Irish Pound
AUD Australian Dollar ITL Italian Lira
BEF Belgian Franc JPY Japanese Yen
CAD Canadian Dollar NLG Netherlands Guilder
CHF Swiss Franc NOK Norwegian Kroner
ESP Spanish Peseta SEK Swedish Krona
FIM Finnish Markka
GBP British Pound
HKD Hong Kong Dollar
</TABLE>
38
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------------- --------------------- ---------------------- --------------------- ---------------------
Buys
<S> <C> <C> <C> <C>
671 DAX September 1997 $ 146,303,086 $ (3,265,243)
1,352 MIB 30 September 1997 163,680,071 11,867,704
343 TOPIX September 1997 40,604,539 (2,446,399)
1,997 TSE 35 September 1997 249,184,522 (2,365,481)
---------------------
$ 3,790,581
=====================
<CAPTION>
Sales
<S> <C> <C> <C> <C>
3,867 ALL ORDS September 1997 $ 182,264,592 $ 10,936,827
767 FTSE 100 ID September 1997 150,017,029 968,255
2,011 HANG SENG September 1997 180,364,563 23,204,634
200 IBEX September 1997 8,599,619 307,600
372 MATIF CAC 40 September 1997 33,989,350 2,108,762
660 OMX STOCK September 1997 20,352,441 1,418,514
---------------------
$ 38,944,592
=====================
</TABLE>
At August 31, 1997 the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
39
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statement (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreement
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Depreciation
------------------------- -------------- ----------------------------------------------------- ---------------------
<S> <C> <C> <C>
CHF 241,069,567 08/06/98 Agreement with Swiss Bank Corporation dated 8/6/97
to receive (pay) the notional amount multiplied by
the return on the Swiss Market Index (including
dividends) and to pay the notional amount
multiplied by 6 month CHF LIBOR adjusted by a
specified spread. $ (16,735,992)
=====================
</TABLE>
40
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 92.5%
Automotive - 3.0%
42,000 Denso Corp 907,806
146,000 Fuji Heavy Industries Ltd 644,493
41,000 Isuzu Motors Ltd 115,887
11,700 Mabuchi Motor Co 624,441
120,000 Mazda Motor Corp * 409,012
49,000 NGK Spark Plug Co 419,569
386,000 Nissan Motor Co Ltd 2,496,533
46,000 Suzuki Motor Corp 435,947
54,000 Yamaha Motor Co 489,318
-------------------
6,543,006
-------------------
Banking - 6.8%
16,000 Bandai Co 345,831
74,000 Bank of Fukuoka Ltd 339,579
249,000 Bank of Tokyo-Mitsubishi 4,533,295
258,000 Dai Ichi Kangyo Bank 3,002,743
63,000 Fuji Bank 769,889
12,000 Hiroshima Bank Ltd 41,699
57,000 Hokkaido Bank Ltd 65,866
25,000 Hokkaido Takushoku Bank Ltd 25,355
108,000 Industrial Bank of Japan 1,490,398
432,000 Nippon Credit Bank 739,812
91,000 Sakura Bank Ltd 537,119
47,000 Sanwa Bank Ltd 586,084
92,000 Sumitomo Bank 1,361,377
96,000 Toyo Trust & Banking Co Ltd 782,110
17,000 Yamaguchi Bank Ltd 238,840
-------------------
14,859,997
-------------------
Chemicals - 3.0%
274,000 Daicel Chemical Industries Ltd 779,017
194,000 Japan Synthetic Rubber Co Ltd 1,483,748
72,000 Kaneka Corp 447,718
43,000 Kureha Chemical Industry Co Ltd 143,345
215,000 Mitsubishi Gas Chemical Co Inc 815,030
54,000 Nippon Carbon Co Ltd * 123,452
56,000 Nippon Soda Chemical Co Ltd 479,508
39,000 Sekisui Chemical Co Ltd 330,701
34,000 Shin-Etsu Chemical Co Ltd 870,563
451,000 Showa Denko 877,330
83,000 Tokyo Ink Manufacturing Co Ltd 253,920
-------------------
6,604,332
-------------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------
<S> <C> <C>
Computers and Office Equipment - 0.4%
58,000 Casio Computer Co 506,277
48,000 NCR Japan Ltd 314,440
---------------------
820,717
---------------------
Construction - 3.2%
496,000 Aoki Corp * 296,883
4,000 Chudenko Corp 91,778
28,300 Daito Trust Construction Co Ltd 312,902
29,000 Daiwa House Industry Co Ltd 335,107
225,000 Haseko Corp * 211,364
32,000 Hazama-Gumi Ltd 41,500
74,000 INAX Corp 362,956
114,000 Maeda Corp 497,548
171,000 Mitsui Engineering & Shipbuilding * 281,470
43,000 National House Industrial 561,227
91,000 Nichiei Co Ltd 149,032
80,000 Okumura Corp 448,915
102,000 Penta Ocean Construction 248,450
3,000 Sankyo Aluminum Industry Co Ltd 6,235
225,000 Sato Kogyo Co Ltd 252,515
43,000 Sekisui House Ltd 407,515
149,000 Shokusan Jutaku Sogo Co Ltd * 143,686
117,000 Sumitomo Heavy Industries Ltd 369,607
72,000 Takara Standard Co 554,261
30,000 Takuma Corp 364,120
143,000 Tokyo Construction Co Ltd 186,641
20,000 Tostem Corp 417,325
13,000 Toto Ltd 137,252
23,000 Toyo Exterior Co Ltd 227,534
---------------------
6,905,823
---------------------
Consumer Goods - 6.4%
102,000 Citizen Watch Co 787,746
55,000 Ezaki Glico Co Ltd 413,792
90,600 Fuji Photo Film Co Ltd 3,494,754
34,000 Hitachi Maxell Ltd 768,809
149,000 Kao Corp 2,204,838
117,000 Konica Corp 675,019
67,000 Minolta Co Ltd 384,321
14,000 Nikon Corp 231,607
40,500 Nintendo Co Ltd 3,346,662
66,000 Olympus Optical Co Ltd 470,762
42,000 Victor Co of Japan Ltd 509,768
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods - continued
59,000 Yakult Honsha Co Ltd $ 578,768
2,000 Yamaha Corp 30,925
--------------------
13,897,771
--------------------
Electric - 5.0%
31,000 Alps Electric Co Ltd 368,526
1,500 Hirose Electric 105,370
17,000 Kinden Corp 236,013
31,000 Kokusai Electric 546,346
306,000 Matsushita Electric Industrial Co Ltd 5,647,352
285,000 Mitsubishi Electric Corp 1,310,209
190,000 Oki Electric Industry 679,192
128,000 Sharp Corp 1,287,555
77,000 Showa Electric Wire & Cable 193,956
62,000 Stanley Electric Co Ltd 266,473
48,000 Yokogawa Electric Corp 316,834
--------------------
10,957,826
--------------------
Electronics - 4.7%
14,900 Advantest Corp 1,362,541
20,000 Brother Industries Ltd 69,831
36,200 Fanuc Co 1,390,340
70,000 Hosiden Corp * 657,578
60,000 Japan Aviation Electronics 423,975
33,000 Kyocera Corp 2,084,961
22,000 Matsushita Kotubuki 718,763
34,000 Nichicon Corp 421,149
18,000 Pioneer Electronics Corp 359,132
21,000 Tokyo Electron 1,143,487
293,000 Toshiba Corp 1,622,230
--------------------
10,253,987
--------------------
Financial Services - 2.3%
155,000 Daiwa Securities Co Ltd 979,300
304,000 Nikko Securities 1,437,992
97,000 Nomura Securities Co Ltd 1,290,215
3,700 Orix Corp 275,293
583,000 Yamaichi Securities Co Ltd 1,143,802
--------------------
5,126,602
--------------------
Food and Beverage - 5.0%
97,000 Asahi Breweries Ltd 1,443,428
5,000 Denny's Japan Co Ltd 133,843
70,000 House Foods Corp 1,187,131
37,000 Ito-Yokado 1,999,335
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage - continued
90,000 Kikkoman Corp 508,771
157,000 Kirin Brewery Co Ltd 1,275,160
57,000 Meiji Seika Kaisha Ltd 259,199
47,000 Mercian Corp 219,586
75,000 Nichirei 256,256
66,000 Nippon Meat Packers Inc 795,577
149,000 Nippon Suisan Kaisha Ltd * 334,442
20,000 Nissin Food Products Co Ltd 465,542
49,700 Q.P. Corp 413,168
61,000 Sapporo Breweries Ltd 434,084
92,000 Snow Brand Milk Products Co Ltd 380,115
39,000 Takara Shuzo Co Ltd 226,627
19,000 Toyo Suisan Kaisha 189,542
23,000 Yamazaki Baking Co Ltd 317,400
-----------------
10,839,206
-----------------
Health Care - 3.7%
91,000 Daiichi Seiyaku Co Ltd 1,550,835
46,000 Eisai Co Ltd 875,717
6,000 Hoya Corp 254,884
119,000 Kyowa Hakko Kogyo Co Ltd 697,440
31,000 Sankyo Co Ltd 943,221
139,000 Shionogi and Co Ltd 937,144
175,000 Shiseido Co Ltd 2,865,991
-----------------
8,125,232
-----------------
Leisure - 0.2%
19,000 Heiwa Corp 341,176
27,000 Tokyotokeiba Co Ltd 62,848
-----------------
404,024
-----------------
Machinery - 1.7%
8,000 Aida Engineering Ltd 44,027
4,000 Aisin Seiki Co Ltd 54,535
129,000 Amada Co Ltd 875,085
142,000 Kubota Corp 573,714
36,000 Mori Seiki Co Ltd 445,922
35,000 Okuma Corp 215,313
17,000 Rinnai Corp 316,568
47,000 Sanden Corp 322,346
106,000 Toshiba Tungaloy Co Ltd 400,948
81,000 Tsubakimoto Chain 434,325
-----------------
3,682,783
-----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Metals and Mining - 2.2%
45,000 Fujikara Ltd 377,837
80,000 Hitachi Metals Ltd 422,313
194,000 Japan Metals & Chemicals * 325,779
110,000 Mitsui Mining & Smelting Co Ltd 447,169
127,000 Nachi Fujikoshi Co 292,452
123,000 Nippon Sheet Glass Co Ltd 315,961
112,000 Nitto Denko Corp 1,945,964
63,000 NTN Corp 293,291
49,000 Tokyo Steel Manufacturing Co 399,609
-----------------
4,820,375
-----------------
Oil and Gas - 3.8%
301,000 Cosmo Oil Co Ltd 975,892
21,000 General Sekiyu (KK) 122,205
246,000 Mitsubishi Oil Co Ltd * 858,924
1,138,000 Nippon Oil Co Ltd 5,099,194
119,600 Showa Shell Sekiyu 830,210
86,000 Teikoku Oil Co Ltd 329,587
-----------------
8,216,012
-----------------
Paper and Allied Products - 1.0%
77,000 Hokuetsu Paper Mills 395,594
129,000 New Oji Paper Co Ltd 654,169
114,000 Nippon Paper Industries 661,501
49,000 Sumitomo Forestry Co Ltd 472,525
-----------------
2,183,789
-----------------
Pharmaceuticals - 5.6%
72,000 Banyu Pharmaceutical Co Ltd 1,209,078
120,000 Chugai Pharmaceutical Co Ltd 1,007,565
48,000 Dainippon Pharmaceutical Co Ltd 275,335
177,000 Fujisawa Pharmaceutical Co Ltd 1,721,589
109,000 Kaken Pharmaceutical Co Ltd 453,978
14,000 Kissei Pharmaceutical Co Ltd 256,048
21,000 Ono Pharmaceutical Co Ltd 654,668
37,000 Taisho Pharmaceutical Co Ltd 907,391
77,000 Takeda Chemical Industries Ltd 2,054,784
90,000 Tanabe Seiyaku Co Ltd 677,862
17,000 Terumo Corp 310,915
98,000 Yamanouchi Pharmaceutical Co Ltd 2,346,316
62,000 Yoshitomi Pharmaceutical Industries Ltd 404,606
-----------------
12,280,135
-----------------
Primary Processing - 0.0%
28,000 Nippon Yakin Kogyo Co Ltd * 39,571
-----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate - 0.7%
137,000 Mitsui Fudosan Co Ltd * 1,594,480
4,000 Tokyo Land Corp * 12,736
-----------------
1,607,216
-----------------
Retail Trade - 1.3%
20,000 Aoyama Trading 538,698
26,000 Best Denki Co Ltd 200,582
6,200 Familymart 260,288
35,000 Hankyu Department Stores Inc 286,599
49,000 Joshin Denki Co Ltd 349,913
1,000 Matsuzakaya Co Ltd 5,902
46,000 Nichii Co Ltd 523,901
72,000 Sanrio Co Ltd * 544,684
17,000 Takashimaya Co 189,376
-----------------
2,899,943
-----------------
Services - 6.5%
57,000 Canon Sales Co Inc 1,156,206
68,100 CSK Corp 2,315,479
101,000 Dainippon Printing Co Ltd 2,115,887
47,000 Hanwa Co Ltd * 81,270
122,000 Kamigumi Co Ltd 562,890
30,000 Kokusai Kogyo Co Ltd 178,319
26,000 Kokuyo Co Ltd 620,334
13,000 Kyodo Printing Co Ltd 92,942
348,000 Nissho Iwai Corp 1,310,533
7,000 Okamoto Industries Inc 22,113
16,000 Secom Co Ltd 1,139,912
6,100 Sega Enterprises 174,445
18,000 Seiko Corp 123,452
386,000 Sumitomo Corp 3,208,912
42,000 Sumitomo Warehouse Co Ltd 204,955
66,000 Toppan Printing Co Ltd 949,206
-----------------
14,256,855
-----------------
Technology - 8.1%
93,000 Dainippon Screen Manufacturing Co Ltd 873,639
456,000 Fujitsu Ltd 5,458,808
439,000 Hitachi Ltd 4,050,960
32,000 Makita Corp 438,939
12,300 Murata Manufacturing Co Ltd 502,062
300,000 NEC Corp 3,366,863
80,000 Omron Corp 1,489,733
2,000 Rohm Co Ltd 207,831
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Technology - continued
52,000 Taiyo Yuden Co Ltd $ 609,527
7,900 TDK Corp 608,147
------------------
17,606,509
------------------
Telecommunications - 1.3%
95,000 Gakken Co Ltd * 405,936
25,000 Japan Radio Co 224,458
28,000 Matsushita Communications 914,789
1,400 Nippon Television Network 492,310
69,000 Nitsuko Corp 358,509
23,000 Tokyo Broadcasting System Inc 388,145
------------------
2,784,147
------------------
Textiles - 1.6%
140,000 Kurabo Industries Ltd 296,783
123,000 Nisshinbo Industries Inc 797,573
44,000 Onward Kashiyama Co Ltd 676,698
323,000 Renown Inc * 555,832
91,000 Toyobo Co Ltd 180,048
95,000 Wacoal Corp 1,097,764
------------------
3,604,698
------------------
Tobacco - 1.6%
431 Japan Tobacco Inc 3,471,934
------------------
Transportation - 3.8%
291 East Japan Railway Co 1,330,535
27,000 Fujita Kanko Inc 287,306
54,000 Fukuyama Transporting Co Ltd 269,349
114,000 Hankyu Corp 566,730
19,000 Japan Airport Terminal Co Ltd 200,599
238,000 Kawasaki Kisen * 362,075
44,000 Keihin Electric Express Railway Co Ltd 182,160
162,000 Kinki Nippon Railway Co Ltd 914,440
57,000 Nagoya Railroad Co Ltd 210,865
39,000 Nankai Electric Railway Co Ltd 188,046
57,000 Nippon Express Co Ltd 376,241
62,000 Odakyu Electric Railway Co Ltd 313,891
52,000 Royal Co Ltd 890,515
58,000 Sagami Railway Co Ltd 185,635
37,000 Seino Transportation Co Ltd 369,108
112,000 Showa Line Ltd * 81,935
39,000 Skylark Co Ltd 541,442
54,000 Toei Co Ltd 287,755
67,000 Yamato Transport Co Ltd 807,632
------------------
8,366,259
------------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities - 9.6%
39,800 Chubu Electric Power Co Inc 668,352
32,300 Chugoku Electric Power Co Inc 523,610
38,600 Hokkaido Electric Power 648,200
64,300 Kansai Electric Power 1,202,718
8,000 Kokusai Denshin Denwa 511,431
73,300 Kyushu Electric Power Co Inc 1,194,347
1,511 Nippon Telegraph & Telephone 14,194,280
62,600 Shikoku Electric Power 1,014,798
62,400 Tohoku Electric Power Co Inc 1,016,743
3,000 Tokyo Electric Power 57,361
---------------
21,031,840
---------------
TOTAL STOCK AND EQUIVALENTS (Cost $218,914,327) 202,190,589
---------------
SHORT-TERM INVESTMENTS - 13.2%
Cash Equivalents - 10.5%
$ 600,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 600,000
22,340,559 The Boston Global Investment Trust (b) 22,340,559
---------------
22,940,559
---------------
U.S. Government - 2.7%
$ 6,000,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 5,890,347
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $28,828,709) 28,830,906
---------------
TOTAL INVESTMENTS - 105.7%
(Cost $247,743,036) 231,021,495
Other Assets and Liabilities (net) - -5.7% (12,550,429)
---------------
TOTAL NET ASSETS - 100.0% $ 218,471,066
===============
</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 twelve months ended
August 31, 1997.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $247,743,036) (Note 1) $ 231,021,495
Foreign currency, at value (cost $9,615,424) (Note 1) 9,433,027
Cash 115,325
Receivable for investments sold 974,847
Receivable for Fund shares sold 369,449
Dividends and interest receivable 49,550
Receivable for expenses waived or borne by Manager (Note 2) 67,924
----------------
Total assets 242,031,617
----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 22,340,559
Payable for Fund shares repurchased 292,158
Payable for variation margin on open futures
contracts (Notes 1 and 6) 652,023
Payable to affiliate for (Note 2):
Management fee 148,552
Shareholder service fee 29,784
Accrued expenses 97,475
----------------
Total liabilities 23,560,551
----------------
Net assets $ 218,471,066
================
Net assets consist of:
Paid-in capital $ 252,324,705
Distributions in excess of net investment income (331,805)
Accumulated net realized loss (15,942,935)
Net unrealized depreciation (17,578,899)
----------------
$ 218,471,066
================
Net assets attributable to Class III Shares $ 218,471,066
================
Shares outstanding - Class III 29,301,811
================
Net asset value per share - Class III $ 7.46
================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment income:
<S> <C>
Dividends (net of foreign tax expense of $125,606) $ 827,057
Interest (including securities lending income of $69,541) 241,904
---------------
Total income 1,068,961
---------------
Expenses:
Management fee (Note 2) 902,308
Custodian fees 105,064
Audit fees 31,004
Transfer agent fees 15,456
Stamp duties and transfer taxes 6,256
Legal fees 4,968
Trustees fee (Note 2) 1,012
Miscellaneous 920
Fees waived or borne by Manager (Note 2) (411,070)
---------------
655,918
Shareholder service fee - Class III (Note 2) 180,468
---------------
Net expenses 836,386
---------------
Net investment income 232,575
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (16,950,926)
Closed futures contracts 1,670,235
Foreign currency and foreign currency related
transactions (558,358)
---------------
Net realized loss (15,839,049)
---------------
Change in net unrealized appreciation (depreciation) on:
Investments 30,462,095
Open futures contracts (205,480)
Foreign currency and foreign currency related transactions 425,513
---------------
Net unrealized gain 30,682,128
---------------
Net realized and unrealized gain 14,843,079
---------------
Net increase in net assets resulting from operations $ 15,075,654
===============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
----------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 232,575 $ 23,994
Net realized loss (15,839,049) (1,918,375)
Change in net unrealized appreciation (depreciation) 30,682,128 (46,708,941)
---------------------- --------------------
Net increase (decrease) in net assets resulting from operations 15,075,654 (48,603,322)
---------------------- --------------------
Distributions to shareholders from:
In excess of net investment income - Class III - (36,409)
---------------------- --------------------
Net share transactions - Class III (Note 5) (15,401,512) 141,329,696
---------------------- --------------------
Total increase (decrease) in net assets (325,858) 92,689,965
Net assets:
Beginning of period 218,796,924 126,106,959
---------------------- --------------------
End of period (including distributions in excess of
net investment income of $331,805 and
$564,380, respectively) $ 218,471,066 $ 218,796,924
====================== =====================
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended February 28/29,
-------------------------------------
(Unaudited) 1997 1996
-------------- ---------------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.02 $ 8.52 $ 9.12
-------------- ---------------- ------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 - (d) (0.01)(d)
Net realized and unrealized gain (loss) 0.43 (1.50) 0.79
-------------- ---------------- ------------
Total from investment operations 0.44 (1.50) 0.78
-------------- ---------------- ------------
Less distributions to shareholders:
From net investment income - - -
In excess of net investment income - (0.00) -
From net realized gains - - (1.38)
-------------- ---------------- ------------
Total distributions - (0.00) (1.38)
-------------- ---------------- ------------
Net asset value, end of period $ 7.46 $ 7.02 $ 8.52
============== ================ ============
Total Return (a) 6.27% (17.69%) 8.29%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 218,471 $ 218,797 $ 126,107
Net expenses to average
daily net assets 0.69%* 0.70%(e) 0.92%
Net investment income (loss) to average
daily net assets 0.19%* 0.01% (0.13%)
Portfolio turnover rate 80% 4% 23%
Average broker commission rate per equity share (b) $ 0.0074 $ 0.0066 N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.03 $ 0.01
<CAPTION>
Year Ended February 28/29,
-------------------------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.13 $ 7.37 $ 7.73
------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss) - (d) - 0.01
Net realized and unrealized gain (loss) (1.08) 3.94 (0.36)
------------ ------------ ------------
Total from investment operations (1.08) 3.94 (0.35)
------------ ------------ ------------
Less distributions to shareholders:
From net investment income - - (0.01)
In excess of net investment income - (0.01) -
From net realized gains (0.93) (0.17) -
------------ ------------ ------------
Total distributions (0.93) (0.18) (0.01)
------------ ------------ ------------
Net asset value, end of period $ 9.12 $ 11.13 $ 7.37
============ ============ ============
Total Return (a) (10.62%) 53.95% (4.49%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 60,123 $ 450,351 $ 306,423
Net expenses to average
daily net assets 0.83% 0.87% 0.88%
Net investment income (loss) to average
daily net assets (0.02%) (0.01%) 0.12%
Portfolio turnover rate 60% 8% 17%
Average broker commission rate per equity share (b) N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: (c) $ 0.01 $ 0.01
</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 periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
(c) Fees and expenses waived or borne by the Manager were less than $.01 per
share.
(d) Based on average month end shares outstanding.
(e) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
12 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Japan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under the
laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration
of Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares, and to subdivide
a series into classes.
The Fund seeks maximum total return through investment in Japanese
securities, primarily in common stocks of Japanese companies.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges.
Those values are then translated into U.S. dollars at the current exchange
rate. Short-term investments with a remaining maturity of sixty days or less
are valued at amortized cost which approximates market value. Other assets
and securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.
13
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency gains
and losses realized between the trade and settlement dates on securities
transactions and the difference between the amount of investment income and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
Futures contracts
The Fund may purchase and sell Japanese futures contracts. Japanese futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a specified price at a
given date. The Fund may use futures contracts to manage its exposure to the
stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease the
Fund's exposure to the underlying instruments or hedge other Fund instruments.
Upon purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the initial
margin requirements of the broker or exchange. Futures contracts are marked
to market daily and an appropriate payable or receivable for the accumulation
in commitment value ("variation margin") is recorded by the Fund. The payable
or receivable is subsequently settled. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the variation
margin disclosed in the Statement of Assets and Liabilities. Losses may arise
from changes in the value of the underlying instrument, if there is an
illiquid secondary market for the contracts, or if counterparties do not
perform under the contract terms. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on
which they are traded. See Note 6 for all open futures contracts held as of
August 31, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 1997, the Fund loaned securities having a market value of
$21,108,748 collateralized by cash in the amount of $22,340,559, which was
invested in a short-term instrument.
14
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund
intends to distribute substantially all of its taxable net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United States.
Dividends received by shareholders of the Fund which are derived from foreign
source income and foreign taxes paid by the Fund are to be treated, to the
extent allowable under the Code, as if received and paid by the shareholders
of the Fund.
Distributions to shareholders
The Fund's present policy is to declare and pay distributions from net
investment income, if any, semi-annually, and from net realized short-term and
long-term capital gains, if any, at least annually. All distributions will be
paid in shares of the Fund, at net asset value, unless the shareholder elects
to receive cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis earnings
and profits, if any, are reported in the Fund's financial statements as a
return of capital. Differences in the recognition or classification of income
for financial statement and tax purposes which result in temporary over-
distributions for financial statement purposes are classified as distributions
in excess of net investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis and
is adjusted for accretion of discounts. In determining the net gain or loss
on securities sold, the cost of securities is determined on the identified
cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and the
relative size of the Funds. Investment income, common expenses and realized
and unrealized gains and losses are allocated pro-rata among the classes based
on the net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
15
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .40% of the amount invested.
In the case of cash redemptions, the fee is .61% of the amount redeemed.
Prior to June 1, 1996, the redemption fee was .70% of the amount redeemed.
The Manager may waive such premium or fee to the extent that a transaction
results in minimal brokerage and transaction costs to the Fund. All purchase
premiums and redemption fees are paid to and recorded as paid-in capital by
the Fund. For the six months ended August 31, 1997 the Fund received $67,293
in purchase premiums and no redemption fees. There is no premium for
reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities. These
risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of average
daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder
Services Plan under which the Fund pays GMO a shareholder service fee for
client and shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based on
the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including
management fee but excluding brokerage commissions, certain other transaction
costs (including stamp duties and transfer taxes), shareholder service fees
and extraordinary expenses) exceed .54% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .69%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged. Additionally, effective March 14, 1996, the waiver
was adjusted to include custodian fees.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1997, was $1,012. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
16
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the six months ended August 31, 1997, aggregated
$163,604,276 and $168,540,696, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------------------------------------------------------------
<S> <C> <C> <C>
$247,743,036 $7,866,513 $24,588,054 $16,721,541
</TABLE>
4. Principal shareholders
At August 31, 1997, 26% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Class III: Six Months Ended Year Ended
August 31, 1997 February 28, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 3,585,003 $ 28,036,213 22,172,884 $ 188,630,734
Shares issued to
shareholders in
reinvestment of
distributions - - 3,661 28,076
Shares repurchased (5,462,917) (43,437,725) (5,789,470) (47,329,114)
----------- ------------- -------------- --------------
Net increase /
(decrease) (1,877,914) $ (15,401,512) 16,387,075 $ 141,329,696
=========== ============= ============== ==============
</TABLE>
17
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding futures contracts purchased at August 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Net
Number of Contract Unrealized
Contracts Type Expiration Date Value Depreciation
--------- -------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
76 TOPIX September 1997 $ 8,996,924 $ 652,023
================
</TABLE>
At August 31, 1997, the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
18
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS - 85.8%
United States - 85.8%
3,165,732 GMO Core Fund (Class III shares) 61,098,623
937,407 GMO Emerging Markets Fund (Class III shares) 12,195,666
984,000 GMO Evolving Countries Fund * 9,840,000
2,504,696 GMO International Core Fund (Class III shares) 61,239,812
325,272 GMO International Small Companies Fund (Class III shares) 4,553,804
664,723 GMO REIT Fund (Class III shares) 8,880,703
727,927 GMO Small Cap Growth Fund (Class III shares) 9,099,081
492,552 GMO Small Cap Value Fund (Class III shares) 8,989,065
----------------
175,896,754
----------------
TOTAL MUTUAL FUNDS (Cost $179,478,318) 175,896,754
----------------
STOCK AND EQUIVALENTS - 0.2%
France - 0.0%
1,000 FINEXTEL 16,915
----------------
Hong Kong - 0.0%
11,700 Johnson Electric Holdings Ltd 26,272
----------------
Malaysia - 0.0%
9,000 Malaysian Resources Corp 7,254
----------------
Sweden - 0.0%
2,839 Hufvudstaden International * 2,748
----------------
United Kingdom - 0.0%
7,847 Betacomm Plc * 5,727
8,000 Costain Group (b) * 5,838
17,870 Viglen Technology * 18,838
----------------
30,403
----------------
United States - 0.2%
953 Archer Daniels Midland 20,659
3,379 Bell Atlantic Corp 244,555
97 Houston Industries Inc 1,964
700 Oracle Systems Corp * 26,688
1,300 Pennzoil Co 100,344
----------------
394,210
----------------
TOTAL STOCK AND EQUIVALENTS (Cost $427,270) 477,802
----------------
DEBT OBLIGATIONS - 4.9%
United Kingdom - 0.0%
GBP 29,128 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (b) 55,176
----------------
U.S. Government - 2.4%
$ 5,000,000 U.S. Treasury Note, 5.50% due 11/15/98 (a) 4,981,250
----------------
U.S. Government Agency - 2.5%
$ 5,000,000 Student Loan Marketing Association, 6.05% due 10/26/09 5,016,406
----------------
TOTAL DEBT OBLIGATIONS (Cost $10,028,786) 10,052,832
----------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS - 13.4%
Cash Equivalents - 10.3%
$ 21,200,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 21,200,000
---------------
U.S. Government - 3.1%
$ 6,450,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 6,332,123
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $27,528,446) 27,532,123
---------------
Principal Amount
(000's omitted) CALL OPTION PURCHASED - 1.0%
United States - 1.0%
$ 250,000 U.S. Treasury Bond 7.50%, Expires 10/7/99, Strike 102 (cost $2,656,250) 2,025,000
---------------
TOTAL INVESTMENTS - 105.3%
(Cost $220,119,070) 215,984,511
Other Assets and Liabilities (net) - (5.3%) (10,846,640)
---------------
TOTAL NET ASSETS - 100.0% $ 205,137,871
===============
Notes to the Schedule of Investments:
GBP - British Pound
(a) This security is held as collateral for open
futures contracts.
(b) Valued by management (Note 1).
* Non-income producing security. A dividend has not been declared for the twelve
months ended August 31, 1997.
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $220,119,070) (Note 1) $ 215,984,511
Foreign currency, at value (cost $362,501) (Note 1) 355,878
Cash 20,375
Receivable for investments sold 1,552,882
Dividends and interest receivable 606,741
Receivable for open forward foreign currency contracts (Notes 1 and 6) 5,021,357
Foreign withholding taxes receivable 169,475
Receivable for expenses waived or borne by Manager (Note 2) 63,231
---------------
Total assets 223,774,450
---------------
Liabilities:
Payable for open swap contracts (Notes 1 and 6) 76,342
Payable for closed swap contracts (Note 1) 1,250,455
Payable for variation margin on open futures contracts (Notes 1 and 6) 209,787
Payable for investments purchased 10,592,022
Payable for Fund shares repurchased 895,143
Payable for open forward foreign currency contracts (Notes 1 and 6) 5,129,238
Payable to affiliate for (Note 2):
Management fee 129,028
Shareholder service fee 22,152
Accrued expenses 332,412
---------------
Total liabilities 18,636,579
---------------
Net assets $ 205,137,871
===============
Net assets consist of:
Paid-in capital $ 188,085,157
Accumulated undistributed net investment income 2,838,201
Accumulated net realized gain 20,574,089
Net unrealized depreciation (6,359,576)
---------------
$ 205,137,871
===============
Net assets attributable to Class III Shares $ 205,137,871
===============
Shares outstanding - Class III 19,156,768
===============
Net asset value per share - Class III $ 10.71
===============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $275,699) $ 3,273,742
Interest (including security lending income of $27,884) 1,738,698
--------------
Total income 5,012,440
--------------
Expenses:
Management fee (Note 2) 893,937
Custodian fees 356,132
Audit fees 35,144
Stamp duties and transfer taxes 27,324
Transfer agent fees 14,444
Legal fees 6,900
Trustees fee (Note 2) 1,380
Miscellaneous 1,196
Fees waived or borne by Manager (Note 2) (288,840)
--------------
1,047,617
Shareholder service fee - Class III (Note 2) 198,682
--------------
Net expenses 1,246,299
--------------
Net investment income 3,766,141
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 40,851,946
Closed futures contracts (17,405,082)
Closed swap contracts (7,328,568)
Foreign currency, forward contracts and foreign currency related
transactions (1,495,521)
--------------
Net realized gain 14,622,775
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (22,484,694)
Open futures contracts 1,115,634
Open swap contracts 4,277,548
Foreign currency, forward contracts and foreign currency related
transactions 443,066
--------------
Net unrealized loss (16,648,446)
--------------
Net realized and unrealized loss (2,025,671)
--------------
Net increase in net assets resulting from operations $ 1,740,470
==============
</TABLE>
4 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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,766,141 $ 6,639,580
Net realized gain 14,622,775 21,603,070
Change in net unrealized appreciation (depreciation) (16,648,446) (21,597,390)
------------------ -------------------
Net increase in net assets resulting from operations 1,740,470 6,645,260
------------------ -------------------
Distributions to shareholders from:
Net investment income - Class III - (5,664,462)
------------------ -------------------
Net realized gains - Class III (1,922,297) -
------------------ -------------------
(1,922,297) (5,664,462)
------------------ -------------------
Net share transactions - Class III (Note 5) (91,382,254) (87,212,602)
------------------ -------------------
Total decrease in net assets (91,564,081) (86,231,804)
Net assets:
Beginning of period 296,701,952 382,933,756
------------------ -------------------
End of period (accumulated undistributed net investment income of
$2,838,201 and distributions in excess of net investment income of
$927,940, respectively) $ 205,137,871 $ 296,701,952
================== ===================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29,
August 31, 1997 --------------------------------------------------
(Unaudited) 1997 1996 1995*
------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.69 $ 10.64 $ 10.12 $ 10.00
---------------- ------------- ----------- ------------
Income from investment operations:
Net investment income 0.18 0.24 0.21 0.11
Net realized and unrealized gain (loss) (0.08) 0.01 0.55 0.08
---------------- ------------- ----------- ------------
Total from investment operations 0.10 0.25 0.76 0.19
---------------- ------------- ----------- ------------
Less distributions to shareholders :
From net investment income - (0.20) (0.24) (0.07)
From net realized gains (0.08) - - -
---------------- ------------- ----------- ------------
Net asset value, end of period $ 10.71 $ 10.69 $ 10.64 $ 10.12
---------------- ------------- ----------- ------------
Total Return (a) 1.01% 2.34% 7.54% 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 205,138 $ 296,702 $ 382,934 $ 214,638
Net expenses to average
daily net assets 0.91%**(c) 0.91%(c) 0.78% 0.92**
Net investment income to average
daily net assets 2.74%** 1.99% 2.44% 2.85**
Portfolio turnover rate 103% 463% 214% 194%
Average broker commission rate (b) $ 0.0104 $ 0.0084 N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02 $ 0.005 $ 0.006
</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.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Hedged Equity Fund (the "Fund"), is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks total return consistent with minimal exposure to general
equity market risk, either directly or through investment in other Funds of
the Trust.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO, as
more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bore the same total operating expenses (after the voluntary expense waiver)
as those shares. On August 20, 1997, the Fund revised its voluntary expense
waiver to include certain expenses incurred indirectly by the Fund through
investment in underlying Funds (See Note 2). At August 31, 1997, Class III
was the only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees.
7
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are translated to U.S. dollars based on the prevailing exchange rates each
business day. Income and expenses denominated in foreign currencies are
translated at prevailing exchange rates when accrued or incurred. The Fund
does not isolate realized and unrealized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in
the market value of investments. Such fluctuations are included with net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains and
losses on disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid.
Futures contracts
The Fund may purchase index futures contracts. Stock index futures contracts
represent commitments for future delivery of cash based upon the level of a
specified index of equity securities at a specified price at a given date.
The Fund may use futures contracts to manage its exposure to the stock and
currency markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. Upon purchase
of a futures contract, the Fund is required to deposit with its custodian, in
a segregated account in the name of the futures broker, an amount of cash or
U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
subsequently settled. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts involve,
to varying degrees, risk of loss in excess of the variation margin disclosed
in the Statement of Assets and Liabilities. Losses may arise from the changes
in the value of the underlying instrument, if there is an illiquid secondary
market for the contracts or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts held as of August 31, 1997.
8
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and sell
a currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange rates.
Forward currency contracts are marked to market daily and the change in value
is recorded by the Fund as an unrealized gain or loss. Realized gains or
losses equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed are recorded upon
delivery or receipt of the currency or, if a forward currency contract is
offset by entering into another forward currency contract with the same
broker, upon settlement of the net gain or loss. These contracts may involve
market risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be exposed
to risk if the counterparties are unable to meet the terms of the contracts
or if the value of the currency changes unfavorably to the U.S. dollar. The
U.S. dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has acquired
or hedged through currency contracts as of August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which it
may invest. When the Fund writes a call or put option, an amount equal to the
premium received is recorded as a liability and subsequently marked to market
to reflect the current value of the option written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or closed are offset against the
proceeds or amounts paid on the transaction to determine the realized gain or
loss. If a written put option is exercised, the premium reduces the cost
basis of the securities purchased by the Fund. The Fund as a writer of an
option has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. There is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid market. As of August 31, 1997, there were
no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value of
the option. The risk associated with purchasing put and call options is
limited to the premium paid.
9
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure to
the equity markets. The Fund enters into equity swap agreements which involve
a commitment by one party in the agreement to pay interest in exchange for a
market linked return based on a notional amount. To the extent that the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Equity
swaps are marked to market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gain or loss in the Statement
of Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform or that there may be
unfavorable changes in the price of the security or index underlying these
transactions. See Note 6 for a summary of open swap agreements as of August
31, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities. At
August 31, 1997, the fund had no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its taxable net
investment income and net realized short-term and long-term capital gains, if
any, after giving effect to any available capital loss carryover for federal
income tax purposes. Therefore, no provision for federal income or excise tax
is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
10
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis earnings
and profits, if any, are reported in the Fund's financial statements as a
return of capital. Differences in the recognition or classification of income
for financial statement and tax purposes which result in temporary over-
distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis and
is adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds. Investment income, common expenses and
realized and unrealized gains and losses are allocated pro-rata among the
classes based on the relative net assets of each class. Shareholder service
fees, which are directly attributable to a class of shares, are charged to
that class' operations. In addition, the Fund will also incur fees and
expenses indirectly as a shareholder in the underlying funds. Because the
underlying funds have varied expense and fee levels and the Fund may own
different proportions of underlying funds at different times, the amount of
fees and expenses indirectly incurred by the fund will vary. (See Note 2).
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .37% of the amount invested.
Prior to June 30, 1997, the premium on cash purchases was .50% of the amount
invested. In the case of cash redemptions, the fee is 1.40% of the amount
redeemed. The Manager may waive the fee on cash redemptions if it is not
necessary to incur costs relating to the early termination of hedging
transactions to meet redemption requests. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund. For
the six months ended August 31, 1997, the Fund received $2,320 in purchase
premiums and no redemption fees. There is no premium for reinvested
distributions.
11
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities. These
risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .65% of average
daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder
Services Plan under which the Fund pays GMO a shareholder service fee for
client and shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based on
the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares and .15% for Class III shares. The
Fund will always invest in the class of shares of each underlying Fund being
offered that bears the lowest shareholder service fee. Like the management
fee (as described below), the shareholder service fee of each class of the
Fund's shares will be waived (but not below zero) to the extent of the
indirect shareholder service fees paid in connection with the Fund's
investment in shares of underlying Funds.
GMO has agreed to waive a portion of its fee (but not below zero) and bear
other expenses until further notice to the extent that the Fund's annual
expenses (including the management fee but excluding custody fees, brokerage
commissions, certain other transaction costs (including transfer taxes),
shareholder service fees and extraordinary expenses ("fund expenses")) plus
the amount of fees and expenses (excluding shareholder service fee and fund
expenses (as defined above) incurred indirectly by the Fund through
investment in underlying Funds) exceed .50% of average daily net assets.
Because GMO will not waive the management fees below zero, and because the
amount of fees and expenses incurred indirectly by the Fund will vary, the
operating expenses (excluding shareholder service fees and fund expenses)
incurred indirectly by the Fund through investment in underlying Funds may
exceed .50% of the Fund's average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1997, was $1,380. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
12
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ - $ 313,850,234
Investments (non-U.S. Government securities) 238,528,428 316,306,799
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------ -------------------- ------------------- -----------------
<S> <C> <C> <C>
$220,119,070 $358,453 $4,493,012 $4,134,559
</TABLE>
4. Principal shareholders
At August 31, 1997, 36% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
--------------------------------- -------------------------------------
Class III: Shares Amount Shares Amount
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 43,712 $ 464,823 2,716,101 $ 28,751,811
Shares issued to
shareholders in
reinvestment of
distributions 177,828 1,865,419 335,863 3,585,825
Shares repurchased (8,825,361) (93,712,496) (11,267,323) (119,550,238)
--------------- --------------- ---------------- -----------------
Net decrease (8,603,821) $ (91,382,254) (8,215,359) $ (87,212,602)
=============== =============== ================ =================
</TABLE>
13
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Short futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------- -------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
150 S&P 500 September 1997 $ 67,732,500 $ 2,027,242
==================
</TABLE>
At August 31, 1997, the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
----------------- -------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Buys
9/12/97 ATS 14,790,020 $ 1,167,897 $ (78,103)
11/07/97 ATS 72,812,206 5,769,665 (197,254)
9/12/97 AUD 2,488,335 1,827,261 (14,480)
12/05/97 AUD 9,458,570 6,959,931 (84,086)
11/07/97 BEF 54,433,054 1,469,601 (42,866)
9/12/97 CAD 3,247,299 2,339,655 (56,345)
12/05/97 CAD 5,861,690 4,243,721 (34,262)
11/07/97 CHF 30,915,832 20,991,718 108,956
9/12/97 DEM 6,029,357 3,350,969 71,292
11/07/97 DEM 21,692,244 12,102,120 (345,077)
9/12/97 DKK 1,782,883 260,193 5,539
11/07/97 DKK 27,917,301 4,087,522 28,623
11/07/97 ESP 1,359,281,890 8,942,791 (359,395)
11/07/97 FIM 17,968,183 3,329,188 (150,441)
11/07/97 FRF 34,898,616 5,777,422 (100,678)
9/12/97 GBP 3,919,479 6,353,076 64,177
</TABLE>
14
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - 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
11/07/97 GBP 15,273,380 $ 24,696,292 $ (10,899)
10/09/97 HKD 50,351,750 6,474,194 (1,499)
11/07/97 HKD 19,245,236 2,470,241 4,957
12/05/97 HKD 45,917,947 5,883,974 (6,556)
9/12/97 IEP 485,147 720,718 (18,282)
11/07/97 IEP 1,298,678 1,927,476 (42,579)
9/12/97 ITL 2,214,959,600 1,257,405 25,037
11/07/97 ITL 12,787,994,480 7,246,178 (189,589)
12/05/97 JPY 1,856,227,594 15,634,265 (793,073)
9/12/97 MYR 7,658,868 2,622,697 (135,367)
12/05/97 MYR 14,223,463 4,814,984 (389,422)
11/07/97 NLG 40,562,980 20,097,348 (245,201)
9/12/97 NOK 39,441,209 5,291,855 (349,145)
11/07/97 NOK 54,045,143 7,270,973 (106,160)
9/12/97 NZD 1,362,682 870,226 (5,024)
12/05/97 NZD 16,180,452 10,276,704 (424,004)
11/07/97 SEK 90,171,113 11,507,093 (64,853)
12/05/97 SGD 14,901,949 9,846,669 (138,081)
----------------
$ (4,074,140)
================
Sales
9/12/97 ATS 14,790,020 1,168,319 (26,409)
11/07/97 ATS 72,812,206 5,772,607 20,310
9/12/97 AUD 2,488,335 1,828,545 101,456
12/05/97 AUD 9,458,570 6,965,377 83,549
11/07/97 BEF 54,433,054 1,471,290 (29,182)
9/12/97 CAD 3,247,299 2,340,715 (9,727)
12/05/97 CAD 5,861,690 4,245,592 (319)
11/07/97 CHF 30,915,832 21,005,981 346,989
</TABLE>
15
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forward currency contracts - continued
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
----------------- -------------------- -------------------- ------------------- --------------------
Sales - continued
<S> <C> <C> <C> <C>
9/12/97 DEM 6,029,357 $ 3,351,938 $ 220,062
11/07/97 DEM 21,692,244 12,105,857 320,558
9/12/97 DKK 1,782,883 260,277 16,723
11/07/97 DKK 27,917,301 4,089,518 122,100
11/07/97 ESP 1,359,281,890 8,949,710 (174,171)
11/07/97 FIM 17,968,183 3,332,605 (32,163)
11/07/97 FRF 34,898,616 5,779,113 (13,626)
9/12/97 GBP 3,919,479 6,355,481 53,520
11/07/97 GBP 15,273,380 24,706,219 192,075
10/09/97 HKD 50,351,750 6,477,859 16,627
11/07/97 HKD 19,245,236 2,472,198 10,802
12/05/97 HKD 45,917,947 5,889,358 16,916
9/12/97 IEP 485,147 722,054 (17,864)
11/07/97 IEP 1,298,678 1,931,242 (35,370)
9/12/97 ITL 2,214,959,600 1,257,838 58,162
11/07/97 ITL 12,787,994,480 7,249,252 642
12/05/97 JPY 1,856,227,594 15,642,851 1,022,295
9/12/97 MYR 7,658,868 2,628,254 437,746
12/05/97 MYR 14,223,463 4,828,442 640,350
11/07/97 NLG 40,562,980 20,103,075 65,366
9/12/97 NOK 39,441,209 5,296,505 (152,020)
11/07/97 NOK 54,045,143 7,278,317 (91,496)
9/12/97 NZD 1,362,682 870,939 70,061
12/05/97 NZD 16,180,452 10,287,302 362,837
11/07/97 SEK 90,171,113 11,519,343 (164,170)
12/05/97 SGD 14,901,949 9,869,712 533,630
--------------
$ 3,966,259
==============
</TABLE>
16
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Currency Abbreviations
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc MYR Malaysian Ringgit
DEM German Mark NLG Netherlands Guilder
DKK Danish Krona NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
FIM Finnish Markka SEK Swedish Krona
FRF French Franc SGD Singapore Dollar
GBP British Pound
17
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
------------------- ------------ ------------------------------------------------------ -----------------
<S> <C> <C> <C>
$ 14,999,965 09/30/97 Agreement with Deutsche Bank AG dated September 30, $ (556,923)
1996 to pay (receive) the notional amount multiplied
by the return on the EAFE Index (including
dividends) and to receive the notional amount
multiplied by 6 month LIBOR adjusted by a specified
spread.
15,500,000 05/29/98 Agreement with Swiss Bank Corporation dated May 30, 369,924
1997 to pay (receive) the notional amount multiplied
by the return on the EAFE Index (including
dividends) and to receive the notional amount
multiplied by 12 month LIBOR adjusted by a specified
spread.
25,641,923 05/29/98 Agreement with Swiss Bank Corporation dated May 30, 110,657
1997 to pay (receive) the notional amount multiplied
by the return on the EAFE X-Japan Index (including
dividends) and to receive the notional amount
multiplied by 12 month LIBOR adjusted by a specified
spread.
----------------
Net unrealized depreciation $ (76,342)
================
</TABLE>
18
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS - 87.4%
Canada - 11.1%
13,700 Brookfield Properties Corp * 191,422
40,000 Burcon International Development Ltd 144A * 420,613
10,000 Cambridge Shopping Centres Ltd 101,192
2,500 Canadian Hotel Inc 15,125
10,000 Oxford Properties Group * 255,681
6,000 Trizec Hahn Corp (Sub-Voting) 135,375
-------------------
1,119,408
-------------------
France - 8.6%
2,665 Klepierre * 347,103
1,357 Silic * 179,651
9,430 Sophia SA * 342,033
-------------------
868,787
-------------------
Japan - 9.1%
8,000 Daibiru Corp * 88,453
5,000 Hankyu Realty Co Ltd * 33,253
10,000 Heiwa Real Estate Co Ltd * 46,222
5,000 Keihanshin Real Estate * 28,431
26,000 Mitsubishi Real Estate Co Ltd * 365,284
13,000 Mitsui Fudosan Co Ltd * 151,301
7,000 Sankei Building Co Ltd * 39,862
11,000 Sumitomo Realty and Development Co Ltd * 87,696
6,000 Toc Co Ltd * 65,342
5,000 Tokyo Rakutenchi * 16,419
-------------------
922,263
-------------------
Netherlands - 10.2%
16,880 German City Estates NV (Bearer) * 254,060
11,340 Nagron * 320,091
5,700 Vastned (Offices) NV * 208,147
5,896 VIB NV * 151,877
1,600 Wereldhave NV 97,905
-------------------
1,032,080
-------------------
New Zealand - 13.0%
1,736,363 Trans Tasman Properties Ltd 1,032,272
500,000 Trans Tasman Properties * 278,074
-------------------
1,310,346
-------------------
Sweden - 0.4%
5,000 Castellum AB * 40,759
-------------------
United Kingdom - 7.6%
750,000 Hemingway Properties Plc * 474,373
150,000 Nursing Home Properties * 291,924
-------------------
766,297
-------------------
United States - 27.4%
6,000 Arden Realty Group Inc 173,250
3,000 Associated Estates Realty Corp 68,063
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States - continued
2,500 Avalon Properties 70,156
4,500 Bedford Properties Investments Inc 92,250
3,000 Bradley Real Estate Inc 56,250
2,500 Crescent Real Estate Equities 79,063
2,000 Developers Diversified Realty Co 77,750
4,500 Eastgroup Properties Inc 91,969
5,000 Equity Office Properties Trust 145,938
2,000 Excel Reality Trust * 59,250
5,000 Felcor Suite Hotels Inc 190,000
2,500 First Industrial Realty Trust Inc * 77,188
3,000 Gables Residential Trust 78,938
2,000 Glimcher Realty Trust 41,250
1,000 HRE Properties 18,125
2,000 Lexington Corporate Properties 29,625
2,500 MGI Properties 57,969
2,000 Mills Corp 53,000
3,000 Parkway Properties Inc * 93,750
7,998 Patriot Amern Hospitality Preferred 194,951
5,000 Prentiss Properties Trust 138,125
6,000 Reckson Associates Realty Corp * 144,750
2,500 Security Capital Atlantic Inc 56,406
5,000 Security Capital Atlantic Rights 9/9/97 * 78
2,500 Security Capital Pacific Trust 54,531
4,000 Shurgard Storage Centers Class A * 110,250
4,000 Simon DeBartolo Group Inc 126,750
3,000 Smith Charles E Residential Realty 91,500
2,000 Starwood Lodging Trust Combined 92,375
3,000 Sunstone Hotel Investors Inc 45,188
5,000 Urban Shopping Centers Inc 154,688
------------------
2,763,376
------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $8,671,168) 8,823,316
------------------
SHORT-TERM INVESTMENTS - 12.9%
Par Value Cash Equivalents - 12.9%
$ 1,300,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 1,300,000
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,300,000) 1,300,000
------------------
TOTAL INVESTMENTS - 100.3%
(Cost $9,971,168) 10,123,316
Other Assets and Liabilities (net) - (0.3%) (33,553)
------------------
TOTAL NET ASSETS - 100.0% $ 10,089,763
==================
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
144A Securities exempt from registration under Rule
144A of the Securities Act of 1933. These securities may
be resold in transactions exempt from registration,
normally to qualified institutional buyers.
* Non-income producing security. A dividend has not been declared for the
twelve months ended August 31, 1997.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $9,971,168) (Note 1) $ 10,123,316
Foreign currency, at value (cost $191) 187
Cash 41,274
Dividends and interest receivable 8,932
---------------
Total assets 10,173,709
---------------
Liabilities:
Payable for investments purchased 15,643
Payable to affiliate for (Note 2):
Management fee 6,445
Shareholder service fee 1,289
Accrued expenses 60,569
---------------
Total liabilities 83,946
---------------
Net assets $ 10,089,763
===============
Net assets consist of:
Paid-in capital $ 9,716,059
Accumulated undistributed net investment income 219,715
Accumulated net realized gain 1,840
Net unrealized appreciation 152,149
---------------
$ 10,089,763
===============
Net assets attributable to Class III Shares $ 10,089,763
===============
Shares outstanding - Class III 964,910
===============
Net asset value per share - Class III $ 10.46
===============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $8,486) $ 144,061
Interest 137,398
------------------
Total income 281,459
------------------
Expenses:
Management fee (Note 2) 37,041
Custodian fees 24,196
Audit fees 23,460
Transfer agent fees 11,040
Stamp duties and transfer taxes 368
Legal fees 184
Fees waived or borne by Manager (Note 2) (42,092)
------------------
54,197
Shareholder service fee - Class III (Note 2) 7,408
------------------
Net expenses 61,605
------------------
Net investment income 219,854
------------------
Realized and unrealized gain (loss):
Net realized gain on foreign currency and foreign currency
related transactions 1,840
------------------
Change in net unrealized appreciation (depreciation) on:
Investments 196,233
Foreign currency, forward contracts and foreign
currency related transactions 1
------------------
Net unrealized gain 196,234
------------------
Net realized and unrealized gain 198,074
------------------
Net increase in net assets resulting from operations $ 417,928
==================
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
----------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 219,854 $ 42,303
Net realized gain (loss) 1,840 (1,952)
Change in net unrealized appreciation (depreciation) 196,234 (44,085)
------------------------ -------------------
Net increase (decrease) in net assets resulting from operations 417,928 (3,734)
------------------------ -------------------
Distributions to shareholders from:
Net investment income - Class III (40,490) -
------------------------ -------------------
Net share transactions - Class III (Note 5) 247,970 9,468,089
------------------------ -------------------
Total increase in net assets 625,408 9,464,355
Net assets:
Beginning of period 9,464,355 -
------------------------ -------------------
End of period (including accumulated undistributed
net investment income of $219,715 and $40,351,
respectively) $ 10,089,763 $ 9,464,355
======================== ==================
</TABLE>
* Period from December 20, 1996 (commencement of operations) to February
28, 1997.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.06 $ 10.00
------------------- --------------------
Income from investment operations:
Net investment income 0.23 0.04
Net realized and unrealized gain 0.21 0.02 (c)
------------------- --------------------
Total from investment operations 0.44 0.06
------------------- --------------------
Less distributions to shareholders:
From net investment income (0.04) -
------------------- --------------------
Net asset value, end of period $ 10.46 $ 10.06
=================== ====================
Total Return (a) 4.40% 0.60%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 10,090 $ 9,464
Net expenses to average
daily net assets 1.25% ** 1.98% **
Net investment income to average
daily net assets 4.45% ** 2.39% **
Portfolio turnover rate 0% 0%
Average broker commission rate (b) $ 0.0137 $ 0.0062
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.05
</TABLE>
* Period from December 20, 1996 (commencement of operations) to February
28, 1997.
** Annualized.
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) The average broker commission rate will vary depending on the markets in
which trades are executed.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain (loss) on investments for the
period ended February 28, 1997 due to the timing of purchases and
redemptions of Fund shares in relation to fluctuating market values of
the investments of the Fund.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Properties Fund (the "Fund"), which commenced operations on
December 20, 1996, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an open-
end, non-diversified management investment company. The Fund is advised and
managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO").
The Trust was established as a Massachusetts Business Trust under the laws
of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
Prior to April 7, 1997, the offering of shares for the Fund was not
registered under the Securities Act of 1933, as amended (the "Act"), but
rather was made privately by the Fund pursuant to the private placement
exemption from registration provided by Section 4(2) of the Act and
Regulation D thereunder.
The Fund seeks long-term capital growth primarily through investment in
securities of issuers throughout the world which are engaged in or related
to the real estate industry or which own significant real estate assets.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference between the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Securities
which are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates market value.
Other assets and securities for which no quotations are readily available
are valued at fair value as determined in good faith by the Trustees.
8
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryover for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are to
be treated, to the extent allowable under the Code, as if received and paid
by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
9
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of its interest in the REIT's earnings. The
excess amount cannot be determined by the Fund at the time of receipt. If the
Fund distributes amounts which are subsequently determined to exceed REIT
earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis and
is adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis. Dividends representing a return of capital are
reflected as a reduction of cost.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and the
relative size of the Funds. Investment income, common expenses and realized
and unrealized gains and losses are allocated pro-rata among the classes based
on the relative net assets of each class. Shareholder service fees, which are
directly attributable to a class of shares, are charged to that class'
operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount invested.
In the case of cash redemptions, the fee is .30% of the amount redeemed. The
Manager may waive such premiums to the extent that a transaction results in
minimal brokerage and transaction costs to the Fund. All purchase premiums
and redemption fees are pa id to and recorded as paid-in capital by the Fund.
For the six months ended August 31, 1997, the Fund received $1,434 in purchase
premiums and no redemption fees. There is no premium for reinvested
distributions.
Investment risks
There are certain additional risks involved in investing in real-estate
related securities rather than a more diversified portfolio of investments.
Since the Fund's investments are concentrated in real-estate related
securities, the value of its shares can be expected to change in light of
factors affecting the real estate industry, including local or regional
economic conditions, changes in zoning laws, changes in real estate values and
property taxes, and changes in interest rates. The value of the Fund's shares
may fluctuate more widely than the value of shares of a portfolio that invests
in a broader range of industries. Additionally, there are certain additional
risks involved in investing in foreign securities that are not inherent in
investments in domestic securities. These risks may involve adverse political
and economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions. In addition,
the securities of some foreign companies and securities markets are less
liquid and at times more volatile than securities of comparable U.S. companies
and U.S. securities markets.
10
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares, and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including stamp duties and transfer taxes),
shareholder service fees and extraordinary expenses) exceed .60% of average
daily net assets.
No remuneration is paid to any Trustee or officer who is affiliated with the
Manager. For the six months ended August 31, 1997, the Fund incurred no
Trustees fees.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the six months ended August 31, 1997, aggregated
$5,275,698 and $0, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- -------------------- --------------------- ------------------ ---------------
<S> <C> <C> <C>
$9,971,168 $349,031 $196,883 $152,148
</TABLE>
4. Principal shareholder
At August 31, 1997, 71% of the outstanding shares of the Fund were held by
one shareholder, who is an affiliate of the Manager.
11
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Class III: Period from December 20, 1996
Six Months Ended (commencement of operations)
August 31, 1997 to February 28, 1997
------------------------- --------------------------------
Shares Amount Shares Amount
---------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Shares sold 23,696 $ 239,003 940,343 $ 9,468,089
Shares issued to
shareholders
in reinvestment
of distributions 871 8,967 - -
Shares
repurchased - - - -
---------- ------------ ----------- ----------------
Net increase 24,567 $ 247,970 940,343 $ 9,468,089
========== ============ =========== ================
</TABLE>
12
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 83.4%
Automotive - 1.3%
10,000 Chrysler Corp 351,250
15,000 General Motors Corp 941,250
80,000 Mascotech Industries Inc 1,675,000
--------------------
2,967,500
--------------------
Banking and Financial Services - 11.0%
40,000 American Express Co 3,110,000
117,500 Block (HR) Inc 4,611,875
37,500 Chase Manhattan Corp 4,169,531
42,500 Citicorp 5,424,063
25,000 First Chicago NBD Corp 1,793,750
10,000 Nationsbank Corp 593,750
10,000 PNC Bank Corp 432,500
42,500 Travelers Group Inc (The) 2,698,750
5,000 Wells Fargo Co 1,271,250
--------------------
24,105,469
--------------------
Chemicals - 0.7%
25,000 Albemarle Corp 614,063
10,000 Bayer A G 375,000
25,000 Borden Chemical and Plastics LP 260,938
10,000 Georgia Gulf Corp 287,500
--------------------
1,537,501
--------------------
Computer and Office Equipment - 0.4%
87,500 Intergraph Corp * 869,531
--------------------
Construction - 0.1%
10,000 McDermott International Inc 322,500
--------------------
Consumer Goods - 3.7%
25,000 Black & Decker Corp 957,813
57,500 Eastman Kodak 3,759,063
5,000 Hasbro Inc 134,375
35,000 Maytag Corp 960,313
100,000 Safety Kleen 2,018,750
15,000 Scotts Company Class A * 420,000
--------------------
8,250,314
--------------------
Electronic Equipment - 0.5%
50,000 International Rectifier Corp * 1,140,625
--------------------
Environmental Control - 0.2%
35,000 Wheelabrator Technologies Inc 549,063
--------------------
Food and Beverage - 2.8%
40,000 Anheuser-Busch Cos Inc 1,705,000
10,500 Archer Daniels Midland 227,063
15,000 Coors (Adolph) Co 553,125
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------
<C> <S> <C>
Food and Beverage - continued
15,000 Darden Restaurants Inc 150,938
40,000 Nestle SA ADR 2,331,392
12,500 Riviana Foods Inc 221,875
25,000 RJR Nabisco Holdings Corp 870,313
5,000 Sara Lee Corp 201,250
-----------------
6,260,956
-----------------
Health Care - 1.3%
25,000 Baxter International Inc 1,329,688
50,000 Beverly Enterprises Inc * 815,625
50,000 Owens and Minor Holdings Co 678,125
5,000 Quest Diagnostics Inc * 93,438
-----------------
2,916,876
-----------------
Insurance - 6.2%
5,000 Aetna Inc 477,165
25,000 Allstate Corp 1,826,563
20,000 Chartwell Re Corp 685,000
7,500 Cigna Corp 1,375,313
7,500 Gallagher (Arthur J) and Co 268,125
150,000 Reliance Group Holdings Inc 1,837,500
50,000 Sedgwick Group ADR 488,565
135,000 TIG Holdings Inc 4,218,750
7,500 Transamerica Corp 739,219
25,000 USF & G Corp 548,438
20,000 Washington National Corp 590,000
60,000 Willis Corroon Group Plc ADR 618,750
-----------------
13,673,388
-----------------
Machinery - 1.2%
35,000 Cincinnati Milacron Inc 901,250
25,000 Coltec Industries Inc * 559,375
5,000 Cummins Engine Inc 384,688
10,000 FMC Corp * 830,625
-----------------
2,675,938
-----------------
Manufacturing - 10.1%
35,000 American Greetings Corp 1,216,250
25,000 Clayton Homes Inc 420,313
27,500 Corning Inc 1,454,063
32,500 General Electric Co 2,031,250
50,000 Griffon Corp * 700,000
47,500 International Business Machines Corp 4,791,563
82,500 Owens Corning 3,346,406
30,000 Rockwell International Corp 1,800,000
10,000 Tenneco Inc 485,625
37,500 United Technologies Corp 2,927,344
115,000 Westinghouse Electric Corp 2,961,250
-----------------
22,134,064
-----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------
<C> <S> <C>
Metals and Mining - 1.4%
5,000 Alcan Aluminum Ltd 174,688
50,000 Allegheny Teledyne Inc 1,543,750
37,500 Amcol International Corp 637,500
50,000 Boliden Ltd 262,921
20,600 Echo Bay Mines Ltd * 104,288
5,000 Pittston Minerals Group 55,938
15,000 Placer Dome Inc 249,375
1,666 Westaim Corp * 8,220
----------------
3,036,680
----------------
Oil and Gas - 7.6%
25,000 Amerada Hess Corp 1,453,125
15,000 Cabot Oil & Gas Corp, Class A 347,813
5,000 Dresser Industries Inc 208,750
30,000 Enron Oil & Gas Co 723,750
52,483 Enserch Exploration Inc * 472,344
50,000 Lasmo Plc ADR 615,625
25,000 Mitchell Energy Class A 621,875
40,000 Mitchell Energy Class B 1,000,000
10,000 Mobil Corp 727,500
15,000 Monterey Resources Inc 309,375
112,500 Occidental Petroleum Corp 2,636,719
50,000 Santa Fe Energy Resources Inc * 553,125
35,000 Union Texas Petroleum Holdings Inc 815,938
45,000 Unocal Corp 1,757,813
92,500 USX - Marathon Group 3,012,031
50,000 Westcoast Energy Inc 956,250
15,000 YPF SA ADR 488,438
----------------
16,700,471
----------------
Paper and Allied Products - 0.6%
20,000 Fort James Corp 840,000
10,000 Weyerhaeuser Co 577,500
----------------
1,417,500
----------------
Pharmaceuticals - 1.5%
10,000 Allergan Inc 323,750
7,500 Glaxo Wellcome Plc ADR 299,063
17,500 Lilly (Eli) and Co 1,830,938
25,000 Medpartners Inc * 534,375
10,000 Smithkline Beecham PLC 433,125
----------------
3,421,251
----------------
Primary Processing - 0.6%
11,500 Du Pont (E I) De Nemours & Co Inc 716,594
20,000 Intermet Corp 346,250
5,000 LTV Corp 65,000
12,500 Tubos De Acero De Mexico SA ADR * 225,000
----------------
1,352,844
----------------
Printing and Publishing - 0.2%
25,000 News Corp Ltd ADR 451,563
----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<C> <S> <C>
Real Estate - 2.0%
25,000 Boston Properties Inc * 745,313
10,000 Evans Withycombe Residential 238,125
65,000 JP Realty Inc 1,600,625
50,000 Summit Properties Inc 996,875
37,500 Walden Residential Properties Inc 895,313
----------------
4,476,251
----------------
Refining - 0.6%
15,000 Ashland Inc 751,875
5,000 Imperial Oil Ltd 276,250
25,000 Quaker State Corp 387,500
----------------
1,415,625
----------------
Retail Trade - 3.5%
37,500 Costco Co Inc * 1,352,344
75,000 Federated Department Stores * 3,150,000
20,000 Toys R Us Inc * 691,250
75,000 Wal-Mart Stores Inc 2,662,500
----------------
7,856,094
----------------
Services - 3.7%
37,500 Cordiant Plc ADR 210,938
5,000 Manpower Inc 213,438
35,000 Ogden Corp 811,563
2,500 Time Warner Inc 128,750
200,000 Waste Management Inc 6,400,000
50,000 Waste Management International Plc * 406,250
----------------
8,170,939
----------------
Technology - 8.8%
25,000 Avnet Inc 1,729,688
85,000 Digital Equipment Corp * 3,655,000
25,000 Information Resources Inc * 450,000
30,000 Intel Corp 2,763,750
100,000 Storage Technology Corp * 5,093,750
137,500 Tandem Computers Inc * 4,728,281
12,500 Xerox Corp 943,750
----------------
19,364,219
----------------
Telecommunications - 5.6%
10,000 AT&T Corp 390,000
50,000 Cox Communications Inc * 1,353,125
87,500 GTE Corp 3,899,219
30,000 MCI Communications Corp 855,000
12,500 SBC Communications Inc 679,688
50,000 Tele-Communications Class A * 875,000
35,000 US West Inc 1,253,438
150,000 US West Media Group * 3,000,000
----------------
12,305,470
----------------
Tobacco - 0.3%
5,000 Gallaher Group Plc 89,688
47,500 Imperial Tobacco Group Plc 587,813
----------------
677,501
----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
Transportation - 2.0%
10,000 AMR Corp * 1,007,500
60,000 Canadian Pacific Ltd 1,751,250
7,500 Delta Air Lines Inc 648,750
5,000 Hunt (JB) Transportation Services Inc 83,125
15,000 Ryder System Inc 535,313
10,000 Sabre Group Holdings Inc * 307,500
-----------------
4,333,438
-----------------
Utilities - 5.5%
25,000 Calpine Corp * 462,500
10,000 CMS Energy Corp 359,375
62,664 Duke Energy Co 3,035,288
20,000 Energy Group Plc 808,750
37,481 Houston Industries Inc 758,990
100,000 Niagara Mohawk Power Corp * 893,750
5,000 Pacific Corp 103,750
92,875 Texas Utilities 3,239,016
25,000 TransCanada Pipeline Ltd 468,750
90,000 Unicom Corp 2,126,250
-----------------
12,256,419
-----------------
TOTAL COMMON STOCKS (Cost $115,468,639) 184,639,990
-----------------
PREFERRED STOCKS - 1.8%
Metals and Mining - 0.3%
25,000 Freeport-McMoran Corp Preferred 0.00% 745,313
-----------------
Oil and Gas - 0.2%
22,500 Atlantic Richfield Co Convertible Preferred 9.00% 534,375
-----------------
Paper and Allied Products - 0.6%
28,500 James River Corp Convertible Preferred 9.00% 1,086,563
-----------------
Primary Processing - 0.0%
500 Armco Inc Convertible Preferred $3.625 25,063
-----------------
Transportation - 0.7%
16,500 Navistar International Corp Preferred $6.00 987,938
7,500 US Airways Group Inc Convertible Preferred Series B $4.38 642,188
-----------------
1,630,126
-----------------
TOTAL PREFERRED STOCKS (Cost $3,101,093) 4,021,440
-----------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($) Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS - 13.9%
Banking and Financial Services - 0.9%
99,101 Citicorp, Variable Rate Note, 6.50% due 5/1/04 99,655
1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 955,310
1,000,000 Standard Credit Card Master Trust I, Variable Rate Note, 6.11% due 9/15/97 1,000,000
-----------------
2,054,965
-----------------
Food and Beverage - 0.4%
250,000 Anheuser-Busch Cos Inc, 8.50% due 3/1/17 259,438
750,000 General Foods Corp, 7.00% due 6/15/11 722,940
-----------------
982,378
-----------------
Paper and Allied Products - 0.2%
500,000 Georgia Pacific Corp, 9.75% due 1/15/18 521,705
-----------------
Real Estate - 0.8%
1,750,000 HMH Properties Inc, 9.50% due 5/15/05 1,824,375
-----------------
Technology - 1.7%
2,500,000 Digital Equipment Corp, 7.125% due 10/15/02 2,447,239
1,000,000 VLSI Technology Inc, 8.25% due 10/01/05 1,027,500
-----------------
3,474,739
-----------------
Transportation - 0.9%
1,000,000 AMR Corp, 9.00% due 8/1/12 1,146,780
1,000,000 United Air Lines Inc, 9.13% due 1/15/12 1,117,660
-----------------
2,264,440
-----------------
U.S. Government - 8.9%
7,500,000 U.S. Treasury Note, 4.75% due 8/31/98 7,427,325
1,250,000 U.S. Treasury Note, 7.75% due 2/15/01 1,311,325
5,750,000 U.S. Treasury Bond, 11.13% due 8/15/03 7,107,518
750,000 U.S. Treasury Bond, 10.75% due 8/15/05 950,745
2,500,000 U.S. Treasury Bond, 7.25% due 5/15/16 2,653,125
-----------------
19,450,038
-----------------
U.S. Government Agency - 0.1%
353,992 Federal Home Loan Mortgage Corp, 7.50% due 1/1/23,
Series 146, Interest Only Strip 115,157
-----------------
TOTAL DEBT OBLIGATIONS (Cost $29,472,677) 30,687,797
-----------------
SHORT-TERM INVESTMENT
2,090,000 State Street Bank and Trust Co Repurchase Agreement,
dated 8/29/97, due 9/2/97, with a maturity value of
$2,090,929 and an effective yield of 4.00%,
collateralized by a U.S. Treasury Note, with a rate of
7.50% due 11/15/16
with an aggregate market value of $2,133,209 (Cost $2,090,000). 2,090,000
-----------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS - 100.0%
(Cost $150,132,409) 221,439,227
Other Assets and Liabilities (net) 54,169
--------------------
TOTAL NET ASSETS - 100.0% $ 221,493,396
====================
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
Variable Rate Notes - The rates shown on variable rate notes are
the current interest rates at August 31, 1997, which are
subject to change based on the terms of the security.
* Non-income producing security.
See accompanying notes to the financial statements. 7
<PAGE>
Pelican Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $150,132,409) (Note 1) $ 221,439,227
Cash 2,826
Dividends and interest receivable 785,173
Receivable for investments sold 3,123,032
Receivable for Fund shares sold 26,435
Receivable for expenses waived or borne by Manager (Note 2) 12,066
----------------
Total assets 225,388,759
----------------
Liabilities:
Payable for investments purchased 209,695
Payable for Fund shares repurchased 3,292,898
Payable to affiliate for management fee (Note 2) 318,578
Accrued expenses and other liabilities 74,192
----------------
Total liabilities 3,895,363
----------------
Net Assets (equivalent to $18.00 per share based
on 12,305,071 shares outstanding, unlimited shares authorized) $ 221,493,396
================
Net Assets consist of:
Paid-in capital $ 134,404,147
Accumulated undistributed net investment income 772,490
Accumulated undistributed net realized gain 15,009,941
Net unrealized appreciation 71,306,818
----------------
Net assets $ 221,493,396
================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment income:
<S> <C>
Dividends (net of withholding taxes of $25,093) $ 1,902,944
Interest 1,113,925
---------------
Total income 3,016,869
---------------
Expenses:
Management fee (Note 2) 966,368
Custodian and transfer agent fees 84,916
Audit fees 27,232
Registration fees 6,164
Legal fees 4,692
Trustees fee (Note 2) 920
Miscellaneous 2,742
---------------
Total expenses 1,093,034
Less: expenses waived or borne by Manager (Note 2) (73,820)
---------------
Net expenses 1,019,214
---------------
Net investment income 1,997,655
---------------
Realized and unrealized gain (loss):
Net realized gain on investments 16,525,120
Change in net unrealized appreciation (depreciation)
on investments 11,436,775
---------------
Net realized and unrealized gain 27,961,895
---------------
Net increase in net assets resulting from operations $ 29,959,550
===============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
--------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,997,655 $ 3,995,498
Net realized gain 16,525,120 9,036,632
Change in net unrealized appreciation (depreciation) 11,436,775 19,894,742
--------------------- ---------------------
Net increase in net assets resulting from operations 29,959,550 32,926,872
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (2,698,528) (3,383,491)
Net realized gains (6,192,203) (6,758,143)
--------------------- ---------------------
(8,890,731) (10,141,634)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 10,325,932 22,372,007
Net asset value of shares issued to shareholders
in payment of distributions declared 8,071,282 9,313,111
Cost of shares repurchased (25,341,505) (24,339,781)
--------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (6,944,291) 7,345,337
--------------------- ---------------------
Total increase in net assets 14,124,528 30,130,575
Net assets:
Beginning of period 207,368,868 177,238,293
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $772,490 and
$1,473,363, respectively) $ 221,493,396 $ 207,368,868
===================== =====================
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Financial Highlights
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended February 28/29,
------------------------------
<S> <C> <C> <C>
(Unaudited) 1997 1996
------------ ------------- ------------
Net asset value, beginning of period $ 16.31 $ 14.52 $ 11.99
------------ ------------- ------------
Income from investment operations:
Net investment income 0.17 0.33 0.31
Net realized and unrealized gain 2.25 2.27 3.04
------------ ------------- ------------
Total from investment operations 2.42 2.60 3.35
------------ ------------- ------------
Less distributions to shareholders:
From net investment income (0.22) (0.27) (0.29)
From net realized gains (0.51) (0.54) (0.53)
------------ ------------- ------------
Total distributions (0.73) (0.81) (0.82)
------------ ------------- ------------
Net asset value, end of period $ 18.00 $ 16.31 $ 14.52
============ ============= ============
Total Return (a) 15.00% 18.40% 28.54%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 221,493 $ 207,369 $ 177,238
Net expenses to average
daily net assets 0.95%* 0.95% 1.05%
Net investment income to average
daily net assets 1.86%* 2.10% 2.42%
Portfolio turnover rate 15% 27% 32%
Average broker commission rate (b) $ 0.0689 $ 0.0556 N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.01 $ -
<CAPTION>
Year Ended February 28/29,
-------------------------------------------------
<S> <C> <C> <C>
1995 1994 1993
----------- ------------- ------------
Net asset value, beginning of period $ 12.08 $ 11.37 $ 10.70
----------- ------------- ------------
Income from investment operations:
Net investment income 0.37 0.29 0.36
Net realized and unrealized gain 0.46 1.40 1.06
----------- ------------- ------------
Total from investment operations 0.83 1.69 1.42
----------- ------------- ------------
Less distributions to shareholders:
From net investment income (0.37) (0.37) (0.38)
From net realized gains (0.55) (0.61) (0.37)
----------- ------------- ------------
Total distributions (0.92) (0.98) (0.75)
----------- ------------- ------------
Net asset value, end of period $ 11.99 $ 12.08 $ 11.37
=========== ============= ============
Total Return (a) 7.38% 15.14% 13.93%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 117,920 $ 101,165 $ 85,401
Net expenses to average
daily net assets 1.10% 1.10% 1.10%
Net investment income to average
daily net assets 2.51% 2.42% 3.40%
Portfolio turnover rate 40% 49% 39%
Average broker commission rate (b) N/A N/A N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ - $ 0.01 $ 0.01
</TABLE>
* Annualized.
(a) The total returns would have been lower had certain expenses not
been waived during the periods shown.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for
security trades on which commissions are charged.
See accompanying notes to the financial statements. 11
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
The Pelican Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC ("the Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which will issue a separate series of shares.
The Fund seeks long-term capital growth primarily through investment in
equity securities.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term debt obligations with a remaining maturity of sixty days or less
are valued at amortized cost which approximates market value. Other assets
and securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
12
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for amortization of discount on bonds. Distributions
in excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital. Differences in the
recognition or classification of income for financial statement and tax
purposes which result in temporary over-distributions for financial
statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. Management fee and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .90% of
average daily net assets. GMO has agreed to waive a portion of its fee and
bear other expenses until further notice to the extent that the Fund's
annual expenses (including the management fee but excluding brokerage
commissions and transfer taxes) exceed .95% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $920. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
13
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 2,762,813 $ -
Investments (non-U.S. Government securities) 27,890,243 45,292,785
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------------- --------------------------- ------------------------- ----------------------
<S> <C> <C> <C>
$150,132,409 $73,115,887 $1,809,069 $71,306,818
</TABLE>
4. Principal shareholder
At August 31, 1997, 38% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
------------------------ ------------------
<S> <C> <C>
Shares sold 602,006 1,487,108
Shares issued to shareholders in reinvestment
of distributions 462,817 632,940
Shares repurchased (1,473,913) (1,610,011)
------------------ ------------------
Net increase/(decrease) (409,090) 510,037
Fund shares:
Beginning of period 12,714,161 12,204,124
------------------ ------------------
End of period 12,305,071 12,714,161
================== ==================
</TABLE>
14
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 89.8%
Argentina - 0.2%
57,500 YPF SA ADR 1,872,344
-------------------
Australia - 4.0%
336,591 Australia and New Zealand Banking Group Ltd 2,417,707
706,644 Boral Ltd 2,060,409
486,000 Burswood Property Trust 538,984
219,100 Caltex Australia Ltd 638,844
178,264 Capral Aluminum Ltd 569,528
2,376,006 Crown Ltd * 2,914,246
237,472 Dominion Mining Ltd Warrants 12/31/98 * 21,801
494,945 Dominion Mining Ltd * 174,486
690,504 Email Ltd 2,124,919
334,137 Energy Research Group Ltd 306,759
465,510 Foodland Associated 3,318,080
1,432,358 Goodman Fielder Ltd 2,051,391
312,500 Menzies Gold NL Rights 9/22/97 * 230
2,500,000 Menzies Gold NL * * 413,128
3,045,980 MIM Holdings Ltd 3,646,506
550,417 National Mutual Holdings 816,593
390,000 Oil Search Ltd 945,237
54,000 Orogen Minerals Ltd GDR 144A 1,560,060
2,236,235 Pasminco Ltd 4,045,238
587,001 Pioneer International Ltd 1,974,543
616,496 Rothmans Holdings Ltd 3,254,169
785,000 Sydney Harbour Casinos Preferred * 1,066,605
834,448 Westpac Banking Corp 4,835,468
501,706 Wills (WD & HO) Holdings Ltd 678,000
-------------------
40,372,931
-------------------
Austria - 0.3%
41,420 Bank Austria AG (Participating Certificate) 1,173,765
4,613 Oesterreichische Brau Beteiligungs AG 243,969
7,170 Radex-Heraklith AG 276,761
1,991 Universale Bau AG 64,436
3,932 VA Technologie AG (Bearer) 721,472
3,140 Wienerberger Baustoffindustrie AG 609,735
-----------------
3,090,138
-----------------
Belgium - 2.5%
1,942 Banque Bruxelles Lambert 453,099
1,109 Bekaert SA 701,332
25,042 Cie Francois De Enterprises 7,412,863
14,200 Credit Commercial Dexia 1,360,388
19,173 Electrabel SA 3,771,653
6,397 Generale Banque NPV 2,397,154
17,305 GIB Holdings Ltd 866,181
5,032 Kredietbank NPV 1,872,104
2,713 Petrofina SA Bruxelles 969,189
9,616 Powerfin SA 1,261,518
1,510 Royale Belge NPV 416,510
24,780 Solvay Et Cie 1,387,040
800 UCB Cap NPV 2,495,156
-----------------
25,364,187
-----------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brazil - 0.0%
6,439,529 Gerdau SA Preferred 126,196
2,809,993 Metalurgica Gerdau Preferred 126,089
158,537 Metalurgica Gerdau SA 4,355
-------------------
256,640
-------------------
Canada - 1.6%
136,620 Abitibi-Price Inc 2,391,059
299,128 Air Canada Inc * 2,348,299
29,693 Alliance Forest Preferred (d) * 702,521
10,200 Alliance Forest Products Inc * 241,327
10,000 Avenor Inc 187,259
12,000 Boliden Ltd Installment Receipt 144A * 63,092
283,000 Boliden Ltd * 1,487,918
36,700 Burcon International Development Ltd 144A * 385,912
50,000 Burcon International Development Ltd * 525,766
113,149 Cambridge Shopping Centres Ltd 1,144,977
33,500 Canfor Corp 361,914
15,711 Elan Energy Inc * 101,840
101,500 Iamgold (International African Mining Gold) * 427,653
116,600 KAP Resources Ltd Warrants 8/3/00 * 92,376
220,100 KAP Resources Ltd * 412,157
200,000 Meridian Gold Inc Installment Receipt 144A * 893,082
633,600 Semi-Tech Class A * 1,588,050
37,800 St Laurent Paperboard * 643,862
43,000 Suzy Shier (Non Voting) 322,086
99,000 Tembec Inc Class A * 926,933
23,140 Trizec Hahn Corp (Sub-Voting) 524,981
-------------------
15,773,064
-------------------
Chile - 0.0%
141,751 Five Arrows Chile Investment Trust Ltd 457,856
27,821 Five Arrows Chile Warrants 5/31/99 * 12,241
-------------------
470,097
-------------------
Denmark - 0.0%
12,300 Alm Brand AS Class B 373,238
-------------------
France - 6.8%
9,350 Accor SA 1,402,770
34,245 Alcatel Alsthom Cie Generale d'Electricite SA 4,200,524
17,136 Axa SA 1,093,336
4,788 AXA UAP 13,143
31,216 Banque Nationale de Paris 1,332,939
46,100 BIC SA 3,336,559
13,896 Bouygues 1,113,421
4,080 Cap Gemini SA 248,883
7,793 CGIP 2,184,173
5,278 Chargeurs International SA 313,260
5,943 Christian Dior 837,732
2,600 Cie Bancaire SA 286,769
12,983 Club Mediterranee SA * 1,041,337
3,200 Colas SA 423,114
6,890 Credit Local de France SA 595,229
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
France - continued
16,505 Credit Lyonnais * 892,530
7,679 Dollfus-Mieg and Cie * 143,566
107,505 Elf Aquitaine SA 11,963,709
2,871 Elf Gabon 658,879
3,304 Eridania Beghin-Say SA 430,329
17,926 Financiere de Paribas SA 1,236,541
1,739 Gaz Et Eaux 743,996
11,174 Generale Des Eaux 1,249,027
11,021 Generale Des Eaux Warrants 5/2/2001 * 6,178
7,038 Group Axime * 734,491
6,744 Groupe Andre * 620,419
14,288 Groupe Danone 2,129,479
1,035 Guyenne Et Gascogne 345,540
4,389 Labinal SA 1,049,221
12,000 Lafarge Coppee SA 775,534
36,617 Lagardere Groupe 981,001
45,816 Lyonnaise Des Eaux 4,615,213
23,010 Michelin SA Class B 1,293,613
4,318 Pathe SA 807,289
25,523 Pechiney SA Class A 1,104,152
6,970 Pernod-Ricard 325,776
18,403 Peugeot SA 2,066,185
51,312 Rhone Poulenc SA Class A 1,884,810
6,796 Saint-Gobain 934,443
55,294 Seita 1,704,720
16,483 Sidel (Bearer) 1,195,700
18,605 Societe Generale Paris 2,312,780
15,100 Sommer Allibert 536,485
35,100 SPIE Batignolles 1,870,881
4,196 Strafor Facom 289,165
6,000 Sylea (Bearer) 534,169
46,206 Thomson CSF 1,242,469
30,104 Total SA 2,824,034
2,700 TV Francaise 220,345
9,260 Vallourec 552,654
6,835 Worms et Compagnie SA 372,654
----------------
69,071,166
----------------
Germany - 6.5%
126,500 Bankgesellschaft Berlin AG 3,106,019
66,500 BASF AG 2,286,671
61,990 Bayer AG 2,286,896
135,000 Bayerishe Hypotheken und Wechsel-Bank AG 2,272,311
26,800 Brau und Brunnen * 2,128,934
139,500 Commerzbank AG 4,851,096
133,310 Continental AG 3,243,606
26,500 Daimler-Benz 1,987,334
220,000 Deutsche Telekom AG 4,399,633
169,140 Dresdner Bank 6,736,849
3,641 Dyckerhoff AG (Non Voting) 1,254,018
9,800 Holzmann (Philipp) * 2,966,975
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S>
<C>
Germany - continued
3,331 Kolnische Rueckversicherungs Gesellschaft Preferred 2,812,610
9,945 Kolnische Rueckversicherungs Gesellschaft (Registered) 8,563,036
25,272 Metro AG Preferred Class I 897,081
123,000 Pfeiffer Vacuum Tech Sponsored ADR * 3,490,125
5,500 Rheinmetall Berlin AG 977,696
604 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 97,639
131,860 RWE Preferred 5,090,837
5,150 Villeroy and Boch AG * 826,792
2,100 Volkswagen AG 1,510,707
4,000 Volkswagen AG Preferred .79% 2,155,376
4,500 Volkswagen AG Warrants 10/27/98 * 1,787,351
-------------------
65,729,592
-------------------
Greece - 0.0%
27,350 Greek Progress Fund 239,582
-------------------
Hong Kong - 3.9%
1,132,400 Amoy Properties Ltd 1,139,853
2,255,052 Dairy Farm International 1,894,244
496,327 Great Eagle Holdings Ltd 1,450,743
1,844,800 Hang Lung Development Co Ltd 3,332,972
49,128 Hang Lung Development Co Ltd Warrants 10/31/97 * 3,297
1,310,641 Hong Kong Land Holdings 3,787,752
656,900 Hysan Development Co Ltd 1,907,375
28,345 Hysan Development Co Ltd Warrants 4/30/98 * 12,437
302,000 Jardine International Motor Holdings Ltd 342,960
403,000 Jardine Strategic Preferred 485,615
135,133 Jardine Strategic Warrants 5/02/98 * 59,459
729,000 Kumagai Gumi Hong Kong Ltd 1,368,815
1,590,000 Lai Sun Development 1,579,946
1,250,000 Lai Sun Garment International Ltd 1,508,259
1,025,266 Liu Chong Hing Bank Ltd 2,732,190
1,103,000 National Mutual Asia Ltd 896,748
70,000 Orient Overseas International Ltd 46,974
7,004,073 Regal Hotels International Ltd 1,920,719
1,695,655 Semi Tech (Global) Co Ltd 2,549,281
160,248 Semi Tech (Global) Co Ltd Warrants 7/31/98 * 38,878
562,000 Swire Pacific Ltd Class A 4,297,135
1,369,500 Swire Pacific Ltd Class B 1,988,240
1,106,500 Wharf Holdings Ltd 4,005,333
638,000 Wheelock & Co Ltd 1,325,565
183,912 Wing On Co 211,229
758,486 Winsor Industrial Corp Ltd 215,340
429,243 Winsor Properties Holdings Ltd 686,877
-------------------
39,788,236
-------------------
Hungary - 0.0%
96,327 Fotex (Registered) * 117,625
-------------------
India - 0.2%
157,150 India Fund Class A 708,527
40,000 India Liberalisation * 353,200
59,007 Mahindra & Mahindra GDR 144A (d) 672,680
11,000 Morgan Stanley India Fund Inc * 118,250
-------------------
1,852,657
-------------------
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Indonesia - 0.2%
1,685,198 Bank Dagang Nasional Industries (Foreign Registered) 357,034
240,744 Bank Dagang Nasional Warrants 2/14/00 (Foreign Registered) * 14,281
130,000 Bunas Finance Indonesia 88,136
603,500 Daya Guna Samudera (Foreign Registered) 818,305
1,073,668 Dharmal Sakit Sejatera (Foreign Registered) 418,549
204,137 Dharmala Intiland (Foreign Registered) 183,377
350,000 Komatsu Indonesia (Foreign Registered) 109,746
-------------------
1,989,428
-------------------
Israel - 0.0%
39,500 Koor Industries Ltd ADR 254,281
-------------------
Italy - 3.4%
26,000 Aeroporti Di Roma * 214,266
78,457 Assicurazioni Generali SPA 1,657,632
515,792 Banca Commerciale Italiana SPA 1,288,964
59,948 Banca di Legano SPA 196,285
236,958 Banca Toscana 526,213
513,583 Banco Ambrosiano Veneto SPA (Non Convertible) 1,125,930
207,500 Comau Finanziaria SPA 646,999
1,234,464 Credito Italiano 2,559,085
163,232 Danieli and Co SPA (Non Convertible) 579,427
246,322 ENI SPA 1,378,011
29,972 Ericsson SPA 516,640
146,530 Falck Acciaierie and Ferriere Lombarde 574,234
331,490 Fiat SPA 1,020,430
413,552 Fiat SPA Preferred 642,393
29,074 Fiat SPA (Non Convertible) 48,630
221,428 Gilardini SPA 365,965
39,570 IFI Istituto Finanziario Preferred 2.46% 450,603
172,607 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 292,138
627,004 Industriali Riunite SPA * 442,644
215,693 Istituto Mobilaire Italiano 2,008,449
160,238 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 388,149
223,315 Italgas SPA 687,433
74,642 Mediaset SPA 328,336
42,000 Mediobanco SPA 274,083
1,383,702 Montedison SPA 840,891
975,630 Montedison SPA (Non Convertible) 482,079
210,955 Montefibre SPA 123,407
456,107 Olivetti and Co SPA * * 185,219
46,000 Pagnossin SPA 194,638
84,930 RAS SPA 722,822
73,200 Rinascente per l'Esercizio di Grandi Magazzini SPA 447,339
117,157 SAI di Risp 355,988
719,880 Seat SPA di Risp * 176,627
713,947 Seat SPA * 266,407
127,537 Sirti SPA 684,513
1,341,241 Telecom Italia Mobile SPA (Non Convertible) 2,247,203
741,724 Telecom Italia SPA di Risp 4,414,861
833,885 Telecom Italia SPA di Risp (Non Convertible) 2,950,581
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
54,563 Toro Assicurazioni 680,215
68,306 Unione Cementi Marchino Emiliane e di Augusta-Casale 485,904
134,857 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 348,496
---------------
33,820,129
---------------
Japan - 22.0%
28,000 Advantest Corp 2,560,479
54,000 Aisin Seiki Co Ltd 736,221
52,200 AJL Peps Trust Exchange 796,050
40,300 Akita Bank 237,867
75,000 Arisawa Manufacturing 1,034,999
226,000 Asahi Breweries Ltd 3,363,039
56,000 Banyu Pharmaceutical Co Ltd 940,394
313,000 Bridgestone Corp 6,947,460
196,000 Canon Inc 5,425,887
24 Chubu Electric Power Co Inc 403
4,000 Chudenko Corp 91,778
39,758 Chugoku Electric Power Co Inc 644,510
31,800 Circle K Japan Co Ltd 1,596,741
33,300 Credit Saison Co 860,944
83,000 Daiichi Seiyaku Co Ltd 1,414,498
170,000 Daikin Industries Ltd 1,232,355
239,000 Dainippon Ink & Chemicals Inc 882,168
148,000 Dainippon Printing Co Ltd 3,100,507
444 East Japan Railway Co 2,030,094
30,100 Exedy Corp 242,472
52,400 Ezaki Glico Co Ltd 394,231
104,000 Familymart 4,366,115
54 Fuji International Finance Preferred ADS 144A, .25% due 2/1/02 1,393,881
160,000 Fuji Photo Film Co Ltd 6,171,752
89,000 Fujitec Co 1,043,229
414,000 Fujitsu Ltd 4,956,023
46,000 Gunma Bank Ltd 401,530
137,000 Hitachi Cable Ltd 1,002,245
60,000 Hitachi Credit Corp 1,142,240
696,000 Hitachi Ltd 6,422,479
46,312 Hokkaido Electric Power 777,706
291,000 Honda Motor Co Ltd 8,999,252
15,000 Hoya Corp 637,210
156 Japan Tobacco Inc 1,256,663
40,000 Jusco Co 1,070,746
84,350 Kansai Electric Power 1,577,750
245,000 Kao Corp 3,625,405
229,000 Kawasaki Heavy Industry 896,658
23,000 Kirin Beverage 372,849
50,400 Kurita Water Industries Ltd 1,332,380
21,000 Kyudenko Corp 140,012
72,133 Kyushu Electric Power Co Inc 1,175,332
126,000 Marui Co Ltd 2,000,665
54,000 Maruichi Steel Tube 785,602
545,000 Matsushita Electric Industrial Co Ltd 10,058,193
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
225,000 Matsushita Electric Works Ltd 2,431,624
447,000 Minebea Co Ltd 4,459,224
275,000 Minolta Co Ltd 1,577,438
150,000 Mitsubishi Corp 1,483,914
446,000 Mitsui & Co 3,648,383
23,000 Murata Manufacturing Co Ltd 938,815
34,700 Namco Ltd 1,174,071
203,000 NEC Corp 2,278,244
35,350 Nichido Fire & Marine Insurance Co Ltd 234,805
88,000 Nichii Co Ltd 1,002,245
33,400 Nintendo Co Ltd 2,759,963
21,000 Nippon Broadcasting System 1,555,491
77,700 Nippon Electric Glass Co 1,065,799
215,000 Nippon Meat Packers Inc 2,591,654
480,000 Nissho Iwai Corp 1,807,632
214,000 Obayashi Corp 1,295,137
34,000 Omron Corp 633,137
101,000 Onward Kashiyama Co Ltd 1,553,329
58,000 Orix Corp 4,315,404
28,400 Paris Miki Inc 552,465
352,000 Ricoh Co Ltd 4,769,806
40,000 Rinnai Corp 744,867
65,000 Rohm Co Ltd 6,754,510
9 Sakura Finance Preferred .75% 144A 453,965
102,000 Sanden Corp 699,559
66,900 Sankyo Co Ltd 2,035,531
164,000 Sekisui Chemical Co Ltd 1,390,639
25,000 Shimachu Co 565,301
162,750 Shin-Etsu Chemical Co Ltd 4,167,179
140,000 Shiseido Co Ltd 2,292,792
33,000 Sho Bond Construction Co 685,843
1,400 Shohkoh Fund & Co 407,349
75,000 Showa Corp 563,638
37,800 SMC 3,173,830
101,600 Sony Corp 8,868,568
114,000 Sumitomo Electric 1,724,811
262,000 Sumitomo Realty and Development Co Ltd * 2,088,769
356,000 Suzuki Motor Corp 3,373,847
46,000 Tachi-S Co Ltd 447,419
85,000 Taisho Pharmaceutical Co Ltd 2,084,546
123,000 Taiyo Yuden Co Ltd 1,441,766
285,000 Takeda Chemical Industries Ltd 7,605,370
105,000 Tanabe Seiyaku Co Ltd 790,839
99,000 TDK Corp 7,621,082
217,000 Terumo Corp 3,968,742
450 Toagosei Chemical Industry Co Ltd 1,186
74,000 Toda Corp 412,171
14 Tohoku Electric Power Co Inc 228
28,000 Tokyo Broadcasting System Inc 472,525
60 Tokyo Electric Power 1,147
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Japan - continued
77,200 Tokyo Electron 4,203,674
80,000 Tokyo Seimitsu Co Ltd 2,028,431
68,000 Toppan Printing Co Ltd 977,970
50,500 Tsubaki Nakashima Co Ltd 316,963
30,000 Unicharm Corp 1,017,541
92,000 UNY Co Ltd 1,690,249
42,000 Wacoal Corp 485,327
354 West Japan Railway Co 1,221,299
177,000 Yamanouchi Pharmaceutical Co Ltd 4,237,759
81,000 Yamatake Honeywell 1,407,349
96,000 Yamato Kogyo Co 837,975
-------------------
221,530,150
-------------------
Korea - 1.3%
121,500 Bank of Pusan 706,787
390 Daehan Flour Mill 37,596
114,350 Daewoo Corp 899,596
22,000 Daewoo Securities Ltd Preferred 15.98% * 158,449
829 Daewoo Securities * 13,319
100 Dong Yang Dragon Fund * 1,100,000
9,860 Dongkuk Steel Mill 219,597
67,310 Dongwon Securities Co Preferred 335,618
15,310 Halla Climate Control Corp 435,975
32,641 Hana Bank Sponsored GDR (d) 326,410
1,500 Hankook Tire Manufacturing Co Ltd 59,668
14,490 Hansol Paper Manufacturing Ltd 356,430
147,376 Hanwha Corp 1,521,933
41,000 Hyundai Motor Service Co GDR 144A (d) 312,625
68,540 Jinro Ltd Preferred 151,889
6,795 Kookmin Bank 105,923
100,000 Korea Exchange Bank 570,637
159,000 Korea First Bank 632,477
68 Korea Trust * 238,000
16,000 Kyungki Bank * 70,914
158,230 Kyungnam Bank 1,376,294
10,000 LG Cable & Machinery Ltd 162,881
30,000 LG Securities Co Preferred 172,853
2,580 Pohang Iron & Steel 222,625
122,300 Samsung Corp 1,504,188
68,036 Samsung Heavy Industries Co Ltd * 814,170
72,000 Seoul Bank * 248,111
27,940 Shinhan Bank 277,976
1,040 Shinyoung Securities Preferred 5,992
6,746 Sindoricom Co Ltd 352,033
130 SK Telecom 97,083
6,300 Ssangyong Investment Securities Co Preferred 59.90% * 20,942
-------------------
13,508,991
-------------------
Mexico - 0.4%
40,238 Cifra SA 76,865
329,000 Cifra SA De Class C 583,648
30,000 Desc SA De CV Sponsored ADR * 997,500
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Mexico - continued
15,000 Desc Sociedad De Formento Class C 124,373
357,000 Empaques Ponderosa Class B * 270,768
109,000 Grupo Financiero Banamex Class B 292,152
8,868 Grupo Financiero Banamex Class L 23,028
569,562 Grupo Financiero Bancomer SA Class B 347,785
21,085 Grupo Financiero Bancomer SA Class L 10,842
1,496 Grupo Mexico Desarollo Class B ADR * 935
1,496 Grupo Mexico Desarollo Class L ADR * 1,496
28,600 Grupo Televisa 483,101
61,333 Mexico Fund 1,203,660
-------------------
4,416,153
-------------------
Netherlands - 5.8%
135,280 ABN Amro Holdings NV 2,663,610
42,642 Aegon NV 3,177,449
27,461 Akzo Nobel NV 4,271,365
586,358 ASM International NV * 7,695,949
13,161 Bam Groep 753,375
10,000 Cap Volmac Group NV 323,225
30,822 De Boer Unigro NV 1,026,665
61,636 Dordtsche Petroleum 3,151,072
90,660 Elsevier NV 1,377,941
25,000 Endemol Entertainment * 579,832
23,439 Fugro NV 803,874
29,331 Gist Brocades NV 839,497
54,225 Hal Trust Class B 998,096
60,274 Hal Trust (Participating Certificate) 1,109,438
33,449 Heidemij Holdings NV 353,233
40,500 Hunter Douglas NV 1,700,782
24,644 ING Groep NV 1,076,263
11,500 Internatio-Muller 369,439
42,226 Kon Bolswessanen 708,473
15,637 Koninklijke NV 337,209
15,588 Koninklijke Pakhoed 534,613
64,081 Koninklijke PTT Nederland 2,279,967
75,537 Kononklijke Volker Wessels 2,236,532
82 Moeara Enim Petroleum 1,901,848
20,560 Nedlloyd 610,779
9,220 Nutricia Ver Bedrijven 1,433,196
98,883 Philips Electronics 7,060,806
24,778 Philips NV ADR 1,774,724
13,917 Roto Smeets D Boer 596,801
49,468 Royal Dutch Petroleum 2,519,232
5,941 Unilever NV 1,204,940
13,402 Van Ommeren (Koninklijke) (Participating Certificate) 551,569
16,452 Vendex International 826,477
27,761 Wereldhave NV 1,698,716
-------------------
58,546,987
-------------------
New Zealand - 1.9%
324 Air New Zealand Ltd Class B 876
1,303,036 Brierley Investment Ltd 1,116,174
896,561 Carter Holt Harvey Ltd 1,856,930
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
New Zealand - continued
38,750 DB Group Ltd 54,001
311,727 Fisher and Paykel Industries Ltd 1,046,175
292,975 Fletcher Challenge Buildings 820,305
316,511 Fletcher Challenge Energy 1,116,860
1,212,246 Fletcher Challenge Ltd 1,425,868
586,821 Fletcher Challenge Paper 1,185,396
362,307 Lion Nathan Ltd 914,839
1,731,203 Progressive Enterprise * 2,014,142
2,586,505 Sovereign Assurance 4,133,558
6,589,327 Trans Tasman Properties * 3,664,638
485,082 Wrightson Ltd 282,181
-------------------
19,631,943
-------------------
Norway - 0.9%
7,907 Bolig OG Naeringsk 207,920
1,090 Bona Shipholding Ltd * 13,746
139,700 Den Norske Bank AS Class A 571,642
23,100 Dyno Industrier AS 573,339
25,900 Elkem AS Class A 462,146
24,400 Fokus Bank 191,502
9,594 Hafslund ASA B Shares 48,912
14,050 Kvaerner Industrier AS 750,218
15,395 Leif Hoegh and Co AS 328,401
30,000 Norsk Data AS Class B ADR (b) * 300
34,916 Norsk Hydro AS 1,897,176
5,400 Norske Skogindustrier AS Class A 200,679
24,594 Nycomed ASA B Shares 450,391
17,100 Orkla-Borregaard AS Class A 1,213,612
8,300 Orkla-Borregaard AS Class B (Non Voting) 538,954
37,900 Schibsted AS 645,760
15,200 Storli A 330,359
83,000 Uni Storebrand AS * 546,749
27,000 Unitor AS 380,348
-------------------
9,352,154
-------------------
Philippines - 0.0%
400,000 Pilipino Telephone 126,316
-------------------
Poland - 0.1%
40,000 Bank Handlowy W Warszawie * 504,209
-------------------
Russia - 0.6%
9,215,000 Irkutskenergo 2,838,220
74,228 Mosenergo AO Sponsored ADR 144A (d) * 3,340,260
-------------------
6,178,480
-------------------
Singapore - 0.3%
285,400 Jardine Matheson Holdings Ltd 1,997,800
280,205 Jardine Strategic Holdings Ltd 1,036,759
-------------------
3,034,559
-------------------
South Africa - 0.4%
61,000 Barlow Ltd 718,374
185,197 Housewares Group * 41,054
29,000 New South Africa Fund Inc 445,875
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa - continued
755,908 NSA International Inc * 2,175,159
151,244 NSA Investments Ltd Warrants 9/27/97 * 280,470
1,109,100 Sun International Ltd 709,219
-------------------
4,370,151
-------------------
Spain - 4.6%
4,560 Acerinox SA 751,952
16,000 Argentaria Corporacion Bancaria de Espana SA 796,685
266,322 Banco Bilbao Vizcaya SA 7,015,850
3,217 Banco Central Hispanoamericano SA 119,344
11,945 Banco Popular (Registered) 2,676,881
162,723 Banco Santander SA (Registered) 4,538,220
37,806 Bankinter SA 1,922,255
13,956 Corporacion Mapfre (Registered) 771,100
16,000 Ebro Agricolas Compania de Alimentacion SA 283,628
214,548 Endesa 4,332,450
261,917 FENOSA SA 2,032,902
20,816 General Aguas de Barcelona SA 757,170
47,861 Hidroelec Cantabrico 1,807,026
429,443 Iberdrola SA 4,830,280
11,405 Inmobilana Metropolitan Vasco Central SA 404,348
516 Inmobilana Metropolitan Vasco Central SA * 18,084
49,000 Midesa 617,214
57,410 Repsol SA 2,273,289
93,767 Sevillana de Electricidad 835,719
352,988 Telefonica de Espana SA 9,171,233
33,458 Vallehermoso SA 777,965
-------------------
46,733,595
-------------------
Sweden - 0.1%
98,000 Castellum AB * 798,884
-------------------
Switzerland - 3.3%
1,330 Ascom Holding AG (Bearer) * 1,800,458
125 Baloise Holdings * 325,966
1,586 Banque Cantonale Vaudoise (Bearer) 395,418
2,186 Belimo Automation AG 640,753
360 Bobst SA (Bearer) 555,507
5,500 Ciba Spec Chem Holdings (Registered) * 476,231
49,741 CS Holdings (Registered) 5,991,175
7,000 Feldschloesschen Huerlimann Warrants 12/15/98 * 18,396
3,500 Feldschloesschen Huerlimann (Participating Certificates) 398,572
365 Fischer (George) AG (Bearer) 506,162
255 Flughafen Immobilien Ges 347,091
2,099 Forbo Holdings AG (Registered) 872,668
1,193 Hero AG (Bearer) 618,989
777 Holderbank Financiere Glarus AG (Bearer) 651,841
3,274 Jelmoli (Registered) 509,615
3,300 Kraftwerk Laufenberg (Bearer) 589,266
750 Liechtenstein Global Trust AG 407,837
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Switzerland - continued
2,048 Merkur Holding AG (Registered) 427,802
415 Motor Columbus (Bearer) 788,585
2,401 Nestle AG (Registered) 2,798,915
3,583 Novartis AG (Registered) 5,089,427
154 Roche Holdings (Participating Certificate) 1,302,315
335 Sairgroup Namen AKT * 397,968
1,000 Schweizerische Rueckversicherungsgesellschaft (Bearer) 1,331,492
2,289 SMH AG (Bearer) 1,281,735
2,200 Sulzer Gebrueder AG (Registered) 1,546,174
2,305 Sulzer Medica AG * 601,082
1,962 Swiss Bank Corp (Registered) * 473,958
161 Swiss Insurance Co 324,376
3,599 Zuerich Versicherungs Namen (Registered) 1,309,565
-------------------
32,779,339
-------------------
-------------------
Taiwan - 0.5%
22,526 Baring Taiwan Fund Ltd * 354,785
208 Formosa Fund IDR * 2,932,800
43,000 Formosa Growth Fund * 1,128,750
15,700 R O C Taiwan Fund 204,100
42,052 Tuntex Distinct Corp GDR 144A (d) * 231,286
-------------------
4,851,721
-------------------
Thailand - 0.3%
301,300 Bank of Ayudhya Plc (Foreign Registered) 467,064
428,900 First Bangkok City (Foreign Registered) 307,343
645,900 Jasmine International Public Co (Foreign Registered) 505,347
9,000 Telecomasia Sponsored GDR 144A (d) * 104,202
462,200 Telecomasia (Foreign Registered) * 405,557
487,700 Thai Telephone & Telecommunications (Foreign Registered) * 153,342
204,800 Total Access Communication 819,200
122,800 United Communication Industries (Foreign Registered) 395,841
-------------------
3,157,896
-------------------
United Kingdom - 17.7%
161,272 Allied Domecq Plc 1,218,827
465,630 Allied Irish Banks Plc * 3,934,377
310,976 Anglian Water Plc 3,921,250
2,088,281 ASDA Group 4,876,955
442,838 BAA 3,971,617
432,056 Bank of Scotland 2,907,940
104,531 Barclays Bank Plc 2,390,350
75,000 Bass * 1,003,489
399,188 BAT Industries 3,343,837
557,684 Berkley Group 6,783,389
119,028 Betacomm Plc * 86,868
919,527 BG Plc 4,011,567
440,000 Billiton Plc * 1,712,621
409,953 BPB Industries Plc 2,253,881
581,232 British Airways 6,061,188
748,619 British Petroleum 10,465,631
100,000 British Sky Broadcasting Plc 707,105
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
575,750 British Steel 1,615,390
1,967,530 British Telecom Plc 12,699,942
1,050,000 BTR 3,712,300
641,375 Capital Shopping Centres * 4,004,701
408,800 Caradon 1,359,133
519,527 Centrica Plc * 745,674
174,780 Commercial Union Plc 2,097,591
300,000 Cookson Group * 1,245,542
380,267 Costain Group (c) * 277,523
234,287 Energy Group Plc 2,370,992
180,000 First Russian Frontiers Trust Plc * 4,670,784
38,000 First Russian Frontiers Warrants 2001 * 677,912
68,927 Flextech Plc * 684,129
84,013 General Accident 1,235,808
350,000 General Electric 2,168,347
407,251 Glaxo Wellcome Plc 8,156,924
494,116 Grand Metropolitan 4,539,689
210,586 Great Portland Estates Plc 706,964
223,079 Great Universal Stores Plc 2,268,420
207,098 Guardian Royal 910,212
166,008 Hanson Plc 794,234
83,636 Hanson Plc Warrants 9/30/97 * 327
873,094 Hillsdown Holdings 2,293,894
83,469 HSBC Holdings 2,599,104
79,909 Hyder Plc 1,082,130
157,839 Hyder Plc Cumulative Redemption Preferred Shares 276,462
223,071 Imperial Chemical Industries Plc 3,610,530
132,816 Imperial Tobacco Group Plc 824,986
431,065 Ladbroke Group 1,810,672
2,128 Lloyds TSB Group 24,918
735,537 Marley 1,324,112
361,140 Mirror Group Plc 1,188,965
216,000 National Power 1,993,257
230,940 National Westminster Bank 2,955,109
275,000 Norwich Union Plc * 1,511,923
221,504 Peninsular & Oriental Steam Navigation Co 2,335,029
134,894 Powergen 1,706,415
2,148,935 Raglan Property Plc 801,583
331,830 Railtrack Group Plc 4,157,301
98,000 Reckitt & Colman 1,513,075
673,843 Royal & Sun Alliance Insurance 5,464,193
279,023 Safeway Plc 1,696,948
500,000 Scottish Power Plc 3,523,361
1,174,447 Sears 1,199,972
234,593 Severn Trent Plc 3,329,051
246,940 Severn Trent Plc Class B 128,156
100,000 Smith (WH) Group * 614,662
235,171 Standard Chartered 3,157,995
485,000 Sun Life & Province Holding 3,055,836
769,207 T & N 2,002,237
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
United Kingdom - continued
202,185 Tarmac 388,566
200,000 Tate & Lyle 1,328,254
200,225 Taylor Woodrow Plc 603,988
188,228 TC Group Plc 323,584
203,196 Thames Water 2,601,744
17,600 United Utilities 196,666
271,030 Viglen Technology * 285,712
-------------------
178,503,820
-------------------
TOTAL STOCK AND EQUIVALENTS (Cost $811,180,674) 908,460,683
-------------------
CONVERTIBLE BONDS - 0.5%
Hong Kong - 0.1%
HKD 810,000 Sino Land Co, 5.00% due 2/26/01 144A 761,400
-------------------
Italy - 0.0%
ITL 425,000,000 Mediobanca (Banc Credito Finanz), 4.00% due 12/31/97 239,498
-------------------
-------------------
Japan - 0.1%
JPY 145,000,000 STB Cayman Capital Ltd. Convertible, .50% due 10/01/07 1,310,895
-------------------
Mexico - 0.0%
$ 870,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 313,200
-------------------
New Zealand - 0.1%
NZD 978,881 Brierley Investment, 9.00% due 6/30/98 782,187
-------------------
Singapore - 0.2%
SGD 1,750,000 Keppel Corp 2.0% due 8/12/02 144A 1,662,500
-------------------
TOTAL CONVERTIBLE BONDS (Cost $5,259,673) 5,069,680
-------------------
DEBT OBLIGATIONS - 0.1%
United Kingdom - 0.1%
GBP 441,779 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (c) 836,845
-------------------
TOTAL DEBT OBLIGATIONS (Cost $541,150) 836,845
-------------------
SHORT-TERM INVESTMENTS - 14.9%
Cash Equivalents - 14.9%
$ 50,000,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 50,000,000
67,133,952 The Boston Global Investment Trust (a) 67,133,952
$ 33,200,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 33,200,000
-------------------
150,333,952
-------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $150,333,952) 150,333,952
-------------------
TOTAL INVESTMENTS - 105.4%
(Cost $967,315,449) 1,064,701,160
Other Assets and Liabilities (net) - (5.6%) (56,290,212)
-------------------
TOTAL NET ASSETS - 100.0% $ 1,008,410,948
===================
</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)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
IDR International Depository Receipt
GBP British Pound
HKD Hong Kong Dollar
ITL Italian Lira
JPY Japanese Yen
NZD New Zealand Dollar
SGD Singapore Dollar
(a) Represents investment of security lending
collateral (Note 1).
(b) Bankrupt issuer.
(c) Valued by management (Note 1).
(d) Security is restricted as to public resale. The
aggregate market value of restricted securities is
$5,689,984 or 5.64% of net assets.
144A - Securities exempt from registration under Rule
144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
* Non-income producing security. A dividend has not
been declared for the twelve months ended August
31, 1997.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1997, industry sector diversification
of the Fund's investments (excluding short-term
investments) was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Banking 11.4%
Consumer Goods 8.1
Electronic Equipment 6.3
Conglomerates 5.8
Construction 5.4
Oil and Gas 5.3
Machinery 5.1
Insurance 5.0
Retail Trade 4.9
Utilities 4.7
Telecommunications 4.5
Services 4.4
Health Care 4.2
Chemicals 3.7
Automotive 2.7
Real Estate 2.5
Metals and Mining 2.2
Transportation 2.2
Computers 1.9
Food and Beverage 1.9
Paper and Allied Products 1.4
Financial Services 1.1
Communications 0.9
Textiles 0.6
Aerospace 0.3
Miscellaneous 3.5
-----
100 %
=====
</TABLE>
16 See accompanying notes to financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $967,315,449) (Note 1) $ 1,064,701,160
Foreign currency, at value (cost $6,224,651) (Note 1) 6,243,836
Cash 6,697
Receivable for investments sold 2,228,392
Receivable for Fund shares sold 17,181,418
Dividends and interest receivable 2,560,206
Foreign withholding taxes receivable 937,829
Receivable for expenses waived or borne by Manager (Note 2) 214,546
--------------
Total assets 1,094,074,084
--------------
Liabilities:
Payable upon return of securities loaned (Note 1) 67,133,952
Payable for investments purchased 7,538,121
Payable for Fund shares repurchased 10,000,000
Payable to affiliate for (Note 2):
Management fee 648,490
Shareholder service fee 132,632
Accrued expenses 209,941
--------------
Total liabilities 85,663,136
--------------
Net assets $ 1,008,410,948
==============
Net assets consist of:
Paid-in capital $ 902,934,496
Undistributed net investment income 8,642,725
Accumulated net realized loss (563,919)
Net unrealized appreciation 97,397,646
--------------
$ 1,008,410,948
==============
Net assets attributable to:
Class I Shares $ 12,529,788
==============
Class II Shares $ 24,270,797
==============
Class III Shares $ 971,610,363
==============
Shares outstanding:
Class I 1,067,893
==============
Class II 2,067,776
==============
Class III 82,738,491
==============
Net asset value per share:
Class I $ 11.73
==============
Class II $ 11.74
==============
Class III $ 11.74
==============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,427,559) $ 12,762,869
Interest (including security lending income of $196,930) 2,079,402
-------------
Total income 14,842,271
-------------
Expenses:
Management fee (Note 2) 3,161,700
Custodian fees 293,848
Audit fees 33,120
Stamp duties and transfer taxes 32,568
Transfer agent fees 32,384
Legal fees 15,640
Registration fees 4,048
Trustees fee (Note 2) 3,220
Miscellaneous 2,811
Fees waived or borne by Manager (Note 2) (1,016,991)
-------------
2,562,348
Shareholder service fee (Note 2)
Class I 11,736
Class II 26,358
Class III 608,081
-------------
Net expenses 3,208,523
-------------
Net investment income 11,633,748
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,403,470
Foreign currency, forward contracts and foreign currency
related transactions (103,764)
-------------
Net realized gain 2,299,706
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 55,175,266
Foreign currency, forward contracts and foreign currency
related transactions 4,537
-------------
Net unrealized gain 55,179,803
-------------
Net realized and unrealized gain 57,479,509
-------------
Net increase in net assets resulting from operations $ 69,113,257
=============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended
Increase (decrease) in net assets: August 31, 1997 Period Ended
Operations: (Unaudited) February 28, 1997 *
-------------------- ---------------------
<S> <C> <C>
Net investment income $ 11,633,748 $ 4,998,592
Net realized gain (loss) 2,299,706 (3,379,420)
Change in net unrealized appreciation (depreciation) 55,179,803 42,217,843
-------------------- ---------------------
Net increase in net assets resulting from operations 69,113,257 43,837,015
-------------------- ---------------------
Distributions to shareholders from:
Net investment income
Class I (34,608) (32,692)
Class II (80,383) (86,399)
Class III (2,799,758) (4,439,981)
-------------------- ---------------------
Total distributions from net investment income (2,914,749) (4,559,072)
-------------------- ---------------------
Net share transactions: (Note 5)
Class I 7,235,586 4,554,323
Class II 80,383 21,186,399
Class III 236,219,746 633,658,060
-------------------- ---------------------
Increase in net assets resulting from net share transactions 243,535,715 659,398,782
-------------------- ---------------------
Total increase in net assets 309,734,223 698,676,725
Net assets:
Beginning of period 698,676,725 -
-------------------- ---------------------
End of period (including undistributed net investment
income of $8,642,725 and distributions in excess of $ 1,008,410,948 $ 698,676,725
net investment income of $76,274, respectively) ==================== =====================
</TABLE>
* Period from June 28, 1996 (commencement of operations) to February 28, 1997.
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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.65 $ 9.88
------------------ ------------------
Income from investment operations:
Net investment income 0.16(d) 0.06
Net realized and unrealized gain 0.96 0.78
------------------ ------------------
Total from investment operations 1.12 0.84
------------------ ------------------
Less distributions to shareholders from:
Net investment income (0.04) (0.07)
------------------ ------------------
Net asset value, end of period $ 11.73 $ 10.65
================== ==================
Total Return (a) 10.50% 8.53%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 12,530 $ 4,891
Net expenses to average
daily net assets 0.89%**(b) 0.89%**(b)
Net investment income to average
daily net assets 2.59%** 0.98%**
Portfolio turnover rate 9% 13%
Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02
</TABLE>
* Period from July 10, 1996 (commencement of operations) to February 28,1997.
** Annualized.
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
(d) Computed using average shares outstanding throughout the period.
20 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
---------------- -------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.65 $ 10.02
---------------- -------------------
Income from investment operations:
Net investment income 0.16(d) 0.06
Net realized and unrealized gain 0.97 0.65
---------------- -------------------
Total from investment operations 1.13 0.71
---------------- -------------------
Less distributions to shareholders from:
Net investment income (0.04) (0.08)
---------------- -------------------
Net asset value, end of period $ 11.74 $ 10.65
================ ===================
Total Return (a) 10.59% 7.08%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 24,271 $ 21,957
Net expenses to average
daily net assets 0.83%**(b) 0.84%**(b)
Net investment income to average
daily net assets 2.75%** 0.83%**
Portfolio turnover rate 9% 13%
Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02
</TABLE>
* Period from September 30, 1996 (commencement of operations) to February
28, 1997.
** Annualized.
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .02% of average daily net assets for the
period ended February 28, 1997 and .01% of average daily net assets for
the six months ended August 31, 1997.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
(d) Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 21
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Period Ended
(Unaudited) February 28, 1997 *
---------------- -------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.66 $ 10.00
---------------- -------------------
Income from investment operations:
Net investment income 0.16(d) 0.08
Net realized and unrealized gain 0.96 0.66
---------------- -------------------
Total from investment operations 1.12 0.74
---------------- -------------------
Less distributions to shareholders from:
Net investment income (0.04) (0.08)
---------------- -------------------
Net asset value, end of period $ 11.74 $ 10.66
================ ===================
Total Return (a) 10.50% 7.37%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 971,610 $ 671,829
Net expenses to average
daily net assets 0.76%**(b) 0.76%**(b)
Net investment income to average
daily net assets 2.76%** 1.24%**
Portfolio turnover rate 9% 13%
Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.02
</TABLE>
* Period from June 28, 1996 (commencement of operations) to February 28,
1997.
** Annualized.
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
(c) The average broker commission rate will vary depending on the markets in
which trades are executed.
(d) Computed using average shares outstanding throughout the period.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund commenced operations on June 28, 1996 subsequent to a transaction
involving the reorganization of the GMO International Equities Pool of The
Common Fund for Nonprofit Organizations (the "GMO Pool"). The GMO Pool was
discontinued and its net assets distributed pro rata to the unitholders of
the GMO Pool as a liquidating distribution. Such net assets were
immediately thereafter transferred by the unitholders to the Fund in
exchange for shares of the Fund. The portfolio of the Fund on June 28, 1996
was the same as the portfolio of the GMO Pool prior to the transfer.
The Fund seeks maximum total return through investment primarily in equity
securities of non-U.S. issuers.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference between the classes of shares is the
level of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
23
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. There were no open
24
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
forward currency contracts as of August 31, 1997.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1997 the Fund loaned securities having a market
value of $63,419,189 collateralized by cash in the amount of $67,133,952,
which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its taxable
net investment income and net realized short-term and long-term capital
gains, if any, after giving effect to any available capital loss carryover
for federal income tax purposes. Therefore, no provision for federal income
or excise tax is necessary. Taxes on foreign interest and dividend income
have been withheld in accordance with the applicable country's tax treaty
with the United States. Dividends received by shareholders of the Fund
which are derived from foreign source income and foreign taxes paid by the
Fund are to be treated, to the extent allowable under the Code, as if
received and paid by the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual
basis and is adjusted for the accretion of discounts. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
25
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed .60% of average daily net
assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $3,220. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
26
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997 aggregated
$288,367,798 and $71,222,310, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ -------------------- -------------------- ------------------
<S> <C> <C> <C>
$967,315,449 $131,334,221 $33,948,510 $97,385,711
</TABLE>
4. Principal shareholder
At August 31, 1997, 12% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 10, 1996
Six Months Ended (commencement of operations)
Class I: August 31, 1997 to February 28, 1997
-------------------------------------- -------------------------------------
Shares Amount Shares Amount
---------------- ----------------- -------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 605,992 $ 7,201,878 455,993 $ 4,521,631
Shares issued to
shareholders in
reinvestment of
distributions 2,874 34,608 3,119 32,692
Shares repurchased (85) (900) - -
---------------- ----------------- -------------- ----------------
Net increase 608,781 $ 7,235,586 459,112 $ 4,554,323
================ ================= ============== ================
</TABLE>
27
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Period from September 30, 1996
Six Months Ended (commencement of operations)
Class II: August 31, 1997 to February 28, 1997
--------------------------------------- --------------------------------------
Shares Amount Shares Amount
---------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold - $ - 2,052,856 $ 21,100,000
Shares issued to
shareholders in
reinvestment of
distributions 6,676 80,383 8,244 86,399
Shares repurchased - - - -
---------------- ------------------ --------------- ------------------
Net increase 6,676 $ 80,383 2,061,100 $ 21,186,399
================ ================== =============== ==================
<CAPTION>
Period from June 28, 1996
Six Months Ended (commencement of operations)
Class III: August 31, 1997 to February 28, 1997
--------------------------------------- --------------------------------------
Shares Amount Shares Amount
---------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold 21,514,444 $ 257,949,654 64,118,750 $ 644,703,588
Shares issued to
shareholders in
reinvestment of
distributions 89,884 1,082,206 167,499 1,757,065
Shares repurchased (1,918,301) (22,812,114) (1,233,785) (12,802,593)
---------------- ------------------ --------------- ------------------
Net increase 19,686,027 $ 236,219,746 63,052,464 $ 633,658,060
================ ================== =============== ==================
</TABLE>
28
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 93.6%
Australia - 4.1%
80,300 Advance Property Fund 89,054
12,100 Amalgamated Holdings Ltd 61,764
16,500 Amcor Ltd 99,856
369,832 Australia and New Zealand Banking Group Ltd 2,656,474
21,400 Australian Gas & Light 134,697
156,708 Australian National Industries Ltd 179,547
431,109 Boral Ltd 1,257,013
21,500 Broken Hill Proprietary Ltd 269,705
139,229 Burns Philp & Co Ltd 244,394
42,600 Capcount Property Trust 29,097
40,500 Capital Property Trust 66,629
80,800 Capral Aluminum Ltd 258,145
26,100 Coca-Cola Amatil Ltd 266,068
521,098 Coles Myer Ltd 2,426,065
22,200 Comalco Ltd 110,873
39,056 Commonwealth Bank of Australia 431,418
78,496 Consolidated Rutile Ltd * 40,356
2,900 Coventry Group Ltd 11,821
16,500 CRA Ltd 243,702
18,200 CSL Ltd 113,619
466,263 CSR Ltd 1,650,594
141,300 Cultus Petroleum * 348,693
17,000 Email Ltd 52,315
57,290 Foodland Associated 408,354
169,629 Fosters Brewing Group Ltd 320,181
2,410 G E Crane Holdings Ltd 25,223
463,827 Goodman Fielder Ltd 664,283
83,000 Hardie (James) Industries Ltd 282,242
13,300 Incitec Ltd 58,121
28,700 Jupiters Ltd 67,030
175,700 MIM Holdings Ltd 210,340
47,700 Mirvac Ltd 100,896
91,266 National Australia Bank Ltd 1,266,873
68,430 National Consolidated Ltd 40,207
53,900 National Mutual Property Trust 43,546
783,203 News Corp Ltd 3,527,270
372,983 News Corp Ltd Preferred 1.19% 1,421,735
24,115 Normandy Mining Ltd 29,224
58,349 North Broken Hill Peko Ltd 196,402
46,800 Pacific Dunlop Ltd 120,303
18,700 Pasminco Ltd 33,827
622,752 Pioneer International Ltd 2,094,801
51,674 PMP Communications Ltd 124,103
17,200 Portman Mining Ltd 40,045
43,600 Qantas Airways Ltd 95,426
156,535 QCT Resources Ltd 182,798
38,869 Rothmans Holdings Ltd 205,170
141,604 Santos Ltd 672,887
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia - continued
199,197 Schroders Property $ 327,713
42,245 Sea World Property Trust 43,438
27,651 Simsmetal Ltd 203,083
72,700 Southcorp Holdings Ltd 250,954
19,500 Sydney Harbour Casinos Preferred * 26,495
3,749 W H Soul Pattison & Co Ltd 121,152
15,800 Westfarmers Ltd 153,525
224,365 Westfield Trust Units 420,201
62,950 Westpac Banking Corp 364,783
12,800 Wills (WD & HO) Holdings Ltd 17,298
15,600 Woodside Petroleum Ltd 124,886
---------------------
25,326,714
---------------------
Austria - 0.7%
86 Bau Holding AG Preferred 2.42% (Non Voting) 4,182
5,058 Brau Union AG 283,953
3,040 Creditanstalt-Bankverein 186,694
118 Creditanstalt-Bankverein Preferred 1.65% 5,774
26 EA-Generali AG 6,126
3,200 EVN Energie-Versorgung Niederoesterreich AG 382,683
17,012 Lenzing AG * 1,066,234
25,893 Leykam-Muerztaler Papier und Zellstoff AG * 609,081
4,518 OEMV AG 597,005
1,649 Oesterreichische Brau Beteiligungs AG 87,211
9,785 Oesterreichische Elektrizitaetswirtschafts AG 665,647
11,004 Oesterreichische Laenderbank AG 547,227
454 Wienerberger Baustoffindustrie AG 88,159
---------------------
4,529,976
---------------------
Canada - 4.1%
10,798 Abitibi-Price Inc 188,982
50,561 Agrium Inc 611,779
21,000 Air Canada Inc * 164,860
14,400 Anderson Exploration Ltd * 179,423
12,500 BC Telecom Inc 300,695
58,196 BCE Inc 1,649,330
11,700 Biochem Pharma Inc * 303,360
45,900 Bombardier Inc Class B 890,925
49,600 CAE Industries Inc 380,453
2,500 Canadian Hotel Inc 123,609
48,700 Canadian Marconi Co 710,271
22,600 Canadian Tire Corp Ltd Class A 424,020
27,189 Cominco Ltd 704,962
21,900 Corel Corp * 127,761
8,400 Co-Steel Inc 142,475
34,300 Cott Corp 327,325
22,600 Dofasco Inc 460,643
153,232 Dominion Textile Inc 827,714
15,000 Edperbrascan Corp Class A Ltd (Voting Shares) 254,961
23,693 Fletcher Challenge Canada Ltd Class A 405,278
37,998 Gulf Canada Resources Ltd * 310,618
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Canada - continued
34,500 Imasco Ltd $ 980,248
22,893 Imperial Oil Ltd 1,261,345
23,100 Inco Ltd 624,729
9,500 Ipsco Inc 396,845
18,500 Laidlaw Inc 270,482
89,081 Macmillan Bloedel Ltd 1,116,360
5,500 Magna International Class A 364,435
22,200 Methanex Corp * 186,273
12,200 Molson Co Ltd, Class A 224,063
16,600 Moore Corporation Ltd 333,566
28,200 Newbridge Networks Corp * 1,284,634
45,600 Noranda Forest Inc 308,718
14,898 Norcen Energy Resource 358,917
114,500 Nova Corp of Alberta 968,976
22,600 Nova Scotia Power Inc 234,391
6,700 Potash Corp of Saskatchewan 496,305
22,800 Quebecor Inc Class B 425,309
15,900 Rogers Cantel Mobile Communications Class B * 317,782
26,500 Seagram Ltd 925,673
10,600 Suncor Energy Inc 332,479
17,794 Teck Corp Class B 333,209
31,200 Telus Corp 620,202
17,200 Thomson Corp 392,078
42,400 Transalta Corp 528,301
46,600 Transcanada Pipelines Ltd 872,628
14,899 United Dominion Inds Ltd 405,083
30,000 Westcoast Energy Inc 573,661
4,100 Weston George Ltd 277,133
----------------
24,903,269
----------------
Finland - 0.2%
7,000 Amer Group Class A * 135,611
1,500 Cultor OY Class 1 76,108
43,000 Enso OY Class A 376,852
3,100 Instrumentarium OY, Class A 104,098
5,800 Metra AB Class B 161,590
10,500 Partek OY 191,793
22,603 Rautaruukki OY 223,949
8,900 Valmet OY 129,069
----------------
1,399,070
----------------
France - 8.3%
5,365 Accor SA 804,905
1,668 Air Liquide L Shares 255,473
8,053 Alcatel Alsthom Cie Generale d'Electricite SA 987,789
44,200 Assurances Generales De France (Bearer) 1,581,304
2,625 Axa SA 167,484
65,029 Banque Nationale de Paris 2,776,772
4,300 Bertrand Faure SA 209,843
5,280 Bouygues 423,062
1,750 Canal Plus 282,458
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------
<S> <C> <C>
France - continued
300 Carrefour $ 181,073
10,625 Casino Guichard-Perrachon 529,017
27,059 Cerus * 156,140
2,890 CGIP 809,991
22,683 Cie Bancaire SA 2,501,843
1 Colas SA 132
18,680 Credit Commercial de France 926,070
10,310 Credit Local de France SA 890,683
21,936 Credit Lyonnais * 1,186,218
4,807 Credit National 285,305
40,040 Elf Aquitaine SA 4,455,857
3,593 Elf Sanofi SA 345,350
8,344 Eridania Beghin-Say SA 1,086,763
413,900 Eurotunnel SA Units (Bearer) * 481,081
22,062 Financiere de Paribas SA 1,521,843
17,843 FINEXTEL 301,820
19,835 GAN (Group Assurances National) * 457,819
7,520 Generale Des Eaux 840,584
3,420 Generale Des Eaux Warrants 5/2/2001 * 1,917
7,480 Groupe Danone 1,114,817
3,630 GTM-Entrepose 201,683
822 Havas Advertising 92,696
802 Labinal SA 191,724
44,693 Lafarge Coppee SA 2,888,411
13,887 Lyonnaise Des Eaux 1,398,888
16,800 Metaleurop SA * 227,121
24,053 Michelin SA Class B 1,352,250
19,220 Peugeot SA 2,157,913
880 Pinault Printemps Redoute 376,055
17,350 Renault SA * 440,508
75,185 Rhone Poulenc SA Class A 2,761,721
15,290 Saint-Gobain 2,102,359
8,110 Seita 250,032
10,940 SGS Thomson Microelectronics * 1,011,844
3,000 Societe Eurafrance 1,137,581
28,897 Societe Generale Paris 3,592,175
6,850 Sommer Allibert 243,372
19,619 SPIE Batignolles 1,045,721
1,220 Synthelabo 147,434
1,860 Technip SA (Compagnie Francaise) 225,083
17,067 Thomson CSF 458,928
17,980 Total SA 1,686,690
30,700 Usinor Sacilor 532,967
1,090 Valeo 65,592
10,623 Worms et Compagnie SA 579,182
--------------
50,731,343
--------------
Germany - 6.1%
6,450 Adidas AG 779,310
31,605 AGIV AG * 737,389
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Germany - continued
46,600 Bankgesellschaft Berlin AG $ 1,144,194
65,800 BASF AG 2,262,600
54,900 Bayer AG 2,025,336
28,800 Bayerische Hypotheken und Wechsel - Bank AG 1,055,912
500 Bayerische Vereinsbank 26,026
950 Beiresdorf AG (Bearer) 38,472
18,430 Berliner Kraft & Licht Class A 386,486
38,700 BHF Bank AG 1,080,285
11,150 Bilfinger & Berger 463,925
23,400 Bremer Vulkan Verbund AG * 31,717
99,990 Continental AG 2,432,887
1,950 Deutsche Babcock & Wilcox * 124,031
43,550 Douglas Holdings AG 1,521,704
300 Escada AG 43,663
12,181 FAG Kugelfischer 221,946
4,200 Fresenius AG Preferred .82 (Non Voting) 816,599
300 Friedrich Grohe AG Preferred (Non Voting) 83,326
3,650 Friedrich Krupp AG 782,657
10,600 Gerresheimer Glas AG 135,433
750 Hamburgische Electricitaets-Werke AG 183,318
8,155 Heidelberg Port-Zement 609,309
20,750 Henkel KGAA Preferred 1,050,093
52,296 Klockner Humboldt Deutz * 431,406
393 Klockner-Werke AG * 25,543
100 Krones Preferred 38,941
264,255 Lufthansa AG 5,314,019
400 MAN AG 109,991
350 MAN AG Preferred 79,035
46,990 Metallgesellschaft * 1,057,187
400 Philips Kommunikations Industrie AG 112,257
200 Phoenix AG 3,500
846 Porsche AG Preferred (Non Voting) 1,221,898
2,200 Preussag AG 619,004
8,300 Puma AG Preferred 207,022
20,150 RWE Preferred 777,949
20,600 Schering AG 2,010,621
7,750 Schwarz Pharma AG 569,578
31,700 Siemens AG 1,949,388
13,150 SKW Trostberg AG 438,297
350 Strabag Bau AG * 27,453
1,200 Thyssen AG 276,644
18,900 Veba AG 1,028,914
6,400 Viag AG 2,664,667
400 Walter Bau AG 57,773
150 Wella AG 94,159
----------------
37,151,864
----------------
Hong Kong - 9.2%
2,516,000 Allied Properties Ltd 603,918
472,400 Allied Properties Ltd Warrants 7/3/00 * 51,818
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
1,488,000 Amoy Properties Ltd $ 1,497,793
1,927,000 Cathay Pacific Airways Ltd 3,133,333
377,500 Century City International 116,918
145,600 Champion Technology Holdings Warrants 6/30/98 * 23,675
346,000 Cheung Kong Holdings 3,672,538
616,000 China Light & Power Co 2,853,839
1,030,000 China Overseas Land & Investment Ltd 757,646
181,500 Dao Heng Bank 772,938
133 Dickson Concept International Ltd 505
4,230,000 Elec & Eltek International Holdings Ltd 1,446,574
63,800 Furama Hotel Enterprises Ltd 265,936
9,400 Gold Peak Industry Warrants 12/31/25 * * 910
684,281 Great Eagle Holdings Ltd 2,000,124
237,700 Guoco Group 923,315
1,390,300 Hang Lung Development Co Ltd 2,511,834
32,300 Hang Seng Bank 389,734
2,086,000 Henderson Investment Ltd 2,207,407
491,000 Henderson Land Development Co Ltd 4,071,074
314,880 HKR International Ltd 402,286
487,000 Hong Kong Ferry Co Ltd 952,129
169,100 Hongkong Aircraft Engineering Co Ltd 556,465
1,095,500 Hongkong Electric Holdings Ltd 3,838,279
164,600 Hysan Development Co Ltd 477,933
1,000 Innovative International 329
616,127 Kumagai Gumi Hong Kong Ltd 1,156,878
346,000 Lai Sun Development 343,812
161,400 Lai Sun Garment International Ltd 194,746
71,049 Lai Sun Hotel International Warrants 4/30/99 * 5,135
250,000 Lane Crawford International Ltd Class B 30,972
96,000 Laws International Holdings Ltd 22,919
7,466 Leading Spirit Warrants 12/31/99 * 3,420
19,900 Liu Chong Hing Bank Ltd 53,031
148,000 Liu Chong Hing Investment Ltd 207,227
193,600 New Asia Realty & Trust A Shares 709,542
588,815 New World Development Co Ltd 3,677,719
1,000 Oriental Press Group 345
65,300 Oriental Press Group Warrants 10/2/98 * 2,528
148,000 Paul Y- ITC Construction Holdings Ltd 43,928
18,100 Realty Development Corp Ltd Class A 69,606
7,428,000 Regal Hotels International Ltd 2,036,973
530,000 Shanghai Petrochemical Co Class H 220,577
129,900 Shaw Brothers Ltd 129,079
1,124,000 Shun Tak Holdings Ltd 634,598
1,531,972 South China Morning Post Ltd 1,225,736
399,000 Sun Hung Kai Properties Ltd 4,531,165
134,600 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 36,911
82,500 Swire Pacific Ltd Class A 630,807
630,000 Swire Pacific Ltd Class B 914,634
170,500 Tai Cheung Holdings Ltd 126,516
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hong Kong - continued
660,000 Wharf Holdings Ltd $ 2,389,082
1,655,200 Wheelock & Co Ltd 3,438,988
43,880 Wing Lung Bank 268,977
31,800 Yue Yuen Industrial Holdings 71,611
----------------
56,706,712
----------------
Italy - 4.3%
241,366 Alitalia Linee Aeree Italiane Class A * 145,995
28,000 Alleanza Assicurazioni SPA 233,770
134,500 Assicurazioni Generali SPA 2,841,703
270,169 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 642,929
145,000 Banca Commerciale Italiana SPA 362,355
897,017 Banca di Roma * 799,860
225,718 Banca Fideuram SPA 782,005
11,500 Banca Popolare di Bergamo Credit 154,469
32,000 Banca Popolare di Milano 171,204
31,000 Banco Ambrosiano Veneto SPA (Non Convertible) 67,961
187,997 Banco di Napoli di Risp * 90,224
27,000 Bulgari SPA 160,248
49,900 Cartiere Burgo SPA 283,976
143,000 COFIDE SPA * 47,675
532,500 Credito Italiano 1,103,890
264,000 Credito Italiano (Non Convertible) 304,378
1,000 Edison SPA 4,680
90,500 Editoriale L'Espresso SPA 323,819
269,700 Fiat SPA 830,221
208,500 Fiat SPA Preferred 323,875
597,270 Fiat SPA (Non Convertible) 999,009
90,000 Finmeccanica SPA * 63,384
515,480 HPI SPA * 233,923
106,000 IFI Istituto Finanziario Preferred 2.46% 1,207,073
212,900 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 360,334
184,700 Industriali Riunite SPA (Non Convertible) * 68,710
210,700 Industriali Riunite SPA * 148,747
117,000 Istituto Bancario San Paolo 817,343
82,750 Istituto Mobilaire Italiano 770,536
706,892 Istituto Nazionale Delle Assicurazioni 1,033,817
48,750 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 118,088
6,800 Italmobiliare SPA 107,945
1,750 Luxottica Group Sponsored ADR 102,156
59,000 Mediobanco SPA 385,022
62,500 Merloni Elettrodomestici SPA 222,567
1,664,200 Montedison SPA 1,011,353
135,000 Montedison SPA (Non Convertible) 66,706
151,333 Montefibre SPA 88,529
187,136 Olivetti and Co SPA * * 75,994
80,535 Parmalat Finanziaria SPA 125,100
2,063,769 Permafin Finanziaria * 576,686
352,200 Pirelli SPA (Non Convertible) 492,082
29,500 RAS SPA 251,069
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy - continued
15,000 RAS SPA (Non Convertible) $ 74,544
24,650 Sirti SPA 132,301
46,240 SMI (Societa Metallurgica Italy) * 18,699
277,500 Sopaf SPA * 223,802
47,149 Stefanel SPA * 72,034
747,500 Telecom Italia Mobile SPA 2,589,730
110,146 Telecom Italia Mobile SPA (Non Convertible) 184,546
511,500 Telecom Italia SPA di Risp 3,044,530
237,936 Telecom Italia SPA di Risp (Non Convertible) 841,902
74,500 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 192,522
--------------
26,376,020
--------------
Japan - 14.2%
9,100 Advantest Corp 832,156
45,000 Amada Co Ltd 305,262
227,000 Aoki Corp * 135,872
7,000 Aoyama Trading 188,544
4,600 Arabian Oil Co Ltd 129,637
35,000 Asahi Breweries Ltd 520,825
11,000 Bandai Co 237,759
29,000 Bank of Fukuoka Ltd 133,078
58,000 Bank of Tokyo-Mitsubishi 1,055,948
22,000 Banyu Pharmaceutical Co Ltd 369,441
51,000 Brother Industries Ltd 178,070
24,000 Canon Sales Co Inc 486,824
37,000 Casio Computer Co 322,970
13,600 Chubu Electric Power Co Inc 228,381
9,000 Chudenko Corp 206,501
58,000 Chugai Pharmaceutical Co Ltd 486,990
27,000 Chugoku Bank Ltd 399,535
13,100 Chugoku Electric Power Co Inc 212,362
42,000 Citizen Watch Co 324,366
126,000 Cosmo Oil Co Ltd 408,513
31,800 CSK Corp 1,081,237
99,000 Dai Ichi Kangyo Bank 1,152,215
123,000 Daicel Chemical Industries Ltd 349,705
25,000 Daiichi Seiyaku Co Ltd 426,054
36,000 Dainippon Pharmaceutical Co Ltd 206,501
43,000 Dainippon Printing Co Ltd 900,823
44,000 Dainippon Screen Manufacturing Co Ltd 413,334
98,000 Daishowa Paper Manufacturing * 536,886
19,500 Daito Trust Construction Co Ltd 215,604
64,000 Daiwa Securities Co Ltd 404,356
21,000 Denso Corp 453,903
121 East Japan Railway Co 553,246
27,000 Eisai Co Ltd 514,008
43,000 Ezaki Glico Co Ltd 323,510
2,200 Familymart 92,360
14,700 Fanuc Co 564,586
26,000 Fuji Bank 317,732
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
122,000 Fuji Heavy Industries Ltd $ 538,549
37,800 Fuji Photo Film Co Ltd 1,458,076
49,000 Fujikara Ltd 411,422
25,000 Fujisawa Pharmaceutical Co Ltd 243,162
33,000 Fukuyama Transporting Co Ltd 164,602
69,000 Gakken Co Ltd * 294,838
49,000 General Sekiyu (KK) 285,144
77,000 Hankyu Corp 382,792
198,000 Haseko Corp * 186,001
16,000 Heiwa Corp 287,306
64,000 Hino Motors 278,261
180,000 Hitachi Ltd 1,660,986
14,000 Hitachi Maxell Ltd 316,568
62,000 Hitachi Metals Ltd 327,292
22,200 Hokkaido Electric Power 372,799
33,000 House Foods Corp 559,648
2,000 Hoya Corp 84,961
33,000 INAX Corp 161,859
31,000 Industrial Bank of Japan 427,800
25,000 Intec Inc 284,729
75,000 Itochu Corp 309,876
34,000 Itoham Foods Inc 142,456
16,000 Ito-Yokado 864,577
9,000 Japan Airport Terminal Co Ltd 95,020
142,000 Japan Energy Co Ltd 251,442
43,000 Japan Radio Co 386,067
87,000 Japan Synthetic Rubber Co Ltd 665,392
397 Japan Tobacco Inc 3,198,046
50,000 Kamigumi Co Ltd 230,693
28,000 Kandenko Co 192,036
44,000 Kaneka Corp 273,606
129,000 Kankaku Securities Co Ltd * 143,703
31,400 Kansai Electric Power 587,331
61,000 Kao Corp 902,652
10,000 Katokichi Co Ltd 162,108
74,000 Keio Teito Electric Railway Co Ltd 319,894
52,000 Kikkoman Corp 293,956
19,000 Kinden Corp 263,779
65,000 Kirin Brewery Co Ltd 527,933
14,000 Kissei Pharmaceutical Co Ltd 256,048
3,000 Kokusai Denshin Denwa 191,787
26,000 Kokusai Electric 458,226
4,000 Kokusai Kogyo Co Ltd 23,776
8,000 Kokuyo Co Ltd 190,872
60,000 Konica Corp 346,163
27,000 Koyo Seiko Co Ltd 185,626
59,000 Kubota Corp 238,374
64,000 Kurabo Industries Ltd 135,672
13,000 Kyocera Corp 821,348
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
57,000 Kyowa Hakko Kogyo Co Ltd $ 334,068
30,100 Kyushu Electric Power Co Inc 490,448
26,000 Kyushu Matsushita Electric 315,571
88,000 Lion Corp 339,446
4,800 Mabuchi Motor Co 256,181
57,000 Maeda Corp 248,774
20,000 Maeda Road Construction 130,185
17,000 Makita Corp 233,187
141,000 Marudai Food Co Ltd 479,416
15,000 Matsushita Communications 490,066
16,000 Matsushita Kotubuki 522,737
48,000 Meiji Seika Kaisha Ltd 218,273
35,000 Minolta Co Ltd 200,765
118,000 Mitsubishi Electric Corp 542,472
60,000 Mitsubishi Gas Chemical Co Inc 227,450
121,000 Mitsubishi Oil Co Ltd * 422,479
10,000 Mitsubishi Warehouse & Transportation Co Ltd 116,385
87,000 Mitsui Fudosan Co Ltd * 1,012,553
32,000 Mitsui Petrochemical Industries Ltd 110,400
5,000 Murata Manufacturing Co Ltd 204,090
19,000 National House Industrial 247,984
123,000 NEC Corp 1,380,414
53,000 New Oji Paper Co Ltd 268,767
23,000 NGK Spark Plug Co 196,941
15,000 Nichicon Corp 185,801
30,000 Nichii Co Ltd 341,674
59,000 Nichirei 201,588
127,000 Nikko Securities 600,740
6,000 Nikon Corp 99,260
17,400 Nintendo Co Ltd 1,437,825
79,000 Nippon Carbon Co Ltd * 180,605
29,000 Nippon Chemi-Con Corp 135,007
186,000 Nippon Credit Bank 318,530
9,000 Nippon Electric Glass Co 123,452
26,000 Nippon Express Co Ltd 171,619
48,000 Nippon Hodo Co 326,810
38,000 Nippon Meat Packers Inc 458,060
248,000 Nippon Oil Co Ltd 1,111,248
47,000 Nippon Paper Industries 272,724
619 Nippon Telegraph & Telephone 5,814,864
1,700 Nippon Television Network 597,805
39,000 Nishimatsu Construction 230,194
56,000 Nisshinbo Industries Inc 363,123
132,000 Nissho Iwai Corp 497,099
8,000 Nissin Food Products Co Ltd 186,217
51,000 Nitto Denko Corp 886,109
39,000 Nomura Securities Co Ltd 518,746
80,000 Oki Electric Industry 285,976
27,000 Olympus Optical Co Ltd 192,585
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
32,000 Omron Corp $ 595,893
9,000 Ono Pharmaceutical Co Ltd 280,572
31,000 Onward Kashiyama Co Ltd 476,765
3,300 Orix Corp 245,532
32,000 Pioneer Electronics Corp 638,457
29,000 Q.P. Corp 241,084
146,000 Renown Inc * 251,243
9,000 Rinnai Corp 167,595
1,000 Rohm Co Ltd 103,916
21,000 Royal Co Ltd 359,631
8,000 Ryosan Co 161,609
98,000 Sagami Railway Co Ltd 313,659
38,000 Sakura Bank Ltd 224,291
22,000 Sanden Corp 150,885
12,000 Sankyo Co Ltd 365,118
40,000 Sanwa Bank Ltd 498,795
17,000 Sanwa Shutter Corp 131,432
30,000 Sapporo Breweries Ltd 213,484
6,500 Secom Co Ltd 463,089
50,000 Seino Transportation Co Ltd 498,795
33,000 Sekisui House Ltd 312,744
34,000 Sharp Corp 342,007
25,700 Shikoku Electric Power 416,618
15,000 Shin-Etsu Chemical Co Ltd 384,072
81,000 Shionogi and Co Ltd 546,105
72,000 Shiseido Co Ltd 1,179,150
213,000 Showa Denko 414,349
49,000 Showa Shell Sekiyu 340,136
16,000 Skylark Co Ltd 222,130
58,000 Snow Brand Milk Products Co Ltd 239,638
99,000 Stanley Electric Co Ltd 425,497
37,000 Sumitomo Bank 547,510
310,000 Sumitomo Complete Corp 2,577,105
52,000 Sumitomo Heavy Industries Ltd 164,270
22,000 Suzuki Motor Corp 208,496
16,000 Taisho Pharmaceutical Co Ltd 392,385
15,000 Taiyo Yuden Co Ltd 175,825
32,000 Takeda Chemical Industries Ltd 853,936
25,000 Takuma Corp 303,433
50,000 Tanabe Seiyaku Co Ltd 376,590
700 TDK Corp 53,886
68,000 Teikoku Oil Co Ltd 260,604
26,000 Terumo Corp 475,518
25,600 Tohoku Electric Power Co Inc 417,125
18,000 Tokai Bank Ltd 157,120
2,000 Tokyo Broadcasting System Inc 33,752
53,000 Tokyo Electric Co Ltd 190,781
1,100 Tokyo Electric Power 21,033
9,000 Tokyo Electron 490,066
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Japan - continued
67,000 Tokyo Steel Manufacturing Co $ 546,405
38,000 Toppan Printing Co Ltd 546,513
78,000 Toshiba Corp 431,856
8,000 Tostem Corp 166,930
25,000 Toyo Suisan Kaisha 249,397
58,000 Toyo Trust & Banking Co Ltd 472,525
137,000 Toyobo Co Ltd 271,062
21,000 Tsumura and Co 162,183
19,000 Victor Co of Japan Ltd 230,609
19,000 Wacoal Corp 219,553
37,000 Yakult Honsha Co Ltd 362,956
18,000 Yamaha Corp 278,327
22,000 Yamaha Motor Co 199,352
70,000 Yamaichi Securities Co Ltd 137,335
40,000 Yamanouchi Pharmaceutical Co Ltd 957,686
27,000 Yamato Transport Co Ltd 325,464
30,000 Yamazaki Baking Co Ltd 414,000
62,000 Yasuda Trust and Banking Co Ltd 231,940
52,000 Yoshitomi Pharmaceutical Industries Ltd 339,347
-------------
87,028,227
-------------
Malaysia - 3.0%
235,500 AMMB Holdings Berhad 840,062
285,500 Arab Malaysian Finance (Foreign Registered) 269,293
93,000 Berjaya Leisure Berhad (c) 173,847
317,700 Berjaya Sports Toto 871,754
125,700 Carlsberg Brew Malaysia 474,258
219,500 Edaran Otomobil Berhad 790,516
308,000 Ekran Berhad 361,297
230,000 Highlands and Lowlands Berhad 227,988
623,000 Hong Leong Properties Berhad 453,013
122,300 IGB Corp Berhad 83,896
365,000 IOI Corporation Berhad 328,006
74,300 Kedah Cement Berhad 73,905
131,900 Kumpulan Guthrie Berhad 139,342
141,550 Malayan Cement Berhad 172,841
115,000 Malayan United Industries Berhad 59,167
103,840 Malaysia Mining Corp Berhad 76,207
296,000 Malaysian Airline Systems 563,471
305,500 Malaysian International Ship (Alien Market) 628,709
77,000 Malaysian Pacific Industries 209,964
681,600 Malaysian Resources Corp 549,395
1,035,000 MBF Capital Berhad 972,698
92,000 New Straits Times 410,221
294,800 Oriental Holdings Berhad 1,061,705
22,000 OYL Industries Berhad 101,115
330,500 Pan Malaysia Cement 284,533
114,300 Perlis Plantations 282,271
565,000 Perusahaan Otomobil 1,647,230
128,100 Petronas Dagangan Berhad 180,144
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
269,300 Petronas Gas Berhad $ 743,565
729,232 Public Bank Berhad (Alien Market) 685,336
204,000 Rashid Hussain Berhad 493,295
542,000 Renong Berhad 557,709
427,000 RHB Capital Berhad 732,293
74,000 Rothmans of Pall Mall Malaysia Berhad 596,467
227,000 Sarawak Enterprises Corp 168,177
8,000 Shell Refinery Co 18,110
250,000 TA Enterprise Berhad 166,352
920,400 Tan Chong Motor Holdings Berhad 972,331
282,000 UMW Holdings Berhad 759,287
218,000 YTL Corp 348,441
-------------
18,528,211
-------------
Netherlands - 0.0%
51 Fortis Amev NV 2,086
7,075 Schroders International Property Fund 12,731
-------------
14,817
-------------
Norway - 0.6%
449 Bona Shipholding Ltd * 5,662
62,550 Norsk Hydro AS 3,398,681
-------------
3,404,343
-------------
Singapore - 2.6%
113,800 Asia Food & Properties Ltd Warrants 7/12/02 * 36,985
1,517,333 Asia Food & Properties Ltd * 743,493
243,900 City Developments 1,539,997
95,000 Creative Technology Ltd * 1,909,421
105,000 DBS Land Ltd 269,355
282,900 Development Bank of Singapore (Foreign Registered) 2,992,661
40,000 First Capital Corp Ltd 89,388
59,984 Hai Sun Hup Group Ltd 38,469
6,564 Haw Paw Brothers International Ltd 12,586
9,500 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 7,035
10,495 Highlands and Lowlands Berhad 10,686
259,708 Inchcape Berhad 867,124
669,441 Jardine Matheson Holdings Ltd 4,686,087
226,500 Jardine Strategic Holdings Ltd 838,050
114,000 Marco Polo Developments Ltd 180,867
184,000 Natsteel Ltd 501,210
42,500 Neptune Orient Lines Ltd 32,033
89,900 Parkway Holdings Ltd 338,797
5,000 Robinson and Co Ltd 23,306
125,000 Singapore Tech Industrial Corp 191,736
70,900 Singapore Technologies Aero (Foreign Registered) 107,815
267,000 Straits Trading Co Ltd 494,281
-------------
15,911,382
-------------
Spain - 2.6%
41,782 Argentaria Corporacion Bancaria de Espana SA 2,080,443
227,013 Banco Bilbao Vizcaya SA 5,980,314
59,436 Banco Central Hispanoamericano SA 2,204,953
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Spain - continued
1,787 Fabricacion de Automoviles Renault de Espana SA $ 37,026
252,397 FENOSA SA 1,959,011
110,196 Iberdrola SA 1,239,460
670 Koipe SA 44,996
74,858 Telefonica de Espana SA 1,944,939
2,700 Telefonica de Espana SA ADR 209,925
---------------
15,701,067
---------------
Sweden - 5.8%
36,934 Assi Doman 1,124,351
73,200 Avesta Sheffield AB 694,617
11,701 Celsius Industrier AB Class B 219,088
63,000 Electrolux AB Class B 4,493,724
55,500 Ericsson LM Class B 2,318,700
31,250 Granges AB * 469,688
16,625 Hufvudstaden International * 16,094
40,600 Kinnevik Investment Class B 1,225,610
49,100 Marieberg Tidnings AB Class A 1,269,566
132,800 Mo Och Domsjo AB Class B 4,397,939
29,200 Nordbanken 929,824
120,605 Skanska AB Class B 4,800,574
41,900 Sparbanken Sverige AB Class A 912,616
60,600 Ssab Swedish Steel Class A 1,258,166
195,300 Stora Kopparberg Bergslags Class A 3,109,496
48,100 Stora Kopparberg Bergslags Class B 753,578
136,100 Svenska Cellulosa Class B 3,025,042
74,460 Svenska Handelsbanken Class A 2,295,177
1,712 Sydkraft AB Class A 41,432
92,700 Trelleborg AB Class B 1,428,706
31,050 Volvo AB Class B 798,897
---------------
35,582,885
---------------
Switzerland - 3.1%
4,295 Alberta Energy Ltd 95,585
30 Ascom Holding AG (Bearer) * 40,612
250 Bobst SA (Registered) 193,727
8,700 CS Holdings (Registered) 1,047,893
635 Elektrowatt AG (Bearer) 229,773
120 Financiere Richemont AG Class A 161,720
910 Hilti AG, Schaan (Participating Certificate) 625,451
556 Holderbank Financiere Glarus AG (Bearer) 466,440
3,670 Holderbank Financiere Glarus AG (Registered) 652,862
7,840 Nestle AG (Registered) 9,139,315
2,093 Novartis AG (Registered) 2,972,975
270 Rieter Holdings AG (Registered) 120,805
35 Roche Holdings (Participating Certificate) 295,981
180 Sairgroup Namen AKT * 213,834
650 Schweizerische Rueckversicherungsgesellschaft (Bearer) 865,470
70 Sig Schweiz Industrie (Registered) 101,412
140 Sulzer Gebrueder AG (Registered) 98,393
3,450 Swiss Bank Corp (Registered) * 833,412
2,080 Zuerich Versicherungs Namen (Registered) 756,848
---------------
18,912,508
---------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - 24.7%
136,200 Abbey National 1,828,962
207,600 Allied Domecq Plc 1,568,955
155,590 AMEC 358,317
63,900 Anglian Water Plc 805,747
1 Argos Plc 10
2,337,138 ASDA Group 5,458,133
27,600 Associated British Foods 231,866
216,100 Bank of Scotland 1,454,455
112,100 Barclays Bank Plc 2,563,433
165,590 Barratt Development 688,841
72,480 Bass * 969,772
418,800 BAT Industries 3,508,119
24,391 Betacomm Plc * 17,801
2,092,494 BG Plc 9,128,802
135,700 Blue Circle Industries 845,101
81,531 Booker Plc 413,870
80,455 British Aerospace 1,884,159
408,281 British Airways 4,257,625
323,200 British Steel 906,807
214,900 British Telecom Plc 1,387,129
224,750 BTR 794,609
162,320 Burton Group 325,773
358,182 Coats Viyella 688,366
50,300 Commercial Union Plc 603,666
86 Costain Group (c) * 63
303,700 Courtaulds Textiles Plc 1,617,996
68,700 Electrocomponents Plc 513,635
384,690 FKI 1,179,153
9,050 Glaxo Wellcome Plc 181,265
110,756 Greenalls Group Plc 847,826
1 Hanson Plc 5
1,074,312 Hazlewood Foods 2,334,708
150,744 Hillsdown Holdings 396,052
43,320 HSBC Holdings 1,298,338
106,360 Imperial Chemical Industries Plc 1,721,497
88,277 Kingfisher 1,037,965
733,291 Ladbroke Group 3,080,161
70,800 Land Securities 1,027,670
572,500 Lasmo 2,379,231
156,575 Legal & General Group 1,149,048
139,215 Lex Service 1,000,200
743,800 Lloyds TSB Group 8,709,449
802,603 Lonrho 1,607,552
214,011 Marley 385,262
58,600 Meyer International 406,285
729,393 National Power 6,730,869
33,800 Next 406,741
1,817,485 Norcros Plc 2,033,842
136,600 Northern Foods Plc * 482,953
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom - continued
53,290 Ocean Group $ 486,145
333,800 Peninsular & Oriental Steam Navigation Co 3,518,819
870,137 Pilkington * 2,053,279
289,759 Powergen 3,665,463
120,200 Prudential Corp 1,189,136
170,000 Railtrack Group Plc 2,129,829
47,673 Reckitt & Colman 736,049
100,610 Redland 473,191
534,100 Rentokil Plc 1,870,999
430,600 Reuters Holdings 4,371,653
70,460 RMC Group 1,147,291
122,254 Safeway Plc 743,518
110,200 Sainsbury (J) 770,293
28,740 Schroders 882,104
139,016 Scottish Hydro-Electric Plc 1,005,534
536,442 Scottish Power Plc 3,780,157
798,712 Sears 816,071
92,815 Severn Trent Plc 1,317,114
97,700 Severn Trent Plc Class B 50,704
53,520 Shell Transport & Trading (Registered) 362,819
1,505,328 Smithkline Beecham Plc 13,036,761
193,789 Southern Electric Plc 1,452,006
30,900 Southwest Water 404,918
67,630 Storehouse Plc 251,173
179,500 T & N 467,237
1,222,840 Tarmac 2,350,094
432,766 Taylor Woodrow Plc 1,305,459
163,300 Thames Water 2,090,911
544,415 Transport Development Group 1,470,082
92,108 Unilever Plc 2,552,917
221,452 United Biscuits 741,647
330,200 United Utilities 3,689,722
55,540 Viglen Technology * 58,549
456,630 Vodafone Group Plc 2,347,583
137,800 Waste Management International * 554,240
165,350 Whitbread Plc Class A 2,162,748
777,669 Wilson (Connolly) Holdings 2,181,917
278,175 Wimpey (George) 600,022
126,788 Yorkshire Water 900,637
-----------------
151,206,875
-----------------
TOTAL STOCK AND EQUIVALENTS (Cost $571,949,727) 573,415,283
----------------
Par Value DEBT OBLIGATIONS - 0.0%
United Kingdom - 0.0%
90,530 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (c) 171,488
-----------------
TOTAL DEBT OBLIGATIONS (Cost $99,516) 171,488
-----------------
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 9.5%
Cash Equivalents - 7.5%
$ 26,400,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 26,400,000
19,807,665 The Boston Global Investment Trust (b) 19,807,665
--------------
46,207,665
--------------
U.S. Government - 2.0%
$ 12,450,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 12,222,469
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $58,425,102) 58,430,134
--------------
TOTAL INVESTMENTS - 103.1%
(Cost $630,474,345) 632,016,905
Other Assets and Liabilities (net) - (3.1%) (18,833,044)
--------------
TOTAL NET ASSETS - 100.0% $ 613,183,861
==============
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GBP British Pounds
(a) This security is held as collateral for open futures
contracts.
(b) Represents investment of security lending collateral
(Note 1).
(c) Valued by management (Note 1).
* Non-income producing security. A dividend has not been
declared for the twelve months ended August 31, 1997.
See accompanying notes to the financial statements. 17
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
At August 31, 1997, industry sector diversification of
the Fund's equity investments was as follows:
Industry Sector
<S> <C>
Banking 12.0 %
Utilities 7.9
Consumer Goods 7.0
Conglomerates 6.4
Services 5.9
Construction 5.6
Real Estate 5.4
Health Care 4.7
Transportation 4.5
Electronic Equipment 4.2
Telecommunications 3.6
Oil and Gas 3.5
Chemicals 3.1
Retail Trade 3.0
Paper and Allied Products 2.8
Food and Beverage 2.6
Machinery 2.5
Automotive 2.2
Insurance 1.9
Metals and Mining 1.8
Communications 1.7
Financial Services 1.7
Textiles 0.9
Aerospace 0.8
Computers 0.1
Miscellaneous 4.2
------
100.0%
======
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $630,474,345) (Note 1) $ 632,016,905
Foreign currency, at value (cost $956,483) (Note 1) 963,317
Cash 27,969
Dividends and interest receivable 1,275,198
Foreign withholding taxes receivable 675,572
Receivable for variation margin on open futures contracts (Notes 1 and 6) 2,237,170
Receivable for open forward foreign currency contracts (Notes 1 and 6) 24,241,832
Receivable for expenses waived or borne by Manager (Note 2) 206,121
------------------
Total assets 661,644,084
------------------
Liabilities:
Payable for investments purchased 70,977
Payable for open forward foreign currency contracts (Notes 1 and 6) 16,258,710
Payable upon return of securities loaned (Note 1) 19,807,665
Payable for Fund shares repurchased 10,644,708
Payable for open swap contracts (Notes 1 and 6) 707,741
Payable to affiliate for (Note 2):
Management fee 394,480
Shareholder service fee 78,896
Accrued expenses 497,046
------------------
Total liabilities 48,460,223
------------------
Net assets $ 613,183,861
==================
Net assets consist of:
Paid-in capital $ 549,585,695
Accumulated undistributed net investment income 39,102,896
Accumulated undistributed net realized gain 10,331,400
Net unrealized appreciation 14,163,870
------------------
$ 613,183,861
==================
Net assets attributable to Class III Shares $ 613,183,861
==================
Shares outstanding - Class III 48,855,437
==================
Net asset value per share - Class III $ 12.55
==================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,065,527) $ 9,427,808
Interest (including securities lending income of $145,260) 1,073,570
----------------
Total income 10,501,378
----------------
Expenses:
Management fee (Note 2) 2,260,433
Custodian fees 532,588
Stamp duties and transfer taxes 66,148
Audit fees 35,144
Transfer agent fees 14,904
Legal fees 13,524
Trustees fee (Note 2) 2,760
Miscellaneous 2,116
Fees waived or borne by Manager (Note 2) (1,233,957)
----------------
1,693,660
Shareholder service fee - Class III (Note 2) 452,086
----------------
Net expenses 2,145,746
----------------
Net investment income 8,355,632
----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 27,086,891
Closed futures contracts (1,597,520)
Closed swap contracts (90,724)
Foreign currency, forward contracts and foreign currency
related transactions 13,354,113
----------------
Net realized gain 38,752,760
----------------
Change in net unrealized appreciation (depreciation) on:
Investments (22,350,792)
Open futures contracts 6,785,593
Open swap contracts (707,741)
Foreign currency, forward contracts and foreign currency
related transactions 6,574,343
----------------
Net unrealized loss (9,698,597)
----------------
Net realized and unrealized gain 29,054,163
----------------
Net increase in net assets resulting from operations $ 37,409,795
================
</TABLE>
20 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>
Six Months Ended
August 31, 1997 Year Ended
Increase (decrease) in net assets: (Unaudited) February 28, 1997
--------------------- ---------------------
<S> <C> <C>
Operations:
Net investment income $ 8,355,632 $ 11,550,285
Net realized gain 38,752,760 56,218,667
Change in net unrealized appreciation (depreciation) (9,698,597) 11,580,140
--------------------- ---------------------
Net increase in net assets resulting from operations 37,409,795 79,349,092
--------------------- ---------------------
Distributions to shareholders from:
Net investment income - Class III (740,074) (12,206,199)
Net realized gains - Class III (43,272,559) (18,177,235)
--------------------- ---------------------
(44,012,633) (30,383,434)
--------------------- ---------------------
Net share transactions - Class III (Note 5) 38,687,614 124,906,849
--------------------- ---------------------
Total increase in net assets 32,084,776 173,872,507
Net assets:
Beginning of period 581,099,085 407,226,578
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $39,102,896 and
$31,487,338, respectively) $ 613,183,861 $ 581,099,085
===================== =====================
</TABLE>
See accompanying notes to the financial statements. 21
<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>
Six Months Ended
August 31, 1997 Year Ended Period Ended
(Unaudited) February 28, 1997 February 29, 1996*
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.68 $ 11.54 $ 10.00
----------------- ---------------- ----------------
Income from investment operations:
Net investment income 0.13 0.22 0.23
Net realized and unrealized gain 0.75 1.63 1.44
----------------- ---------------- ----------------
Total from investment operations 0.88 1.85 1.67
----------------- ---------------- ----------------
Less distributions to shareholders from:
Net investment income (0.02) (0.28) (0.06)
Net realized gains (0.99) (0.43) (0.07)
----------------- ---------------- ----------------
Total distributions (1.01) (0.71) (0.13)
------------------ ---------------- ----------------
Net asset value, end of period $ 12.55 $ 12.68 $ 11.54
================= ================ ================
Total Return (a) 6.74% 16.55% 16.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 613,184 $ 581,099 $ 407,227
Net expenses to average
daily net assets 0.71%**(c) 0.72%(c) 0.69%**
Net investment income to average
daily net assets 2.77%** 2.25% 1.89%**
Portfolio turnover rate 64% 84% 7%
Average broker commission rate per equity share (b) $ 0.0081 $ 0.0067 N/A
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.04 $ 0.05
</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 for the year
ended February 28, 1997 and .02% of average daily net assets for the six
months ended August 31, 1997.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Currency Hedged International Core Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers and through management of the Fund's
foreign currency positions.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
23
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the stock and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is subsequently settled. Gains or losses are recognized but
not considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded.
See Note 6 for all open futures contracts held as of August 31, 1997.
24
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1997.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 6 for a
summary of the open swap agreement as of August 31, 1997.
25
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1997, the Fund loaned securities having a market
value of $18,462,608 collateralized by cash in the amount of $19,807,665,
which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign interest and dividend income have been
withheld in accordance with the applicable country's tax treaty with the
United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual
basis and is adjusted for the accretion of discounts. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis.
26
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .75% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the six months ended August 31, 1997, the
Fund received $55,841 in purchase premiums. There is no premium for cash
redemptions or reinvested distributions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including stamp duties and transfer taxes), shareholder
service fees and extraordinary expenses) exceed .54% of average daily net
assets. Prior to June 1, 1996, a similar waiver existed for annual expenses
exceeding .69%; thus, the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $2,760. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
27
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $377,171,931 and $358,175,500, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<S> <C> <C> <C>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------------- ----------------------------- -------------------------- ----------------------------
$630,474,345 $42,097,068 $40,554,508 $1,542,560
</TABLE>
4. Principal shareholders
At August 31, 1997, 43% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the outstanding shares
of the Fund.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Class III: Six Months Ended Year Ended
August 31, 1997 February 28, 1997
--------------------------------------- ----------------------------------------
Shares Amount Shares Amount
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Shares sold 6,488,946 $ 99,389,052 16,351,665 $ 195,574,666
Shares issued to
shareholders in
reinvestment of
distributions 3,439,944 43,824,889 2,179,223 26,037,897
Shares repurchased (6,884,580) (104,526,327) (7,998,316) (96,705,714)
------------------ ------------------ ------------------ -------------------
Net increase 3,044,310 $ 38,687,614 10,532,572 $ 124,906,849
================== ================== ================== ===================
</TABLE>
28
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as follows:
Forward currency contracts
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Receive Units of Currency Value Depreciation
----------------- ----------------------- -------------------- ------------------- -------------------
Buys
<S> <C> <C> <C> <C>
9/12/97 ATS 95,470,410 $ 7,538,841 $ (504,159)
11/07/97 ATS 419,075,859 33,207,717 (1,354,845)
12/05/97 AUD 3,303,719 2,430,986 (61,009)
11/07/97 BEF 737,760,487 19,918,298 (731,053)
12/05/97 CAD 31,744,991 22,982,599 (272,918)
11/07/97 CHF 24,998,000 16,966,745 (184,237)
11/07/97 DEM 76,358,281 42,600,346 (1,302,016)
11/07/97 DKK 5,186,232 759,344 (22,893)
11/07/97 ESP 2,726,762,754 17,939,524 (843,281)
11/07/97 FIM 49,423,287 9,157,265 (295,931)
11/07/97 GBP 24,913,592 40,284,033 (849,616)
12/05/97 HKD 89,351,874 11,449,644 (74,021)
9/12/97 IEP 4,084,031 6,067,100 (153,901)
11/07/97 IEP 10,813,299 16,048,919 (171,971)
11/07/97 ITL 35,064,965,576 19,869,181 (660,057)
12/05/97 JPY 1,874,956,260 15,792,009 (1,127,516)
9/12/97 MYR 11,835,524 4,052,948 (685,052)
12/05/97 MYR 6,559,122 2,220,420 (374,580)
11/07/97 NLG 24,663,704 12,219,887 (110,672)
9/12/97 NOK 93,523,420 12,548,104 (827,896)
11/07/97 NOK 196,918,957 26,492,528 (954,581)
12/05/97 NZD 22,205,633 14,103,482 (1,172,883)
11/07/97 SEK 285,694,075 36,458,552 (629,970)
12/05/97 SGD 4,215,450 2,785,417 (210,426)
-------------------
$ (13,575,484)
===================
</TABLE>
29
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
----------------- -------------------------- -------------------- --------------------- ------------------
Sales
<S> <C> <C> <C> <C>
11/07/97 ATS 413,053,753 $ 32,747,217 $ 1,152,662
9/12/97 AUD 12,369,475 9,089,666 504,334
12/05/97 AUD 56,701,753 41,755,687 592,553
11/07/97 BEF 734,491,953 19,852,833 1,066,904
9/12/97 CAD 1,295,667 933,941 22,059
12/05/97 CAD 15,843,985 11,475,717 135,685
11/07/97 CHF 95,787,346 65,083,389 811,996
9/12/97 DEM 31,026,209 17,248,590 1,132,410
11/07/97 DEM 154,972,054 86,485,732 (2,683,226)
9/12/97 DKK 12,615,344 1,841,671 118,329
11/07/97 DKK 88,389,173 12,947,854 573,245
11/07/97 ESP 214,456,980 1,412,016 46,646
11/07/97 FIM 5,500,000 1,020,099 42,292
11/07/97 FRF 246,082,631 40,750,591 1,249,079
9/12/97 GBP 19,411,482 31,475,941 265,059
11/07/97 GBP 111,986,763 181,149,788 869,083
11/07/97 HKD 13,517,395 1,736,413 7,587
12/05/97 HKD 559,701,085 71,786,307 314,749
11/07/97 IEP 7,272,525 10,814,851 189,207
9/12/97 ITL 3,531,143,800 2,005,277 92,723
11/07/97 ITL 61,056,934,630 34,611,924 905,149
12/05/97 JPY 15,832,284,835 133,422,253 3,270,660
12/05/97 MYR 107,449,497 36,475,902 5,860,328
11/07/97 NLG 63,263,484 31,353,480 1,070,035
11/07/97 NOK 54,694,151 7,365,720 165,203
9/12/97 NZD 6,180,581 3,950,229 317,771
12/05/97 NZD 30,857,391 19,618,692 1,223,822
</TABLE>
30
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Receive Units of Currency Value Appreciation
----------------- -------------------------- -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Sales - continued
11/07/97 SEK 320,472,261 $ 40,940,272 $ 485,670
12/05/97 SGD 44,547,073 29,503,978 1,756,592
------------------
$ 21,558,606
==================
</TABLE>
<TABLE>
<CAPTION>
Currency Abbreviations
<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>
31
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - continued
- --------------------------------------------------------------------------------
Futures Contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
-------------- ---------------------- -------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Buys
146 DAX September 1997 $ 31,833,458 $ 229,315
213 MIB 30 September 1997 25,786,875 2,079,398
138 TOPIX September 1997 16,336,520 964,863
145 TSE 35 September 1997 18,093,017 215,289
--------------------
$ 1,128,561
====================
Sales
386 ALL ORDS September 1997 $ 18,193,466 $ 1,107,260
87 FTSE 100 ID September 1997 17,016,273 269,640
237 HANG SENG September 1997 21,256,291 2,643,646
4 IBEX 35 September 1997 171,992 6,350
19 MATIF CAC 40 September 1997 1,736,015 80,438
271 OMX STOCK September 1997 8,356,836 682,688
--------------------
$ 4,250,742
====================
</TABLE>
At August 31, 1997, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
Swap agreement
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Depreciation
------------------------ --------------- ---------------------------------------------------- ------------------
<S> <C> <C> <C>
CHF 251,264,052 08/06/98 Agreement with Swiss Bank Corporation dated 8/6/97
to receive (pay) the notional amount multiplied by
the return on the Swiss Market Index (including
dividends) and to pay the notional amount
multiplied by 6 month CHF LIBOR adjusted by a
specified spread. $ (707,741)
==================
</TABLE>
32
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)*
- ----------------------------------------------------------------------------------
<S> <C>
Assets:
Receivable for Fund shares sold $ 18,703,000
Receivable for expenses waived or borne by Manager 1,216
----------------
Total assets 18,704,216
----------------
Liabilities:
Payable to affiliate for:
Management fee 820
Shareholder service fee 154
Accrued expenses 4,104
----------------
Total liabilities 5,078
----------------
Net assets $ 18,699,138
================
Net assets consist of:
Paid-in capital $ 18,703,000
Accumulated undistributed net investment income (3,862)
----------------
$ 18,699,138
================
Net assets attributable to Class III Shares $ 18,699,138
================
Shares outstanding - Class III 1,840,375
================
Net asset value per share - Class III $ 10.16 **
================
</TABLE>
* The Fund commenced operations on August 29, 1997. This statement reflects
the capital stock activity for that date and expense accruals for the two
day period ended August 31, 1997.
** The variance between the subscription price and net asset value per share
is attributable to the purchase premium earned by the Fund and that not yet
offset by investment transactions.
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS -- 92.8%
Asset Backed Securities -- 53.3%
$ 563,228 Americredit Automobile Receivables Trust Series 96-B
Class A, 6.50%, due 1/12/02 565,428
3,498,324 Banc One Student Loan Trust 94-A Class A2, Variable Rate,
1 mo. LIBOR + .30%, 5.95%, due 10/25/16 3,512,317
4,940,000 Brazos Student Loan Finance Corp. Series 96-A4, Variable
Rate, 3 mo. U.S. Treasury Bill + .50%, 5.94%, due 12/01/02 4,933,053
2,500,000 Chevy Chase Master Credit Card Trust Series 96-A, Variable
Rate, 1 mo. LIBOR + .15%, 5.80%, due 2/15/05 2,500,391
463,100 Dilmun Capital Corp, Variable Rate, 6 mo. LIBOR + .88%,
6.86%, due 11/15/03 464,026
5,000,000 First Chicago Master Trust II 95-0, Variable Rate, 1 mo.
LIBOR + .23%, 5.88%, due 2/15/04 5,018,750
1,000,000 National Premier Finance 95-2, 144A, 6.21%, due 6/01/99 993,000
5,500,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 5,582,500
2,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30%, 5.94%, due 8/25/07 2,011,563
500,000 Premier Auto Trust 94-4 Certificates, 6.85%, due 5/02/99 505,750
4,155,502 Signet Student Loan Trust Series 96-A Class A-1, Variable
Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05 4,155,502
2,000,000 Starvest CBO-1 Class A, Variable Rate 6 mo. LIBOR + .19%
144A, 6.00%, due 7/30/11 1,988,648
-----------
32,230,928
-----------
Structured Notes -- 6.2%
750,000 Federal Home Loan Bank, Variable Rate, ((.50 * 10YR CMT) +
1.25%), 4.55%, due 3/16/98 743,250
1,000,000 Federal National Mortgage Association, Variable Rate,
((.50 * 2YR CMT) + 1.80%), 4.81%, due 3/10/98 993,000
2,000,000 Student Loan Marketing Association, Variable Rate, (10.25% -
5YR DM SWAP), 6.06%, due 3/23/98 1,996,000
-----------
3,732,250
-----------
U.S. Government -- 15.4%
9,000,000 U.S. Treasury Note, 7.75%, due 11/30/99 9,320,625
-----------
U.S. Government Agency -- 17.9%
350,000 Agency for International Development Floater (Support of
Botswana), Variable Rate, 6 mo. U.S. Treasury Bill +
.40%, 5.88%, due 10/01/12 347,813
2,250,000 Agency for International Development Floater (Support of
C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill +
.40%, 5.85%, due 10/01/12 2,244,375
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency -- continued
$2,416,832 Agency for International Development Floater (Support of
Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x
117%, 5.94%, due 10/01/11 2,416,832
101,836 Agency for International Development Floater (Support of
Peru), Variable Rate, 6 mo. U.S. Treasury Bill + .35%,
5.68%, due 5/01/14 101,263
5,670,048 Small Business Administration Pool #502320, Variable Rate,
Prime - 2.18%, 6.31%, due 8/25/18 5,698,399
-----------
10,808,682
-----------
TOTAL DEBT OBLIGATIONS (COST $56,082,658) 56,092,485
-----------
SHORT-TERM INVESTMENTS -- 9.7%
Repurchase Agreements -- 9.7%
2,947,813 Prudential Securities, Inc. Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of $2,949,447 and
an effective yield of 4.99%, collateralized by a U.S.
Government Agency Obligation with a rate of 6.811%, with a
maturity date of 3/1/35 and a market value of $3,006,780 2,947,813
2,947,813 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $2,949,467 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate market
value of $3,015,363. 2,947,813
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $5,895,626) 5,895,626
-----------
TOTAL INVESTMENTS -- 102.5%
(COST $61,978,284) 61,988,111
Other Assets and Liabilities (net)-- (2.5)% (1,534,665)
-----------
TOTAL NET ASSETS-- 100% $60,453,446
===========
Notes to the Schedule of Investments:
CMT - Constant Maturity Treasury Index
DM SWAP - 5 year Deutsche Mark Constant Maturity Swap Rate
Variable rates - The rates shown on variable rate notes are
the current interest rates at August 31, 1997, which are
subject to change based on the terms of the security.
144A - Securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
</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 -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $61,978,284) (Note 1) $61,988,111
Cash 1,974,496
Receivable for investments sold 60,000
Interest receivable 615,726
Receivable for expenses waived or borne by Manager (Note 2) 9,051
-----------
Total assets 64,647,384
-----------
Liabilities:
Payable for investments purchased 4,161,439
Payable to affiliate for (Note 2):
Management fee 11,209
Shareholder service fee 6,726
Accrued expenses 14,564
-----------
Total liabilities 4,193,938
-----------
Net assets $60,453,446
===========
Net assets consist of:
Paid-in-capital $59,929,593
Accumulated undistributed net investment income 539,921
Accumulated undistributed net realized loss (25,895)
Net unrealized appreciation 9,827
===========
$60,453,446
===========
Shares outstanding 6,147,369
===========
Net asset value per share $ 9.83
===========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest 1,376,656
----------
Expenses:
Management fee (Note 2) 57,957
Audit fees 12,594
Custodian and transfer agent fees 3,373
Legal fees 913
Registration fees 786
Trustees fees (Note 2) 179
Miscellaneous 270
Fees waived or borne by Manager (Note 2) (64,479)
----------
11,593
Shareholder service fee (Note 2) 34,774
----------
Net expenses 46,367
----------
Net investment income 1,330,289
----------
Realized and unrealized gain (loss):
Net realized loss on investments (8,001)
----------
Change in net unrealized appreciation (depreciation) on investments 62,684
----------
Net realized and unrealized gain 54,683
----------
Net increase in net assets resulting from operations $1,384,972
==========
</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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
--------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $1,330,289 $ 1,624,987
Net realized gain (loss) (8,001) 76,160
Change in net unrealized appreciation (depreciation) 62,684 (75,627)
------------ ------------
Net increase in net assets resulting from operations 1,384,972 1,625,520
------------ ------------
Distributions to shareholders from:
Net investment income (1,118,549) (1,442,981)
------------ ------------
(1,118,549) (1,442,981)
------------ ------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 32,141,959 94,033,050
Net asset value of shares issued to shareholders in
payment of distributions declared 782,800 1,044,258
Cost of shares repurchased (13,674,673) (65,388,935)
------------ ------------
Net increase in net assets resulting from Fund share
transactions 19,250,086 29,688,373
------------ ------------
Total increase in net assets 19,516,509 29,870,912
Net assets:
Beginning of period 40,936,937 11,066,025
------------ ------------
End of period (including accumulated undistributed net
investment income of $539,921 and $328,181,
respectively) $60,453,446 $40,936,937
============ ============
</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>
Six Months Ended Year Ended February 28/29,
August 31, 1997 -----------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 9.78 $ 9.77 $ 9.56 $ 9.79 $ 10.05 $ 10.11
-------- -------- -------- ------- -------- --------
Income from investment operations:
Net investment income 0.24 0.47 0.57 0.63 0.44 0.44
Net realized and
unrealized gain (loss) 0.04 0.06 0.20 (0.28) (0.09) 0.30
-------- -------- -------- ------- -------- --------
Total from investment
operations 0.28 0.53 0.77 0.35 0.35 0.76
-------- -------- -------- ------- -------- --------
Less distributions to shareholders:
From net investment income (0.23) (0.52) (0.56) (0.58) (0.46) (0.38)
From net realized gains -- -- -- -- (0.15) (0.44)
-------- -------- -------- ------- -------- --------
Total distributions (0.23) (0.52) (0.56) (0.58) (0.61) (0.82)
-------- -------- -------- ------- -------- --------
Net asset value,
end of period $ 9.83 $ 9.78 $ 9.77 $ 9.56 $ 9.79 $ 10.05
======== ======== ======== ======= ======== ========
Total Return/(a)/ 2.90% 5.62% 8.32% 3.78% 3.54% 8.25%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $60,453 $40,937 $11,066 $8,193 $ 8,095 $10,499
Net expenses to average
daily net assets 0.20%* 0.20% 0.25% 0.25% 0.25% 0.25%
Net investment income to
average daily net
assets 5.74%* 5.88% 6.49% 5.02% 4.35% 4.94%
Portfolio turnover rate 9% 287% 139% 335% 243% 649%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.01 $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.03
</TABLE>
/(a)/ The total returns would have been lower had certain expenses not been
waived during the periods shown.
* Annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Short Term Income Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares.
The Fund seeks current income to the extent consistent with the
preservation of capital and liquidity through investment in a portfolio of
high quality short-term instruments.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed
7
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
securities to increase or decrease its exposure to different underlying
instruments and to gain exposure to markets that may be difficult to invest
in through conventional securities. Indexed securities may be more volatile
than their underlying instruments, but any loss is limited to the amount of
the original investment.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund had
no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts and amortization of premiums. In determining the net gain or loss
on securities sold, the cost of securities is determined on the identified
cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
8
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of the Fund at the
annual rate of .15%.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .05% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .20%;
thus, the net annual expense ratio after the waiver is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $179. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ - $ 2,012,813
Investments (non-U.S. Government securities) 22,011,715 2,180,159
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
$61,978,284 $57,633 $47,806 $9,827
</TABLE>
4. Principal shareholders
At August 31, 1997, 36% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
9
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
------------------ --------------------
<S> <C> <C>
Shares sold 3,284,450 9,668,234
Shares issued to shareholders in
reinvestment of distributions 80,638 108,123
Shares repurchased (1,405,525) (6,721,285)
------------------ --------------------
Net increase 1,959,563 3,055,072
Fund shares:
Beginning of period 4,187,806 1,132,734
------------------ --------------------
End of period 6,147,369 4,187,806
================== ====================
</TABLE>
10
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
DEBT OBLIGATIONS -- 90.9%
Argentina -- 0.3%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.50%, due 3/31/23 736,875
---------------
Australia -- 1.9%
GBP 2,000,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 12/07/06 3,350,639
AUD 2,620,000 Queensland Treasury Corp., 8.00%, due 9/14/07 2,107,207
---------------
5,457,846
---------------
Austria -- 2.0%
CAD 7,000,000 Autobahn Schnell, 8.50%, due 3/03/03 5,661,505
---------------
Brazil -- 0.3%
USD 1,135,141 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 925,140
---------------
Bulgaria -- 1.3%
USD 1,000,000 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 7.19%, due 7/28/24 781,250
USD 5,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 7/28/24 550,300
USD 15,000,000 Bulgaria Discount Strips, due 7/28/24 2,284,350
---------------
3,615,900
---------------
Canada -- 4.3%
CAD 750,000 Government of Canada, 10.25%, due 3/15/14 749,892
CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 3,969,103
CAD 3,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 2,246,014
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,613,252
CAD 5,000,000 Societe Quebec D'Ass D'Eaux, 8.13%, due 8/11/03 3,953,907
---------------
12,532,168
---------------
Cayman Islands -- 0.5%
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 1,536,910
---------------
Denmark -- 4.1%
DKK 78,200,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 11,994,789
---------------
Ecuador -- 0.4%
USD 2,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.50%, due 2/28/25 1,047,500
---------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <S> <C>
France -- 6.7%
FRF 14,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 2,680,900
SEK 10,000,000 Credit Foncier, 6.50%, due 2/22/99 1,289,645
ECU 2,000,000 Credit Foncier, 8.38%, due 3/17/04 2,447,844
ECU 7,000,000 Government of France, 8.25%, due 4/25/22 9,110,328
ECU 3,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 3,709,451
---------------
19,238,168
---------------
Germany -- 3.9%
DEM 2,200,000 Bundesrepublic Deutschland, 6.00%, due 9/15/03 1,278,302
DEM 1,000,000 Bundesrepublic Deutschland, 6.00%, due 6/20/16 541,884
ESP 250,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 1,838,453
GBP 2,000,000 KFW International Finance, 10.63%, due 9/03/01 3,579,313
ESP 280,000,000 KFW International Finance, 8.60%, due 5/20/03 2,059,988
DEM 1,300,000 Treuhandanstalt, 7.12%, due 1/29/03 791,468
DEM 2,000,000 Treuhandanstalt, 6.25%, due 3/04/04 1,171,537
---------------
11,260,945
---------------
Greece -- 0.9%
GRD 750,000,000 Hellenic Republic,
Variable Rate, 12 mo. GTB + 1.50%, 14.20%, due 9/30/03 2,699,481
---------------
Italy -- 0.7%
ITL 1,550,000,000 BTPS, 8.50%, due 8/01/04 967,658
ITL 1,700,000,000 BTPS, 9.00%, due 11/01/23 1,152,061
---------------
2,119,719
---------------
Japan -- 6.7%
GBP 2,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,569,582
JPY 400,000,000 Japan Development Bank, 6.50%, due 9/20/01 4,008,646
GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05 3,532,280
USD 1,030,000 Japan Highway Public Corporation, 7.63%, due 9/22/04 1,086,135
GBP 4,000,000 Kobe City, 9.50%, due 10/20/04 7,187,818
---------------
19,384,461
---------------
Jordan -- 0.2%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up 144A, 4.00%, due 12/23/23 690,000
---------------
Mexico -- 0.7%
FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 2,111,326
---------------
New Zealand -- 1.7%
NZD 7,800,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 4,764,246
---------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Norway -- 0.3%
SEK 6,300,000 A/S Eksportfinans, 7.50%, due 8/16/01 845,537
----------------
Supra National -- 5.0%
JPY 175,000,000 Asian Development Bank, 5.00%, due 2/05/03 1,707,228
ITL 5,000,000,000 European Investment Bank, 12.20%, due 2/18/03 3,545,455
CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 577,746
GBP 1,755,000 European Investment Bank, 8.75%, due 8/25/17 3,251,851
GBP 2,000,000 International Bank Recon and Development, 11.50%, due
11/09/03 3,915,025
SEK 10,000,000 International Finance Corp, 10.63%, due 9/20/99 1,401,732
----------------
14,399,037
----------------
Sweden -- 8.9%
SEK 4,000,000 AB Spintab, 8.50%, due 12/19/01 552,490
SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 2,569,609
SEK 181,300,000 Kingdom of Sweden, 6.00%, due 2/09/05 22,561,470
----------------
25,683,569
----------------
United Kingdom -- 1.4%
GBP 2,000,000 Guaranteed Export Financial Corp, 12.88%, due 9/29/02 3,971,788
----------------
United States -- 38.4%
Asset Backed Securities -- 34.3%
USD 4,590,245 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 4,587,376
USD 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, LIBOR + .30% 144A, 6.05%, due 4/15/06 5,000,000
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25% 144A, 5.65%, due 4/25/03 5,000,000
USD 6,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, LIBOR + .17%, 5.85%, due 10/15/06 6,000,000
USD 3,833,887 CS First Boston Mortgage Securities Corp., Series 96-1 Class
A1, Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29 3,836,187
USD 1,500,000 First International Funding Co,
Variable Rate, 3 mo. LIBOR + .55%, 6.36%, due 6/03/98 1,506,450
USD 5,000,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + .37%, 6.00%, due 8/15/03 5,041,406
USD 9,000,000 National Premier Finance 95-2, 144A, 6.21%, due 6/01/99 8,937,000
USD 5,000,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 5,075,000
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Asset Backed Securities -- continued
USD 18,000,000 Navistar Financial Dealer Note Master Trust 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .15%, 5.78%, due 8/25/03 18,005,400
USD 10,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due 7/15/09 10,297,000
USD 10,000,000 Rhino CBO Series 97-1 Class A-2, 144A, 6.33%, due 9/15/09 10,049,900
USD 5,966,000 SMS Student Loan Trust 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 6.35%, due 7/26/21 5,986,881
USD 5,000,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 6.44%, due 7/25/03 5,007,813
USD 5,000,000 Starvest CBO-1 Class A,
Variable Rate, 6 mo. LIBOR + .19% 144A, 6.00%, due 7/30/11 4,971,620
----------------
99,302,033
----------------
Structured Notes -- 0.4%
USD 1,000,000 Bankers Trust Medium Term Note, 17.10%, due 10/14/97/(a)/ 1,094,400
----------------
U.S. Government Agency -- 3.7%
USD 2,900,198 Agency for International Development Floater (Support of
Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x
1.17%, 5.94%, due 10/01/11 2,900,198
USD 1,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 1,003,438
USD 1,961,401 Agency for International Development Floater (Support of
Morocco), Variable Rate, 6 mo. U.S. Treasury Bill +
.45%, 5.78%, due 11/15/14 1,954,046
USD 333,333 Agency for International Development Floater (Support of Peru),
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.68%,
due 2/01/02 331,458
USD 3,680,037 Agency for International Development Floater (Support of Peru),
Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.68%,
due 5/01/14 3,659,337
USD 953,219 National Oceanic & Atmospheric Administration Floater,
Variable Rate, 6 mo. LIBOR + .50%, 5.88%, due 6/15/08 953,814
----------------
10,802,291
----------------
Total United States 111,198,724
----------------
Venezuela -- 0.3%
USD 1,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81%, 6.81%, due 3/31/20 903,750
----------------
TOTAL DEBT OBLIGATIONS (COST $262,256,816) 262,779,384
----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
LOAN ASSIGNMENTS -- 0.4%
Ivory Coast -- 0.4%
FRF 15,000,000 Ivory Coast Credit Agreement (Assignment with Banque
Paribas, J.P. Morgan, Bank of America, Chase Manhattan
and Salomon)* 1,298,327
---------------
TOTAL LOAN ASSIGNMENTS (COST $585,502) 1,298,327
---------------
LOAN PARTICIPATIONS -- 0.4%
Russia -- 0.4%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement (Participation with
Bank of America)* 1,129,165
---------------
TOTAL LOAN PARTICIPATIONS (COST $397,643) 1,129,165
---------------
<CAPTION>
Shares
- -------------------------------
<C> <C> <S> <C>
PREFERRED STOCKS -- 1.7%
United States -- 1.7%
5,000 Bear Stearns Managed Income Securities Plus Fund 4,949,850
---------------
TOTAL PREFERRED STOCKS (COST $4,933,793) 4,949,850
---------------
<CAPTION>
Principal Amount
- -------------------------------
<C> <C> <S> <C>
CALL OPTIONS PURCHASED -- 3.7%
Cross Currency Options -- 2.6%
DEM 233,600,000 DEM Call/BEF Put, Expires 10/08/97, Strike 20.50 973,224
ECU 109,700,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 1,234,201
ECU 89,000,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 2,158,166
ECU 123,600,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225,
Strike 1.91 3,280,701
---------------
7,646,292
---------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Options on Bonds -- 0.3%
USD 6,500,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 378,333
SEK 175,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 461,851
---------------
840,184
---------------
Options on Currency -- 0.8%
USD 44,800,000 British Pound, Expires 11/06/97, Strike 1.6325 990,080
USD 13,000,000 German Mark, Expires 2/09/98, Strike 1.61 1,270,100
---------------
2,260,180
---------------
TOTAL CALL OPTIONS PURCHASED
(COST $9,022,217) 10,746,656
---------------
PUT OPTIONS PURCHASED -- 1.2%
Cross Currency Options -- 1.2%
DEM 55,800,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 15,498
DEM 118,400,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out 1050,
Strike 1030 3,308,255
USD 2,000,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 24,000
USD 782,986 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 3,500
---------------
3,351,253
---------------
Options on Currency -- 0.0%
USD 5,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 --
USD 12,500,000 Czech Koruna, Expires 10/02/97, Strike 29.69 --
USD 13,000,000 German Mark, Expires 2/09/98, Strike 1.61 36,400
---------------
36,400
---------------
TOTAL PUT OPTIONS PURCHASED
(COST $2,523,268) 3,387,653
---------------
<CAPTION>
Shares
- ------------------------------
<C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
1,740,000 United Mexican States Warrants, Expires 6/30/03 ** --
---------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Venezuela -- 0.0%
19,280 Republic of Venezuela Recovery Warrants, Expires 04/15/20** --
---------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
---------------
<CAPTION>
Par Value
- ------------------------------
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS -- 2.9%
Cash Equivalents -- 1.4%
USD 3,719,171 BankBoston Eurodollar Time Deposit, 5.7875% due 9/02/97/(b)/ 3,719,171
USD 84,645 First Union National Bank of North Carolina Eurodollar Time
Deposit, 5.5625% due 9/02/97/(b)/ 84,645
USD 253,934 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due
9/02/97/(b)/ 253,934
---------------
4,057,750
---------------
Repurchase Agreement -- 0.3%
USD 779,815 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $780,252 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate
market value of $797,684. 779,815
---------------
U.S. Government -- 1.2%
USD 500,000 U.S. Treasury Bill, 5.31%, due 1/08/98/(c)/ 490,951
USD 3,000,000 U.S. Treasury Bill, 5.33% due 1/15/98/(c)/ 2,945,064
---------------
3,436,015
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $8,268,579) 8,273,580
---------------
TOTAL INVESTMENTS -- 101.2%
(COST $287,987,818) 292,564,615
Other Assets and Liabilities (net) -- (1.2)% (3,328,451)
---------------
TOTAL NET ASSETS -- 100% $ 289,236,164
===============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
Notes to the Schedule of Investments:
GTB - Greek Treasury Bill
PIK -- Payment In Kind
Knock Out -- Option will expire if underlying
security reaches Knock Out price.
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933.
These securities may be resold in
transactions exempt from registration,
normally to qualified institutional buyers.
Variable and Step up rates -- The rates shown on
variable and step up rate notes are the
current interest rates at August 31, 1997,
which are subject to change based on the
terms of the security.
<TABLE>
Currency Abbreviations
<S> <C>
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc GRD - Greek Drachma
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone NZD - New Zealand Dollar
ECU - European Currency Unit SEK - Swedish Krona
ESP - Spanish Peseta THB - Thailand Baht
FRF - French Franc TRL - Turkish Lira
USD - United States Dollar
</TABLE>
/(a)/Principal is linked to the value of the Brazilian
Capitalization Bond and the Brazilian IDU Bond.
Restricted as to public resale. At the date of
aquisition, this security was valued at cost. There were
no outstanding unrestricted securities of the same class
as those held.
/(b)/Represents investments of security lending collateral
(Note 1).
/(c)/All or a portion of this security is held as collateral
for open futures contracts.
* Non-performing. Borrower not currently paying interest.
** Non-income producing security.
8 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $287,987,818) (Note 1) $ 292,564,615
Foreign currency, at value (cost $873,294) (Note 1) 816,801
Receivable for investments sold 4,595,664
Interest receivable 6,811,212
Receivable for variation margin on open futures contracts (Notes 1 and 6) 387,095
Receivable for open forward foreign currency contracts (Notes 1 and 6) 7,816,416
Receivable for expenses waived or borne by Manager (Note 2) 51,527
---------------
Total assets 313,043,330
---------------
Liabilities:
Payable for investments purchased 2,806,892
Payable upon return of securities loaned (Note 1) 4,057,750
Written options outstanding, at value (premiums $1,356,004) (Notes 1 and 6) 1,432,145
Payable for open forward foreign currency contracts (Notes 1 and 6) 14,973,036
Payable for Fund shares repurchased 74,458
Payable to affiliate for (Note 2):
Management fee 89,332
Shareholder service fee 33,536
Accrued expenses 52,487
Payable for open swap contracts (Note 1 and 6) 285,931
Miscellaneous payable 1,599
---------------
Total liabilities 23,807,166
---------------
Net assets $ 289,236,164
===============
Net assets consist of:
Paid-in-capital $ 276,062,601
Accumulated undistributed net investment income 13,209,617
Accumulated undistributed net realized gain 3,080,496
Net unrealized depreciation (3,116,550)
---------------
$ 289,236,164
===============
Net assets attributable to:
Class III shares $ 289,236,164
===============
Shares outstanding:
Class III 26,571,560
===============
Net asset value per share:
Class III $ 10.89
===============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $865) $ 8,271,620
Dividends 165,875
-------------
Total income 8,437,495
-------------
Expenses:
Management fee (Note 2) 501,193
Custodian and transfer agent fees 81,795
Audit fees 34,733
Legal fees 5,308
Registration fees 2,394
Trustees fees (Note 2) 1,347
Miscellaneous 1,034
Fees waived or borne by Manager (Note 2) (314,558)
-------------
313,246
Shareholder service fee (Note 2)
Class III 187,959
-------------
Net expenses 501,205
-------------
Net investment income 7,936,290
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 995,304
Closed futures contracts 2,458,802
Closed swap contracts 316,606
Foreign currency, forward contracts and foreign currency related transactions 1,193,521
-------------
Net realized gain 4,964,233
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (6,512,782)
Open futures contracts 909,501
Open swap contracts (285,931)
Written options (202,891)
Foreign currency, forward contracts and foreign currency related transactions (1,993,249)
-------------
Net unrealized loss (8,085,352)
-------------
Net realized and unrealized loss (3,121,119)
-------------
Net increase in net assets resulting from operations $ 4,815,171
=============
</TABLE>
10 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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,936,290 $ 14,716,597
Net realized gain 4,964,233 15,665,683
Change in net unrealized appreciation (depreciation) (8,085,352) (7,800,186)
------------ ------------
Net increase in net assets resulting from operations 4,815,171 22,582,094
------------ ------------
Distributions to shareholders from:
Net investment income
Class III -- (15,718,077)
------------ ------------
Total distributions from net investment income -- (15,718,077)
------------ ------------
Net realized gains
Class III (2,670,095) (10,685,120)
------------ ------------
Total distributions from net realized gains (2,670,095) (10,685,120)
------------ ------------
In excess of net realized gains
Class III -- (2,935,300)
------------ ------------
Total distributions in excess of net realized gains -- (2,935,300)
------------ ------------
(2,670,095) (29,338,497)
------------ ------------
Net share transactions: (Note 5)
Class III 51,307,965 48,619,210
------------ ------------
Increase in net assets resulting from net share transactions 51,307,965 48,619,210
------------ ------------
Total increase in net assets 53,453,041 41,862,807
Net assets:
Beginning of period 235,783,123 193,920,316
------------ ------------
End of period (including accumulated undistributed net
investment income of $13,209,617 and $5,273,327, respectively) $289,236,164 $235,783,123
============ ============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------------------
(Unaudited) 1997 1996 1995 1994*
----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.78 $ 10.92 $ 9.64 $ 9.96 $ 10.00
--------- --------- --------- --------- --------
Income from investment operations:
Net investment income 0.26 0.71 0.62 0.98 0.08
Net realized and unrealized gain
(loss) (0.04) 0.65 1.55 (0.21) (0.12)
--------- --------- --------- --------- --------
Total from investment operations 0.22 1.36 2.17 0.77 0.77
--------- --------- --------- --------- --------
Less distributions to shareholders:
From net investment income -- (0.81) (0.59) (0.75) --
From net realized gains (0.11) (0.54) (0.30) (0.34) --
In excess of net realized gains -- (0.15) -- -- --
--------- --------- --------- --------- --------
Total distributions (0.11) (1.50) (0.89) (1.09) --
--------- --------- --------- --------- --------
Net asset value, end of period $ 10.89 $ 10.78 $ 10.92 $ 9.64 $ 9.96
========= ========= ========= ========= ========
Total Return /a)/ 2.00% 12.39% 22.72% 8.23% (0.40)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 289,236 $ 235,783 $ 193,920 $ 151,189 $ 39,450
Net expenses to average daily net
assets 0.40%** 0.40% 0.40% 0.40% 0.40%**
Net investment income to average daily
net assets 6.33%** 6.93% 8.17% 7.51% 5.34%**
Portfolio turnover rate 53% 95% 99% 141% 14%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.02 $ 0.02
</TABLE>
* For the period from December 22, 1993 (commencement of operations) to
February 28, 1994.
** Annualized.
/(a)/ Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
12 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment
grade bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the international fixed income securities
market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets
invested with GMO, as more fully outlined in the Trust's prospectus. Class
III shares are the continuation of the Trust's shares that existed prior
to June 1, 1996, and bear the same total operating expenses (after the
voluntary expense waiver) as those shares. At August 31, 1997, Class III
was the only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost
which approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from
yield data relating to investments or securities with similar
characteristics.
13
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets
and liabilities are translated to U.S. dollars based on the prevailing
exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at prevailing exchange rates when
accrued or incurred. The Fund does not isolate realized and unrealized
gains and losses attributable to changes in exchange rates from gains and
losses that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains and losses on disposition of
foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments.
Upon purchase of a futures contract, the Fund is required to deposit with
its custodian, in a segregated account in the name of the futures broker,
an amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for
the change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for
the contracts, or if counterparties do not perform under the contract
terms. Futures contracts are valued at the settlement price established
each day by the board of trade or exchange on which they are traded. See
Note 6 for all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or
all of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded
by the Fund as an unrealized gain or loss. Realized gains or losses equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed are recorded upon delivery
or receipt of the currency or, if a forward currency contract is offset by
entering into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market
risk in excess of the unrealized gain or loss reflected in the Fund's
Statement of Assets and Liabilities. In addition, the Fund could be
exposed to risk if the counterparties are unable to meet the terms of the
contracts or if the value of the currency changes unfavorably to the U.S.
dollar. The U.S. dollar value of the currencies
14
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
the Fund has committed to buy or sell is shown under Note 6 and represents
the currency exposure the Fund has acquired or hedged through currency
contracts as of August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to
determine the realized gain or loss. The Fund as a writer of an option has
no control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. There
is the risk the Fund may not be able to enter into a closing transaction
because of an illiquid market. See Note 6 for a summary of open written
option contracts as of August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Loan agreements
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when
due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
15
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral
declines or if the seller enters insolvency proceedings, realization of
collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund loaned securities
having a market value of $4,005,956, collateralized by cash in the amount
of $4,057,750 which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
16
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes
are classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. Effective June 1, 1996, the Manager will reduce such premium
only when any portion of a purchase is offset by a corresponding
redemption occurring on the same day. All purchase premiums are paid to
and recorded as paid-in capital by the Fund. For the six months ended
August 31, 1997, the Fund received $75,270 in purchase premiums. There is
no premium for cash redemptions, reinvested distributions or in-kind
transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and
the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
17
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .28% for Class I shares, .22% for Class II
shares and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including
the management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $1,347. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
---------------------- --------------------
<S> <C> <C>
U.S. Government securities $ 8,426,671 $ 7,888,918
Investments (non-U.S. Government securities) 167,240,709 109,778,082
</TABLE>
At August 31,1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
--------------------------- --------------------------- -------------------------- -----------------------
<S> <C> <C> <C>
$ 287,987,818 $10,990,956 $6,414,159 $4,576,797
</TABLE>
18
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1997, 33% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
------------------------------------------- -----------------------------------------
Class III: Shares Amount Shares Amount
------------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Shares sold 7,081,890 $ 77,125,119 9,398,594 $ 108,940,870
Shares issued to shareholders in
reinvestment of distributions 242,142 2,644,188 2,130,615 23,653,871
Shares repurchased (2,625,983) (28,461,342) (7,421,298) (83,975,531)
------------------- ------------------- ------------------ --------------------
Net increase 4,698,049 $ 51,307,965 4,107,911 $ 48,619,210
=================== =================== ================== ====================
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 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
09/26/97 CAD 29,900,000 $ 21,570,276 $ (44,666)
09/02/97 DEM 4,172,890 2,318,643 3,419
09/05/97 DEM 455,100,000 252,925,229 (7,799,937)
09/22/97 DEM 29,200,000 15,134,048 51,875
10/17/97 GBP 20,200,000 32,691,867 138,410
09/22/97 ITL 17,513,852,250 9,939,075 198,092
10/09/97 JPY 10,190,000,000 85,215,964 (5,828,428)
---------------------
$ (13,281,235)
=====================
</TABLE>
19
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- -----------------------------------------------------------------------------------------------------------------
Forward currency contracts -- continued
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
-------------- -------------------- -------------------- ----------------- ---------------------
Sales
<S> <C> <C> <C> <C>
11/28/97 AUD 3,400,000 $ 2,502,821 $ 41,059
09/26/97 CAD 45,600,000 32,896,475 213,080
09/05/97 DEM 249,600,000 138,717,067 2,926,185
09/22/97 DEM 17,900,000 9,959,539 (218,556)
10/17/97 GBP 22,200,000 35,928,686 201,861
09/22/97 ITL 28,602,096,000 16,231,630 (36,660)
10/09/97 JPY 3,230,000,000 27,011,537 772,714
09/23/97 NZD 7,600,000 4,850,637 294,563
03/23/98 THB 200,000,000 5,463,983 1,468,426
06/22/98 THB 100,000,000 2,703,433 703,722
---------------------
$ 6,366,394
=====================
</TABLE>
<TABLE>
<CAPTION>
Forward cross currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
-------------- ------------------------------------ --------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
10/10/97 BEF 536,765,280 DEM 26,000,000 $ 4,327
11/13/97 CHF 9,473,700 DEM 16,700,000 (17,649)
09/02/97 DEM 1,337,914 DKK 5,095,446 129
09/02/97 DEM 2,834,976 SEK 12,346,319 (3,393)
09/19/97 DEM 10,600,000 NLG 11,936,702 1,522
09/22/97 DEM 41,600,000 ITL 41,235,305,000 254,759
10/10/97 DEM 87,000,000 BEF 1,796,281,750 (9,553)
10/23/97 DEM 35,600,000 ESP 3,017,368,800 5,934
10/27/97 DEM 109,059,510 ECU 55,300,000 (286,223)
11/07/97 DEM 11,900,000 FRF 40,115,582 2,273
11/13/97 DEM 7,100,000 CHF 5,823,917 (3,679)
11/14/97 DEM 50,000,000 DKK 190,462,500 (8,050)
11/21/97 DEM 16,000,000 SEK 69,962,310 517
11/14/97 DKK 189,496,870 DEM 49,700,000 (17,958)
10/23/97 ESP 584,737,000 DEM 6,900,000 (557)
11/07/97 FRF 141,317,893 DEM 41,900,000 (19,695)
09/22/97 ITL 89,090,143,500 DEM 89,700,000 (648,538)
09/19/97 NLG 18,456,232 DEM 16,400,000 3,513
11/21/97 SEK 211,417,360 DEM 48,300,000 (29,494)
10/27/97 ECU 111,100,000 DEM 219,024,414 530,036
-------------------
$ (241,779)
===================
</TABLE>
20
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Futures contracts
Net Unrealized
Number of Contract Value Appreciation
Contracts Type Expiration Date (Depreciation)
--------------- --------------------------------------- -------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Buys
79 Australian Government Bond 3 yr September 1997 $ 6,986,895 $ 143,636
74 Australian Government Bond 10 yr September 1997 7,753,442 302,802
5 MATIF FRF Bond September 1997 529,047 790
153 German Government Bond December 1997 21,524,498 (37,975)
85 Italian Government Bond 10 yr December 1997 10,429,048 9,975
10 Japanese Government Bond 10 yr December 1997 10,655,332 24,965
107 MATIF ECU Bond September 1997 11,678,938 267,527
1 U.S. Treasury Bond 30 yr December 1997 113,125 399
254 U.K. Gilt September 1997 24,145,209 (11,642)
70 U.K. Gilt December 1997 6,479,941 (8,558)
--------------------
$ 691,919
====================
<CAPTION>
Sales
<S> <C> <C> <C> <C>
8 Canadian Government Bond 10 yr September 1997 $ 692,160 $ (896)
182 Spanish Government Bond 10 yr September 1997 14,709,829 (348,308)
162 Swiss Government Bond September 1997 13,542,480 (15,571)
113 Swiss Government Bond December 1997 8,972,972 11,543
100 U.S. Treasury Bill 3 Month December 1997 23,732,500 (81,000)
124 U.S. Treasury Note 10 yr September 1997 13,519,875 (239,555)
71 U.S. Treasury Note 10 yr December 1997 7,716,813 1,624
72 U.S. Treasury Bond 30 yr December 1997 8,118,000 (29,790)
--------------------
$ (701,953)
====================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
21
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Written option transactions
Puts Calls
Principal Amount Principal Amount
of of
Contracts Contracts
(000's omitted) Premiums (000's omitted) Premiums
-------------------- ---------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period $ 13,000 $ 646,750 13,000 $ 553,800
Options written 8,000 40,000 9,091 155,454
Options exercised (8,000) (40,000) -- --
-------------------- --------------------- --------------------- -----------------
Outstanding, end
of period $ 13,000 $ 646,750 22,091 $ 709,254
==================== ===================== ===================== =================
</TABLE>
<TABLE>
<CAPTION>
Summary of written options outstanding
Principal Amount
of
Contracts Expiration
(000's omitted) Exercise Price Date Value
--------------------- ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Calls
Japanese Yen $ 13,000 117 JPY 2/09/98 $ 422,500
Thai Baht 9,091 33 THB 10/16/97 584,545
Puts
Japanese Yen 13,000 117 JPY 2/09/98 425,100
-----------------
$ 1,432,145
=================
</TABLE>
22
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Swap agreements
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
- -------------------------- --------------- ----------------------------------------------------------- ------------------
<S> <C> <C> <C>
TRL 267,500,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to receive $(313,117)
the notional amount multiplied by the change in market
value (including accrued interest) of Turkey Index Linked
Bond and to pay the notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
TRL 110,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to receive 27,186
the notional amount multiplied by the change in market
value (including accrued interest) of Turkey Index Linked
Bond and to pay the notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
------------------
Net unrealized depreciation $(285,931)
==================
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
23
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS -- 88.9%
Asset Backed Securities -- 35.2%
$ 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, LIBOR + .30% 144A, 6.05%,
due 4/15/06 5,000,000
11,887,168 Augusta Funding VI Series 96-A3, 144A, 7.38%,
due 4/15/13 12,023,276
17,000,000 Bombardier Receivables Master Trust I 97-1
Class A, Variable Rate, 1 mo. LIBOR + .12%,
5.80%, due 4/15/04 17,010,625
9,590,000 Brazos Student Loan Finance Corp. Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill +
.50%, 5.94%, due 12/01/02 9,576,514
3,833,887 CS First Boston Mortgage Securities Corp.,
Series 96-1 Class A1, Variable Rate,
3 mo. LIBOR + .23%, 5.98%, due 7/28/29 3,836,187
4,167,900 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + .88%, 6.86%,
due 11/15/03 4,176,236
15,000,000 First Deposit Master Trust Series 96-1A,
Variable Rate, 1 mo. LIBOR +.17%, 5.82%,
due 8/15/07 15,037,500
9,500,000 First Union Master Credit Card Trust 96-1
Class A, Variable Rate, 1 mo. LIBOR + .17%,
5.82%, due 9/15/03 9,511,875
7,500,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + .37%, 6.00%,
due 8/15/03 7,562,109
10,050,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 6.42%,
due 11/25/21 10,050,000
11,224,915 Keystone Auto Grantor Trust Series 1996-A
Class A, 144A, 6.60%, due 12/15/02 11,359,613
6,000,000 National Premier Finance 95-2, 144A, 6.21%,
due 6/01/99 5,958,000
14,000,000 National Premier Finance IX 96-1A, 7.20%, due
7/01/00 14,210,000
6,000,000 Navistar Financial Dealer Note Master Trust
95-1 Class A, Variable Rate, 1 mo. LIBOR +
.30%, 5.94%, due 8/25/07 6,034,688
3,343,135 New York City Tax Lien Series 96-1 Class B,
144A, 6.91%, due 5/25/05 3,368,208
5,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due
7/15/09 5,148,500
3,500,000 Premier Auto Trust 94-4 Certificates, 6.85%,
due 5/02/99 3,540,250
2,102,134 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 6.08%,
due 6/25/26 2,101,477
2,481,329 Resolution Trust Corp 94-C1 Class A3,
Variable Rate, 1 mo. LIBOR + .55%, 6.18%,
due 6/25/26 2,488,308
2,637,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 6.38%,
due 10/25/23 2,637,000
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 6.28%,
due 4/25/25 4,925,835
5,888,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 6.44%,
due 7/25/03 5,897,200
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Asset Backed Securities -- continued
$ 2,617,126 UCFC Home Equity Loan 95-B2 Class A8,
Variable Rate, 1 mo. LIBOR + .45%, 6.14%,
due 10/10/26 2,619,743
-----------
164,073,144
-----------
Foreign Government Obligation -- 2.0%
25,000,000 Bulgaria Discount Strips, due 7/28/24 3,807,250
39,794,675 Republic of Albania Par Bond, Zero Coupon, due
8/31/25 5,421,627
-----------
9,228,877
-----------
Structured Notes -- 7.0%
3,000,000 Federal Home Loan Bank, 4.90%, due 2/23/98 2,970,000
3,550,000 Federal Home Loan Bank,
Variable Rate, (10 YR CMT + 2.55% - 3 mo.
LIBOR), 3.06%, due 7/28/98 3,443,500
2,500,000 Federal National Mortgage Association,
Variable Rate, ((.50 * 10 YR CMT) + 1.50%),
4.67%, due 2/25/98 2,480,000
1,250,000 Federal National Mortgage Association,
Variable Rate, ((.50 * 2 YR CMT) + 1.80%),
4.81%, due 3/10/98 1,241,250
22,500,000 Student Loan Marketing Association,
Variable Rate, (10.25% - 5 YR DM SWAP),
6.06%, due 3/23/98 22,455,000
-----------
32,589,750
-----------
U.S. Government -- 13.7%
28,000,000 U.S. Treasury Bond, 6.25%, due 8/15/23/(a)/ 26,495,000
29,365,000 U.S. Treasury Inflation Indexed Note, 3.41%,
due 1/15/07 29,224,361
8,400,000 U.S. Treasury Note, 6.38%, due 8/15/02 8,455,121
-----------
64,174,482
-----------
U.S. Government Agency -- 31.0%
8,750,000 Agency for International Development Floater
(Support of Jamaica),
Variable Rate, 6 mo. LIBOR + .30%, 6.32%,
due 12/01/14 8,771,875
15,000,000 Agency for International Development Floater
(Support of Morocco), Variable Rate, 6 mo.
LIBOR + .15%, 6.15%, due 10/29/26 15,042,188
20,000,000 Agency for International Development Floater
(Support of Morocco), Variable Rate, 6 mo.
LIBOR - .015%, 5.99%, due 2/01/25 19,575,000
25,000,000 Agency for International Development Floater
(Support of Portugal),
Variable Rate, 6 mo. LIBOR, 7.00%, due
1/01/21 24,765,625
10,425,000 Agency for International Development Floater
(Support of Sri Lanka),
Variable Rate, 6 mo. LIBOR + .20%, 5.93%,
due 6/15/12 10,464,094
10,633,333 Agency for International Development Floater
(Support of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x
115%, 5.09%, due 1/01/12 10,633,333
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agency -- continued
$10,000,000 Agency for International Development Floater
(Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.47%,
due 2/01/27 10,034,375
15,000,000 Federal National Mortgage Association, 5.19%,
due 7/20/98 14,962,500
5,000,000 Federal National Mortgage Association, 6.73%,
due 11/04/02 4,940,000
25,000,000 Small Business Administration, 7.35%, due
8/10/06 25,400,000
-----------
144,588,990
-----------
TOTAL DEBT OBLIGATIONS (COST $412,850,506) 414,655,243
-----------
<CAPTION>
Shares
- ---------------
<S> <C>
PREFERRED STOCKS -- 6.3%
Preferred Stocks -- 6.3%
10,000 Bear Stearns Managed Income Securities
Plus Fund 9,899,700
20,000 Home Ownership Funding 2 Preferred 144A,
13.338% 19,769,400
-----------
29,669,100
-----------
TOTAL PREFERRED STOCKS (COST $29,706,361) 29,669,100
-----------
<CAPTION>
Par Value
- ---------------
<S> <C>
SHORT-TERM INVESTMENTS -- 9.1%
Cash Equivalents -- 0.1%
$ 588,000 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/2/97/(b)/ 588,000
-----------
Repurchase Agreements -- 9.0%
22,310,000 Morgan Stanley Repurchase Agreement dated
8/29/97, due 9/2/97, with a maturity value of
$22,324,346 and an effective yield of 5.788%,
collateralized by the following debt
obligations having an aggregate market value
of $26,977,022/(b)/:
Household Bank FSB, 0.00% due 6/2/99
Household Finance Corp, 0.00% due 4/3/01 22,310,000
19,427,524 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$19,438,425 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations with
rates ranging from 5.00% to 6.75%, with maturity
dates ranging from 2/15/99 to 8/15/26 and with
an aggregate market value of $19,872,706 19,427,524
-----------
41,737,524
-----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- --------------------------------------------------------------------------------
<S> <C>
TOTAL SHORT-TERM INVESTMENTS (COST
$42,325,524) 42,325,524
------------
TOTAL INVESTMENTS -- 104.3%
(Cost $484,882,391) 486,649,867
Other Assets and Liabilities (net) -- (4.3)% (20,020,567)
------------
TOTAL NET ASSETS -- 100% $466,629,300
============
</TABLE>
Notes to the Schedule of Investments:
CMT - Constant Maturity Treasury Index
DM SWAP - 5 Year Deutsche Mark Constant Maturity Swap Rate
Variable rates -- The rates shown on variable notes are the
current interest rates at August 31, 1997, which are subject to
change based on the terms of the security.
144A - Securities exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
/(a)/ All or a portion of this security is held as collateral for
open futures contracts.
/(b)/ Represents investments of security lending collateral
(Note 1).
4 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $484,882,391) (Note 1) $486,649,867
Receivable for investments sold 115,000
Dividends and interest receivable 4,250,345
Receivable for open swap contracts (Notes 1 and 6) 1,013,143
Receivable for expenses waived or borne by Manager (Note 2) 77,627
Receivable for Fund shares sold 26,000
------------
Total assets 492,131,982
------------
Liabilities:
Payable upon return of securities loaned (Note 1) 22,898,000
Payable for Fund shares repurchased 2,007,286
Payable to affiliate for (Note 2):
Management fee 91,772
Shareholder service fee 55,388
Accrued expenses 47,081
Payable for variation margin on open futures contracts
(Notes 1 and 6) 403,155
------------
Total liabilities 25,502,682
------------
Net assets $466,629,300
============
Net assets consist of:
Paid-in-capital $453,891,440
Accumulated undistributed net investment income 5,375,717
Accumulated undistributed net realized gain 3,002,552
Net unrealized appreciation 4,359,591
------------
$466,629,300
============
Net assets attributable to:
Class I shares $ 2,867,997
============
Class III shares $463,761,303
============
Shares outstanding:
Class I 278,778
============
Class III 44,982,628
============
Net asset value per share:
Class I $ 10.29
============
Class III $ 10.31
============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest (including securities lending income of $60,626) $18,120,165
Dividends 1,270,608
-----------
Total income 19,390,773
-----------
Expenses:
Management fee (Note 2) 736,458
Custodian and transfer agent fees 48,494
Audit fees 21,832
Legal fees 14,651
Registration fees 9,946
Trustees fees (Note 2) 2,895
Miscellaneous 2,607
Fees waived or borne by Manager (Note 2) (542,282)
-----------
294,601
Shareholder service fee (Note 2)
Class I 4,600
Class III 439,411
-----------
Net expenses 738,612
-----------
Net investment income 18,652,161
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 409,418
Closed futures contracts 1,912,319
Closed swap contracts 1,182,479
-----------
Net realized gain 3,504,216
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 2,094,081
Open futures contracts 4,467,113
Open swap contracts 134,344
Written options (9,375)
-----------
Net unrealized gain 6,686,163
-----------
Net realized and unrealized gain 10,190,379
-----------
Net increase in net assets resulting from operations $28,842,540
===========
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 18,652,161 $ 27,372,630
Net realized gain 3,504,216 984,536
Change in net unrealized appreciation (depreciation) 6,686,163 (3,180,642)
------------- ------------
Net increase in net assets resulting from operations 28,842,540 25,176,524
------------- ------------
Distributions to shareholders from:
Net investment income
Class I (98,560) (17,070)
Class III (18,881,356) (25,071,527)
------------- ------------
Total distributions from net investment income (18,979,916) (25,088,597)
------------- ------------
Net realized gains
Class I (63) (1,958)
Class III (12,496) (3,491,659)
------------- ------------
Total distributions from net realized gains (12,559) (3,493,617)
------------- ------------
In excess of net realized gains
Class I -- (878)
Class III -- (1,566,602)
------------- ------------
Total distributions in excess of net realized gains -- (1,567,480)
------------- ------------
(18,992,475) (30,149,694)
------------- ------------
Net share transactions: (Note 5)
Class I (798,506) 3,600,624
Class III (116,914,899) 264,915,841
------------- ------------
Increase (decrease) in net assets resulting from net
share transactions (117,713,405) 268,516,465
------------- ------------
Total increase (decrease) in net assets (107,863,340) 263,543,295
Net assets:
Beginning of period 574,492,640 310,949,345
------------- ------------
End of period (including accumulated undistributed net
investment income of $5,375,717 and $5,703,472,
respectively) $ 466,629,300 $574,492,640
============= ============
</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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period from
Ended September 10, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
--------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $10.16 $10.01
------ ------
Income from investment operations:
Net investment income 0.33+ 0.36
Net realized and unrealized gain 0.10 0.13
------ ------
Total from investment operations 0.43 0.49
------ ------
Less distributions to shareholders:
From net investment income (0.30) (0.29)
From net realized gains 0.00 (0.03)
In excess of net realized gains 0.00 (0.02)
------ ------
Total distributions (0.30) (0.34)
------ ------
Net asset value, end of period $10.29 $10.16
====== ======
Total Return/(a)/ 4.37% 4.93%
Ratios/Supplemental Data:
Net assets, end of period (000's) $2,868 $3,630
Net expenses to average daily net assets 0.38%* 0.38%*
Net investment income to average daily net
assets 6.14%* 5.83%*
Portfolio turnover rate 29% 25%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.01
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
/(a)/ The total returns would have been lower had certain expenses not been
waived during the periods shown.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 -------------------------------
(Unaudited) 1997 1996 1995*
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.18 $ 10.40 $ 10.13 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.34+ 0.58 0.66 0.24
Net realized and unrealized gain (loss) 0.10 (0.09) 0.58 0.07
-------- -------- -------- --------
Total from investment operations 0.44 0.49 1.24 0.31
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.31) (0.60) (0.60) (0.18)
From net realized gains 0.00 (0.08) (0.37) 0.00
In excess of net realized gains 0.00 (0.03) 0.00 0.00
-------- -------- -------- --------
Total distributions (0.31) (0.71) (0.97) (0.18)
-------- -------- -------- --------
Net asset value, end of period $ 10.31 $ 10.18 $ 10.40 $ 10.13
======== ======== ======== ========
Total Return /(a)/ 4.41% 4.93% 12.50% 3.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) $463,761 $570,862 $310,949 $209,377
Net expenses to average daily net assets 0.25%** 0.25% 0.25% 0.25%**
Net investment income to average daily net
assets 6.33%** 6.15% 6.52% 6.96%**
Portfolio turnover rate 29% 25% 70% 65%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.01
</TABLE>
* For the period from August 18, 1994 (commencement of operations) to
February 28, 1995.
** Annualized.
+ Computed using average shares outstanding throughout the period.
/(a)/ The total returns would have been lower had certain expenses not been
waived during the periods shown.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks high total return through investment in U.S. government
securities and other investment grade bonds denominated in U.S. dollars
while generally maintaining a portfolio duration of approximately four to
six years (excluding short-term investments).
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully described in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class I and Class III were the only
active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instruments or hedge other Fund instruments.
Upon purchase of a
10
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
futures contract, the Fund is required to deposit with its custodian, in a
segregated account in the name of the futures broker, an amount of cash or
U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts held as of August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
August 31, 1997, the Fund had no written option contracts outstanding.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
Indexed securities
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indices, or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
11
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $26,308,295, collateralized by
cash in the amount of $22,898,000 which was invested in short-term
instruments.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
12
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .10% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .25%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $2,895. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------ ------------------
<S> <C> <C>
U.S. Government securities $ 95,264,539 $ 178,541,336
Investments (non-U.S. Government
securities) 65,086,943 101,453,619
</TABLE>
13
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$484,882,391 $2,628,722 $861,246 $1,767,476
</TABLE>
4. Principal shareholders
At August 31, 1997, 42% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from September 10, 1996
Six Months Ended (commencement of operations) to
August 31, 1997 February 28, 1997
----------------------------------- --------------------------------------
Class I: Shares Amount Shares Amount
---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 41,339 $ 423,471 385,608 $ 3,888,618
Shares issued to shareholders in
reinvestment of distributions 9,850 98,623 1,967 19,906
Shares repurchased (129,670) (1,320,600) (30,316) (307,900)
---------------- --------------- ----------------- -----------------
Net increase/(decrease) (78,481) $ (798,506) 357,259 $ 3,600,624
================ =============== ================= =================
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
----------------------------------- -------------------------------------
Class III: Shares Amount Shares Amount
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 11,782,835 $ 119,660,867 26,591,731 $ 269,419,204
Shares issued to shareholders in
reinvestment of distributions 1,575,174 15,815,384 2,531,335 25,549,376
Shares repurchased (24,440,175) (252,391,150) (2,947,048) (30,052,739)
---------------- --------------- ----------------- -----------------
Net increase/(decrease) (11,082,166) $ (116,914,899) 26,176,018 $ 264,915,841
================ =============== ================ =================
</TABLE>
14
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
- ------------------ ----------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
268 U.S. Treasury Bond September 1997 $30,317,500 $1,191,177
38 U.S. Treasury Bond December 1997 4,284,500 6,809
500 U.S. Treasury Note 10 yr. September 1997 54,515,625 1,251,344
150 U.S. Treasury Note 10 yr. December 1997 16,303,125 (26,344)
462 U.S. Treasury Note 5 yr. December 1997 49,174,125 34,785
----------------
$2,457,771
================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
Written put option transactions
<TABLE>
<CAPTION>
Principal Amount
of Contracts
(000's omitted) Premiums
-------------------- --------------------
<S> <C> <C>
Outstanding, beginning of period $30,000 $126,563
Options written 30,000 150,000
Options exercised (30,000) (150,000)
Options expired (30,000) (126,563)
-------------------- --------------------
Outstanding, end of period - -
==================== ====================
</TABLE>
Swap agreement
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Date Description Appreciation
- ------------------ ------------------ --------------------------------------- -----------------
<S> <C> <C> <C>
$50,000,000 5/21/98 Agreement with Morgan Guaranty Trust $134,344
Company dated 4/21/97 to receive the
notional amount multiplied by the
return on the Lehman Brothers
Treasury Index and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
-----------------
$134,344
=================
</TABLE>
15
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 80.0%
Argentina -- 0.2%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.50%, due 3/31/23 736,875
----------------
Australia -- 4.1%
GBP 6,700,000 Commonwealth Bank Australia Series EMTN, 8.13%, due
12/07/06 11,224,640
AUD 2,620,000 Queensland Treasury Corp., 8.00%, due 9/14/07 2,107,207
----------------
13,331,847
----------------
Austria -- 1.1%
SEK 25,000,000 Oesterreich Kontrollbank, 9.25%, due 7/15/99 3,405,299
----------------
Brazil -- 1.0%
USD 3,972,611 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 3,237,677
----------------
Bulgaria -- 1.2%
USD 10,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 1,100,600
7/28/24
USD 15,000,000 Bulgaria Discount Strips, due 7/28/24 2,284,350
USD 1,000,000 Bulgaria FLIRB Series B,
Variable Rate, Step up, 2.75%, due 7/28/12 617,500
----------------
4,002,450
----------------
Canada -- 5.5%
CAD 3,750,000 Government of Canada, 10.25%, due 3/15/14 3,749,460
CAD 8,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 6,350,565
CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 3,743,356
CAD 5,000,000 Province of Quebec, 7.50%, due 12/01/03 3,892,690
----------------
17,736,071
----------------
Cayman Islands -- 1.0%
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 3,073,821
----------------
Denmark -- 4.1%
DKK 85,300,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 13,083,830
----------------
Ecuador -- 0.1%
USD 523,723 Republic of Ecuador PDI (Registered), PIK, Variable Rate, 6
mo. LIBOR + .81%, 6.69%, due 2/27/15 368,243
----------------
</TABLE>
See accompanying notes to the 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
France -- 11.2%
FRF 21,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 4,021,350
FRF 30,000,000 Auxiliare Credit Foncier, 6.25%, due 3/28/03 5,146,319
SEK 30,000,000 Credit Foncier, 6.50%, due 2/22/99 3,868,934
ECU 11,000,000 Government of France, 8.25%, due 4/25/22 14,316,230
ECU 7,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 8,655,385
----------------
36,008,218
----------------
Germany -- 3.1%
DEM 1,350,000 Bundesobligation, 6.50%, due 3/15/00 790,412
DEM 2,200,000 Bundesrepublic Deutschland, 6.00%, due 9/15/03 1,278,302
DEM 1,000,000 Bundesrepublic Deutschland, 6.00%, due 6/20/16 541,884
ESP 320,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 2,353,220
GBP 2,000,000 KFW International Finance, 10.63%, due 9/03/01 3,579,313
DEM 2,450,000 Treuhandanstalt, 6.25%, due 3/04/04 1,435,132
----------------
9,978,263
----------------
Greece -- 1.1%
GRD 1,000,000,000 Hellenic Republic,
Variable Rate, 12 mo. GTB + 1.50%, 14.20%, due 9/30/03 3,599,308
----------------
Italy -- 0.7%
ITL 1,550,000,000 BTPS, 8.50%, due 8/01/04 967,658
ITL 1,700,000,000 BTPS, 9.00%, due 11/01/23 1,152,061
----------------
2,119,719
----------------
Japan -- 6.5%
GBP 2,300,000 Export Import Bank of Japan, 10.75%, due 5/15/01 4,105,019
USD 800,000 Japan Development Bank, 6.88%, due 12/16/99 811,600
GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05 5,298,421
GBP 6,000,000 Kobe City, 9.50%, due 10/20/04 10,781,726
----------------
20,996,766
----------------
Jordan -- 0.2%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 4.00%, due 12/23/23 144A 690,000
----------------
Mexico -- 1.9%
FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 6,263,602
----------------
New Zealand -- 1.6%
NZD 8,200,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 5,008,566
----------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments - Continued
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Norway -- 0.6%
SEK 13,700,000 A/S Eksportfinans, 7.50%, due 8/16/01 1,838,707
----------------
Supra National -- 7.7%
JPY 440,000,000 Asian Development Bank, 5.00%, due 2/05/03 4,292,460
CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 577,746
ESP 821,900,000 European Investment Bank, 10.35%, due 12/20/05 6,706,354
GBP 1,755,000 European Investment Bank, 8.75%, due 8/25/17 3,251,851
JPY 200,000,000 International Bank Recon and Development, 6.75%, due 6/18/01 2,001,829
GBP 3,000,000 International Bank Recon and Development, 11.50%, due 11/09/03 5,872,538
SEK 15,000,000 International Finance Corp, 10.63%, due 9/20/99 2,102,598
----------------
24,805,376
----------------
Sweden -- 4.0%
SEK 4,000,000 AB Spintab, 8.50%, due 12/19/01 552,490
SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 4,496,816
SEK 61,400,000 Kingdom of Sweden, 6.00%, due 2/09/05 7,640,785
----------------
12,690,091
----------------
United States -- 22.5%
Asset Backed Securities -- 19.0%
USD 4,590,245 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 4,587,376
USD 3,000,000 Augusta Funding VI Series 96-A3, 144A, 7.38%, due 4/15/13 3,034,350
USD 87 Banc One Student Loan Trust 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 10/25/16 87
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25% 144A, 5.65%, due 4/25/03 5,000,000
USD 3,833,887 CS First Boston Mortgage Securities Corp., Series 96-1 Class
A1, Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29
USD 4,000,000 First Chicago Master Trust II 95-0, 3,836,187
Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 4,015,000
USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 6.42%, due 11/25/21 1,950,000
USD 9,000,000 National Premier Finance 95-2, 6.21%, due 6/01/99 144A 8,937,000
USD 6,500,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 6,597,500
USD 8,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30%, 5.94%, due 8/25/07 8,046,250
</TABLE>
See accompanying notes to the 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 1,253,676 New York City Tax Lien Series 96-1 Class B, 6.91%, due
5/25/05 144A 1,263,078
USD 5,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due 9/15/09 144A 5,024,950
USD 5,000,000 Student Loan Marketing Association Series 96-4 Class A2,
Variable Rate, 3 mo. LIBOR +.64%, 5.95%, due 7/25/09 5,016,406
USD 3,465,000 TMS Auto Grantor Trust Series 96-1 Class CTFS, 7.10%, due
12/20/02 3,560,288
----------------
60,868,472
----------------
Structured Notes -- 0.7%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10%, due 10/14/97/(a)/ 2,188,800
----------------
U.S. Government Agency -- 2.8%
USD 1,650,000 Agency for International Development Floater (Support of
Belize), Variable Rate, 6 mo. U.S. Treasury Bill +
.50%, 5.83%, due 1/01/14 1,645,875
USD 2,416,667 Agency for International Development Floater (Support of
Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x
115%, 5.09%, due 1/01/12 2,416,667
USD 5,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 5,017,188
----------------
9,079,730
----------------
Total United States 72,137,002
----------------
Venezuela -- 0.6%
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 6.81%, due 3/31/20 1,807,500
----------------
TOTAL DEBT OBLIGATIONS (COST $255,159,698) 256,919,231
----------------
LOAN PARTICIPATIONS -- 1.1%
Russia -- 1.1%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement (Participation with
Bank of America)* 1,129,165
FRF 14,991,267 Russia Vnesheconombank Loan Agreement (Participation with
Banque Paribas, Chase Manhattan, Bank of America,
Lehman Brothers and J.P. Morgan)* 2,554,979
----------------
3,684,144
----------------
TOTAL LOAN PARTICIPATIONS
(COST $1,101,243) 3,684,144
----------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 3.1%
United States -- 3.1%
10,000 Bear Stearns Managed Income Securities Plus Fund 9,899,700
----------------
TOTAL PREFERRED STOCKS (COST $9,778,893) 9,899,700
----------------
<CAPTION>
Principal Amount
- --------------------------------
CALL OPTIONS PURCHASED -- 6.1%
<S> <C> <C> <C>
Cross Currency Options -- 4.3%
DEM 477,100,000 DEM Call/BEF Put, Expires 10/08/97, Strike 20.50 1,987,694
ECU 143,200,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 1,611,099
ECU 176,200,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 4,272,684
ECU 218,500,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225, Strike
1.91 5,799,621
----------------
13,671,098
----------------
Options on Bonds -- 0.4%
USD 8,500,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 494,743
SEK 340,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 897,311
----------------
1,392,054
----------------
Options on Currency -- 1.4%
USD 89,100,000 British Pound, Expires 11/06/97, Strike 1.6325 1,969,110
USD 25,000,000 German Mark, Expires 2/09/98, Strike 1.61 2,442,500
----------------
4,411,610
----------------
TOTAL CALL OPTIONS PURCHASED
(COST $15,985,452) 19,474,762
----------------
PUT OPTIONS PURCHASED -- 2.1%
Cross Currency Options -- 2.1%
DEM 112,000,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 31,108
DEM 237,600,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out 1050, Strike
1030 6,638,862
USD 3,700,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 44,400
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cross Currency Options -- continued
USD 1,448,524 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 6,475
----------------
6,720,845
----------------
Options on Currency -- 0.0%
USD 10,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 --
USD 25,000,000 Czech Koruna, Expires 10/02/97, Strike 29.69 --
USD 25,000,000 German Mark, Expires 2/09/98, Strike 1.61 70,000
----------------
70,000
----------------
TOTAL PUT OPTIONS PURCHASED
(COST $5,015,726) 6,790,845
----------------
<CAPTION>
Par Value/
Shares
- ------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
9,849,000 United Mexican States Warrants, Expires 6/30/03 ** --
----------------
Venezuela -- 0.0%
19,280 Republic of Venezuela Recovery Warrants, Expires 04/15/20 ** --
----------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
----------------
SHORT-TERM INVESTMENTS -- 3.9%
Cash Equivalents -- 1.9%
USD 451,240 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 451,240
USD 124,065 First Union National Bank of North Carolina Eurodollar Time
Deposit, 5.5625% due 9/2/97/(b)/ 124,065
USD 372,195 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due
9/2/97/(b)/ 372,195
4,000,000 Janus Money Market Fund Institutional Shares/(b)/ 4,000,000
USD 1,000,000 Prudential Securities Group Inc Master Note, 5.8875% due
9/2/97/(b)/ 1,000,000
----------------
5,947,500
----------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement -- 0.2%
USD 697,556 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $697,948 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate
market value of $713,541. 697,556
----------------
U.S. Government -- 1.8%
USD 6,000,000 U.S. Treasury Bill, 5.33% due 1/15/98/(c)/ 5,890,128
----------------
TOTAL SHORT-TERM INVESTMENTS
(COST $12,525,133) 12,535,184
----------------
TOTAL INVESTMENTS -- 96.3%
(COST $299,566,145) 309,303,866
Other Assets and Liabilities (net) -- 3.7% 11,853,085
----------------
TOTAL NET ASSETS -- 100% $ 321,156,951
================
Notes to the Schedule of Investments:
FLIRB -- Front Loaded Interest Reduction Bond
GTB -- Greek Treasury Bill
PDI -- Past Due Interest
PIK -- Payment In Kind
Knock Out -- Option will expire if underlying
security reaches Knock Out price.
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933.
These securities may be resold in
transactions exempt from registration,
normally to qualified institutional buyers.
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments -- continued
Variable and step up rates -- The rates shown on variable and
step up rate notes are the current interest rates at
August 31, 1997, which are subject to change based on the
terms of the security.
<TABLE>
Currency Abbreviations
<S> <C>
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krona
ECU - European Currency Unit THB - Thailand Baht
ESP - Spanish Peseta TRL - Turkish Lira
FRF - French Franc USD - United States Dollar
</TABLE>
/(a)/ Principal is linked to the value of the Brazilian Capitalization
Bond and the Brazilian IDU Bond. Restricted as to public resale.
At the date of acquisition, this security was valued at cost.
There were no outstanding unrestricted securities of the same
class as those held.
/(b)/ Represents investments of security lending collateral (Note 1).
/(c)/ All or a portion of this security is held as collateral for open
futures contracts.
* Non-performing. Borrower not currently paying interest.
** Non-income producing security.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $299,566,145) (Note 1) $ 309,303,866
Foreign currency, at value (cost $1,868,949) (Note 1) 1,885,124
Receivable for investments sold 2,007,441
Interest receivable 7,459,953
Receivable for variation margin on open futures contracts (Notes 1 and 6) 754,202
Receivable for open forward foreign currency contracts (Notes 1 and 6) 20,769,423
Receivable for expenses waived or borne by Manager (Note 2) 93,865
Miscellaneous receivable 1,598
-------------
Total assets 342,275,472
-------------
Liabilities:
Payable for investments purchased 138,777
Payable upon return of securities loaned (Note 1) 5,947,500
Written options outstanding, at value (premiums $2,526,387) (Notes 1 and 6) 2,448,364
Payable for Fund shares repurchased 1,084
Payable to affiliate for (Note 2):
Management fee 134,846
Shareholder service fee 40,690
Accrued expenses 70,993
Payable for open forward foreign currency exchange contracts (Notes 1 and 6) 11,794,895
Payable for open swap contracts (Note 1 and 6) 528,972
Miscellaneous payable 12,400
-------------
Total liabilities 21,118,521
-------------
Net assets $ 321,156,951
=============
Net assets consist of:
Paid-in-capital $ 271,609,205
Accumulated undistributed net investment income 1,909,542
Accumulated undistributed net realized gain 29,543,527
Net unrealized appreciation 18,094,677
-------------
$ 321,156,951
=============
Net assets attributable to:
Class I shares $ 1,307,175
=============
Class III shares $ 319,849,776
=============
Shares outstanding:
Class I 109,508
=============
Class III 26,768,992
=============
Net asset value per share:
Class I $ 11.94
=============
Class III $ 11.95
=============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest (including securities lending income of $9,438) $ 14,566,857
Dividends 331,750
-------------
Total income 14,898,607
-------------
Expenses:
Management fee (Note 2) 1,106,286
Custodian and transfer agent fees 144,123
Audit fees 34,906
Legal fees 11,050
Registration fees 10,003
Trustees fees (Note 2) 2,967
Miscellaneous 1,983
Fees waived or borne by Manager (Note 2) (758,175)
-------------
553,143
Shareholder service fee (Note 2)
Class I 1,697
Class III 331,081
-------------
Net expenses 885,921
-------------
Net investment income 14,012,686
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 1,006,459
Closed futures contracts 5,415,129
Closed swap contracts 585,721
Foreign currency, forward contracts and foreign currency related transactions 33,513,595
-------------
Net realized gain 40,520,904
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (11,551,954)
Open futures contracts 1,671,822
Open swap contracts (528,972)
Written options (165,727)
Foreign currency, forward contracts and foreign currency related transactions (13,869,424)
-------------
Net unrealized loss (24,444,255)
-------------
Net realized and unrealized gain 16,076,649
-------------
Net increase in net assets resulting from operations $ 30,089,335
=============
</TABLE>
10 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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
--------------------- ---------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 14,012,686 $ 24,438,613
Net realized gain 40,520,904 37,539,759
Change in net unrealized appreciation (depreciation) (24,444,255) 19,999,551
----------------- ----------------
Net increase in net assets resulting from operations 30,089,335 81,977,923
----------------- ----------------
Distributions to shareholders from:
Net investment income
Class I (11,527) --
Class III (4,396,337) (20,376,190)
----------------- ----------------
Total distributions from net investment income (4,407,864) (20,376,190)
----------------- ----------------
Net realized gains
Class I (85,437) --
Class III (32,584,613) (15,129,774)
----------------- ----------------
Total distributions from net realized gains (32,670,050) (15,129,774)
----------------- ----------------
(37,077,914) (50,212,717)
----------------- ----------------
Net share transactions: (Note 5)
Class I 162,204 1,123,429
Class III (142,157,896) 201,090,729
----------------- ----------------
Increase (decrease) in net assets resulting from net share transactions (141,995,692) 202,214,158
----------------- ----------------
Total increase (decrease) in net assets (148,984,271) 233,979,364
Net assets:
Beginning of period 470,141,222 236,161,858
----------------- ----------------
End of period (including accumulated undistributed net investment
income and distributions in excess of net investment income of
$1,909,542 and ($7,695,280), respectively) $ 321,156,951 $ 470,141,222
================= ================
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 2, 1997
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
------------------ ------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.16 $ 11.75
------- -------
Income from investment operations:
Net investment income 0.37+ 0.11
Net realized and unrealized gain 0.41 0.30
------- -------
Total from investment operations 0.78 0.41
------- -------
Less distributions to shareholders:
From net investment income (0.12) --
From net realized gains (0.88) --
------- -------
Total distributions (1.00) --
------- -------
Net asset value, end of period $ 11.94 $ 12.16
======= =======
Total Return/(a)/ 6.69% 3.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,307 $ 1,162
Net expenses to average daily net assets 0.53%* 0.53%*
Net investment income to average daily net assets 6.15%* 5.91%*
Portfolio turnover rate 57% 90%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.02 $ 0.01
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
12 See accompanying notes to the financial statements.
<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>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------
(Unaudited) 1997 1996 1995*
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.16 $ 10.92 $ 9.99 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.39+ 0.66 1.05 0.24
Net realized and unrealized gain (loss) 0.40 2.07 1.62 (0.09)
---------- ---------- ---------- ----------
Total from investment operations 0.79 2.73 2.67 0.15
---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.12) (0.60) (1.04) (0.16)
From net realized gains (0.88) (0.45) (0.42) --
In excess of net realized gains -- (0.44) (0.28) --
---------- ---------- ---------- ----------
Total distributions (1.00) (1.49) (1.74) (0.16)
---------- ---------- ---------- ----------
Net asset value, end of period $ 11.95 $ 12.16 $ 10.92 $ 9.99
========== ========== ========== ==========
Total Return /(a)/ 6.78% 25.57% 27.36% 1.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 319,850 $ 468,979 $ 236,162 $ 238,664
Net expenses to average daily net assets 0.40%** 0.40% 0.40% 0.40%**
Net investment income to average daily net assets 6.33%** 6.86% 8.54% 8.46%**
Portfolio turnover rate 57% 90% 85% 64%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.03 $ 0.03 $ 0.01
</TABLE>
* Period from September 30, 1994 (commencement of operations) to February 28,
1995.
** Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
See accompanying notes to the financial statements. 13
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- -------------------------------------------------------------------------------
1. Significant accounting policies
GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units, while generally attempting to hedge substantially all
of its foreign currency risk. The Fund generally seeks to provide a total
return greater than that provided by the international fixed income
securities market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class I and Class III were the only
active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
14
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1997.
15
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. See Note 6 for all open written option contracts as of
August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Loan agreements
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective
16
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. Interest rate swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund loaned securities
having a market value of $5,886,912, collateralized by cash in the amount
of $5,947,500, which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
17
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. Effective June 1, 1996, the Manager will reduce such premium only
when any portion of a purchase is offset by a corresponding redemption
occurring on the same day. All purchase premiums are paid to and recorded
as paid-in capital by the Fund. For the six months ended August 31, 1997,
the Fund received $39,494 in purchase premiums. There is no premium for
cash redemptions, reinvested distributions or in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
18
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .40%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $2,967. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------- ------------------
<S> <C> <C>
U.S. Government securities $ 17,855,370 $ 34,411,524
Investments (non-U.S. Government securities) 192,726,800 297,085,135
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$ 299,566,145 $ 19,621,481 $ 9,883,760 $ 9,737,721
</TABLE>
4. Principal shareholders
At August 31, 1997, 34% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
19
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from January 2, 1997
Six Months Ended (commencement of operations) to
August 31, 1997 February 28, 1997
-------------------------------- ------------------------------------
Class I: Shares Amount Shares Amount
------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 5,519 $ 65,240 95,601 $ 1,123,429
Shares issued to shareholders in
reinvestment of distributions 8,388 96,964 -- --
Shares repurchased -- -- -- --
------------- -------------- ---------------- ---------------
Net increase 13,907 $ 162,204 95,601 $ 1,123,429
============= ============== ================ ===============
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
-------------------------------- ------------------------------------
Class III: Shares Amount Shares Amount
------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 4,171,473 $ 51,255,549 20,865,195 $ 251,713,393
Shares issued to shareholders in
reinvestment of distributions 3,069,510 35,514,234 3,723,568 43,606,382
Shares repurchased (19,030,568) (228,927,679) (7,658,494) (94,229,046)
-------------- --------------- --------------- ---------------
Net increase (decrease) (11,789,585) $ (142,157,896) 16,930,269 $ 201,090,729
============== =============== =============== ===============
</TABLE>
20
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- --------------- ------------------ --------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Buys
09/26/97 CAD 54,600,000 $ 39,389,200 $ (56,332)
09/05/97 DEM 325,900,000 181,121,363 (1,458,419)
09/19/97 DEM 69,800,000 38,828,730 (1,860,991)
09/22/97 DEM 270,300,000 150,394,598 (5,623,305)
10/17/97 GBP 45,500,000 73,637,622 660,054
09/22/97 ITL 50,240,819,250 28,511,560 (62,822)
10/09/97 JPY 4,850,000,000 40,559,119 (1,942,622)
-------------------
$ (10,344,437)
===================
Sales
11/28/97 AUD 12,900,000 $ 9,495,998 $ 155,782
09/26/97 CAD 97,000,000 67,812,909 498,625
09/02/97 CHF 1,905,856 1,284,806 (4,677)
09/02/97 DEM 69,407 35,566 (57)
09/05/97 DEM 416,000,000 231,195,112 6,012,064
09/22/97 DEM 51,000,000 28,376,339 158,043
10/17/97 GBP 59,800,000 96,780,874 1,795,807
09/22/97 ITL 269,404,004,000 152,886,211 3,130,678
10/09/97 JPY 6,190,000,000 51,765,144 1,556,024
09/19/97 NLG 78,551,524 38,813,780 1,875,942
09/23/97 NZD 12,700,000 8,105,670 445,490
03/23/98 THB 280,000,000 7,649,577 2,055,796
06/22/98 THB 140,000,000 3,784,807 985,210
-------------------
$ 18,664,727
===================
</TABLE>
21
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forward cross currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
- -------------- -------------------------- --------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
10/10/97 BEF 619,384,800 DEM 30,000,000 $ 3,907
11/13/97 CHF 15,783,134 DEM 19,200,000 (13,138)
09/02/97 DEM 232,681 DKK 896,164 22
09/19/97 DEM 95,100,000 NLG 107,037,911 (13,316)
09/22/97 DEM 39,700,000 ITL 39,358,339,000 246,743
10/10/97 DEM 196,200,000 BEF 4,052,671,420 25,567
10/23/97 DEM 56,500,000 ESP 4,788,385,350 6,679
10/27/97 DEM 157,500,940 ECU 80,100,000 (153,710)
11/07/97 DEM 102,600,000 FRF 345,516,608 (39,012)
11/13/97 DEM 7,700,000 CHF 6,316,079 (3,990)
11/14/97 DEM 52,300,000 DKK 199,232,690 (7,114)
11/21/97 DEM 20,000,000 SEK 87,455,370 963
11/14/97 DKK 274,521,280 DEM 72,000,000 (25,818)
10/23/97 ESP 5,407,205,000 DEM 63,800,000 (8,486)
11/07/97 FRF 504,208,185 DEM 149,500,000 (67,499)
09/22/97 ITL 35,045,200,000 DEM 35,000,000 (414,117)
09/19/97 NLG 78,767,500 DEM 70,000,000 19,489
09/02/97 SEK 1,315,591 DEM 302,088 259
11/21/97 SEK 248,223,528 DEM 56,700,000 (39,470)
10/27/97 ECU 341,800,000 DEM 672,943,920 1,136,279
-----------------------
$ 654,238
=======================
</TABLE>
22
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Futures contracts
Net Unrealized
Number of Contract Value Appreciation
Contracts Type Expiration Date (Depreciation)
------------- --------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Buys
145 Australian Government Bond 3 yr September 1997 $ 12,824,014 $ 263,601
69 Australian Government Bond 10 yr September 1997 7,252,420 336,925
159 German Government Bond December 1997 22,366,739 (40,938)
107 Italian Government Bond 10 yr December 1997 13,128,456 12,682
11 Japanese Government Bond December 1997 11,614,998 (8,053)
109 MATIF ECU Bond September 1997 11,894,884 270,186
215 U.K. Gilt September 1997 20,608,190 58,355
60 U.K. Gilt December 1997 5,550,434 (10,339)
=================
$ 882,419
=================
Sales
120 Euro Dollar September 1997 $ 28,279,500 $ 12,600
5 Canadian Government Bond September 1997 430,358 955
107 MATIF FRF Bond September 1997 11,917,366 (100,526)
280 Spanish Government Bond 10 yr September 1997 22,648,290 (555,210)
177 Swiss Government Bond September 1997 14,848,699 (21,180)
130 Swiss Government Bond December 1997 10,322,610 14,728
118 U.S. Treasury Bond December 1997 13,304,500 (48,948)
29 U.S. Treasury Note 10 yr September 1997 3,161,906 9751
16 U.S. Treasury Note 10 yr December 1997 1,739,000 318
60 U.S. Treasury Bill 90 day September 1997 14,239,500 (48,450)
=================
$ (735,962)
=================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
23
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Written option transactions
Puts Calls
Principal
Amount of Principal Amount
Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
----------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period $ 25,000 $ 1,243,750 $ 25,000 $ 1,065,000
Options written 18,000 90,000 12,727 217,637
Options exercised (18,000) (90,000) -- --
----------------- --------------- ------------------ ---------------
Outstanding, end
of period $ 25,000 $ 1,243,750 $ 37,727 $ 1,282,637
================= =============== ================== ===============
<CAPTION>
Summary of written options outstanding
Principal
Amount of
Contracts Expiration
(000's omitted) Premiums Date Value
----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Calls
Japanese Yen $ 25,000 117 JPY 2/09/98 $ 812,500
Thai Baht 12,727 33 THB 10/16/97 818,364
Puts
Japanese Yen 25,000 117 JPY 2/09/98 817,500
--------------
$ 2,448,364
==============
</TABLE>
24
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
---------------------- ------------ ------------------------------------------------- --------------
<S> <C> <C> <C>
TRL 494,875,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $(579,266)
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to
pay the notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
TRL 203,500,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 50,294
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to
pay the notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
--------------
Net unrealized depreciation $(528,972)
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
25
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value($)
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
DEBT OBLIGATIONS -- 89.1%
Brazil -- 0.9%
USD 851,029 Brazil Capitalization Bond, PIK, 8.00%, due
4/15/14 693,588
------------
Bulgaria -- 0.6%
USD 2,000,000 Bulgaria Discount Bond, Series B Strips,
Basket 2, due 7/28/24 220,120
USD 500,000 Bulgaria FLIRB Series B, Variable Rate,
Step up, 2.75%, due 7/28/12 308,750
------------
528,870
------------
Canada -- 2.0%
CAD 2,000,000 Government of Canada Real Return, 4.25%,
due 12/01/21 1,587,641
------------
Denmark -- 3.6%
DKK 19,000,000 Kingdom of Denmark Bullet, 7.00%, due
11/15/07 2,914,335
------------
Ecuador -- 0.3%
USD 500,000 Republic of Ecuador Par Bond, Variable Rate,
Step up, 3.50%, due 2/28/25 261,875
------------
France -- 8.2%
FRF 23,650,000 Credit Foncier, 6.50%, due 10/13/08 4,023,873
ECU 1,000,000 Government of France, 8.25%, due 4/25/22 1,301,475
ECU 1,000,000 Societe Nationale des Chemins de Fer,
9.38%, due 3/12/01 1,236,484
------------
6,561,832
------------
Germany -- 0.9%
ESP 100,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 735,381
------------
Greece -- 1.1%
GRD 250,000,000 Hellenic Republic, Variable Rate, 12 mo.
GTB + 1.50%, 14.20%, due 9/30/03 899,827
------------
Jordan -- 0.4%
USD 500,000 Hashemite Kingdom of Jordan Par Bond, Variable
Rate, Step up 144A, 4.00%, due 12/23/23 345,000
------------
Mexico -- 0.9%
FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 703,775
------------
New Zealand -- 2.7%
NZD 3,500,000 New Zealand Index Linked Bond, 4.50%, due
2/15/16 2,137,803
------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par
Value Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Nigeria -- 0.4%
USD 500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up, 6.25%, due
11/15/20 355,000
------------
Supra National -- 3.5%
JPY 85,000,000 Asian Development Bank, 5.00%, due 2/05/03 829,225
GBP 1,000,000 International Bank Recon and Development,
11.50%, due 11/09/03 1,957,513
------------
2,786,738
------------
Sweden -- 6.9%
SEK 5,000,000 Government of Sweden Index Linked Bond,
4.00%, due 12/01/20 642,402
SEK 39,500,000 Kingdom of Sweden, 6.00%, due 2/09/05 4,915,488
------------
5,557,890
------------
United States -- 56.1%
Asset Backed Securities -- 37.6%
USD 918,049 AFC Home Equity Loan Trust Series 97-1
Class A, Variable Rate, 1 mo.
LIBOR + .22%, 5.87%, due 3/25/27 917,475
USD 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, LIBOR + .30%, 6.05%,
due 4/15/06, 144A 5,000,000
USD 320,744 BCI Home Equity Loan 94-1 Class A1,
Variable Rate, 1 mo. LIBOR + .24%,
5.93%, due 3/29/44 320,744
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25%,
6.22%, due 10/03/01 3,016,500
USD 2,000,000 First Chicago Master Trust II 95-0,
Variable Rate, 1 mo. LIBOR + .23%,
5.88%, due 2/15/04 2,007,500
USD 5,000,000 First Union Master Credit Card Trust 96-1
Class A, Variable Rate, 1 mo.
LIBOR + .17%, 5.82%, due 9/15/03 5,006,251
USD 4,000,000 National Premier Finance 95-2, 6.21%, due
6/01/99, 144A 3,972,000
USD 2,000,000 National Premier Finance IX 96-1A, 7.20%,
due 7/01/00 2,030,000
USD 5,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due
9/15/09, 144A 5,024,951
USD 3,000,000 Starvest CBO-1 Class A,
Variable Rate, 6 mo. LIBOR + .19%,
6.00%, due 7/30/11, 144A 2,982,972
------------
30,278,393
------------
Structured Notes -- 8.7%
USD 2,750,000 Federal Home Loan Bank,
Variable Rate, ((.50 * 10YR CMT) +
1.25%), 4.55%, due 3/16/98 2,725,250
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR),
4.19%, due 9/22/03 4,285,000
------------
7,010,250
------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par
Value Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government -- 2.6%
USD 1,000,000 U.S. Treasury Note, 6.88%, due 8/31/99(a) 1,016,875
USD 1,000,000 U.S. Treasury Note, 9.25%, due 8/15/98 1,031,250
-------------
2,048,125
-------------
U.S. Government Agency -- 7.2%
USD 4,000,000 Agency for International Development
Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%,
5.47%, due 2/01/27 4,013,750
USD 1,787,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,787,894
-------------
5,801,644
-------------
Total United States 45,138,412
-------------
Venezuela -- 0.6%
USD 500,000 Republic of Venezuela Discount Bond Series
A, Variable Rate, 6 mo. LIBOR + .81%,
6.81%, due 3/31/20 451,875
-------------
TOTAL DEBT OBLIGATIONS (COST $72,732,392) 71,659,842
-------------
<CAPTION>
Principal Amount
- -----------------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 4.4%
Cross Currency Options -- 3.1%
DEM 79,600,000 DEM Call/BEF Put, Expires 10/08/97, Strike
20.50 331,630
ECU 32,400,000 ECU Call/DEM Put, Expires 1/21/98, Strike
1.9450 364,522
ECU 31,200,000 ECU Call/DEM Put, Expires 10/30/97, Strike
1.918 756,571
ECU 38,800,000 ECU Call/DEM Put, Expires 12/15/97 Knock
Out 1.9225, Strike 1.91 1,029,864
-------------
2,482,587
-------------
Options on Bonds -- 0.4%
USD 2,500,000 Brazil Discount Bond, Expires 11/07/97,
Strike 80.00 145,513
SEK 60,000,000 Sweden Government Bond, Expires 10/24/97,
Strike 95.484 158,349
-------------
303,862
-------------
Options on Currency -- 0.9%
USD 15,500,000 British Pound, Expires 11/06/97, Strike
1.6325 342,550
USD 4,000,000 German Mark, Expires 2/09/98, Strike 1.61 390,800
-------------
733,350
-------------
TOTAL CALL OPTIONS PURCHASED
(COST $2,964,118) 3,519,799
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value($)
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
PUT OPTIONS PURCHASED -- 1.3%
Cross Currency Options -- 1.3%
DEM 17,400,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 4,833
DEM 37,500,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out
1050, Strike 1030 1,047,800
USD 700,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97,
Strike 400 8,400
USD 274,045 TRL Put/USD, DEM Basket Call, Expires 12/15/97,
Strike 425 1,225
----------
1,062,258
----------
Options on Currency -- 0.0%
USD 2,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 --
USD 5,000,000 Czech Koruna, Expires 10/02/97, Strike 29.69 --
USD 4,000,000 German Mark, Expires 2/09/98, Strike 1.61 11,200
----------
11,200
----------
TOTAL PUT OPTIONS PURCHASED (COST $834,436) 1,073,458
----------
Shares
- ---------------------
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
870,000 United Mexican States Warrants, Expires 6/30/03* --
----------
TOTAL RIGHTS AND WARRANTS (COST $0) --
----------
Par Value
- ---------------------
SHORT-TERM INVESTMENTS -- 6.0%
Cash Equivalents -- 0.3%
USD 248,388 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/02/97/(b)/ 248,388
USD 5,653 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due 9/02/97/(b)/ 5,653
USD 16,959 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/02/97/(b)/ 16,959
----------
271,000
----------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value($)
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
Repurchase Agreements -- 5.7%
USD 548,000 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/02/97, with
a maturity value of $548,304 and an
effective yield of 4.99%, collateralized by
a U.S. Government Agency Obligation with a
rate of 6.811%, with a maturity date of
3/01/35 and a market value of $558,962. 548,000
USD 4,030,793 Salomon Brothers Repurchase Agreement,
dated 8/29/97, due 9/02/97, with a maturity
value of $4,033,055 and an effective yield
of 5.05%, collateralized by U.S. Treasury
Obligations with rates ranging from 5.00%
to 6.75%, with maturity dates ranging from
2/15/99 to 8/15/26 and with an aggregate
market value of $4,123,159. 4,030,793
-----------
4,578,793
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $4,849,793) 4,849,793
-----------
TOTAL INVESTMENTS -- 100.8%
(Cost $81,380,739) 81,102,892
Other Assets and Liabilities (net) -- (0.8)% (665,808)
-----------
TOTAL NET ASSETS-- 100% $80,437,084
===========
Notes to the Schedule of Investments:
GTB - Greek Treasury Bill
PIK - Payment In Kind
CMT - Constant Maturity Treasury Index
Knock Out - Option will expire if underlying
security reaches knock out price.
144A - Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional buyers.
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments -- Continued
Variable and Step up rates - The rates shown on variable
and step up rate notes are the current interest rates at
August 31, 1997, which are subject to change based on
the terms of the security.
<TABLE>
<CAPTION>
Currency Abbreviations
<S> <C>
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc GRD - Greek Drachma
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone NZD - New Zealand Dollar
ECU - European Currency Unit SEK - Swedish Krona
ESP - Spanish Peseta THB - Thailand Baht
FRF - French Franc TRL - Turkish Lira
USD - United States Dollar
</TABLE>
/(a)/ All or a portion of this security is held as collateral for
open futures contracts.
/(b)/ Represents investments of security lending collateral
(Note 1).
* Non-income producing security.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $81,380,739) (Note 1) $ 81,102,892
Cash 4,080
Foreign currency, at value (cost $392,704) (Note 1) 342,254
Interest receivable 1,347,041
Receivable for open forward foreign currency contracts (Notes 1 and 6) 2,312,207
Receivable for expenses waived or borne by Manager (Note 2) 28,210
-------------
Total assets 85,136,684
-------------
Liabilities:
Payable for investments purchased 335,520
Payable upon return of securities loaned (Note 1) 271,000
Written options outstanding, at value (premiums $416,037) (Notes 1 and 6) 436,164
Payable for open forward foreign currency contracts (Notes 1 and 6) 3,385,055
Payable to affiliate for (Note 2):
Management fee 22,179
Shareholder service fee 10,120
Accrued expenses 40,591
Payable for open swap contracts (Note 1 and 6) 100,076
Payable for variation margin on open futures contracts (Notes 1 and 6) 98,895
-------------
Total liabilities 4,699,600
-------------
Net assets $ 80,437,084
=============
Net assets consist of:
Paid-in-capital $ 76,740,939
Accumulated undistributed net investment income 2,722,095
Accumulated undistributed net realized gain 2,287,272
Net unrealized depreciation (1,313,222)
-------------
$ 80,437,084
=============
Net assets attributable to:
Class I shares $ 5,909,080
=============
Class III shares $ 74,528,004
=============
Shares outstanding:
Class I 565,863
=============
Class III 7,122,992
=============
Net asset value per share:
Class I $ 10.44
=============
Class III $ 10.46
=============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest $ 2,463,065
-----------
Expenses:
Management fee (Note 2) 138,014
Custodian and transfer agent fees 41,125
Audit fees 34,872
Registration fees 6,447
Legal fees 1,732
Trustees fees (Note 2) 449
Miscellaneous 849
Fees waived or borne by Manager (Note 2) (148,566)
-----------
74,922
Shareholder service fee (Note 2)
Class I 7,276
Class III 55,251
-----------
Net expenses 137,449
-----------
Net investment income 2,325,616
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (332,790)
Closed futures contracts 1,111,803
Closed swap contracts 110,812
Foreign currency, forward contracts and foreign currency
related transactions 1,337,321
-----------
Net realized gain 2,227,146
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (1,056,859)
Open futures contracts 602,897
Open swap contracts (100,076)
Written options (59,127)
Foreign currency, forward contracts and foreign currency
related transactions (719,349)
-----------
Net unrealized loss (1,332,514)
-----------
Net realized and unrealized gain 894,632
-----------
Net increase in net assets resulting from operations $ 3,220,248
===========
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,325,616 $ 3,974,892
Net realized gain 2,227,146 3,056,295
Change in net unrealized appreciation (depreciation) (1,332,514) 364,425
----------- -----------
Net increase in net assets resulting from operations 3,220,248 7,395,612
----------- -----------
Distributions to shareholders from:
Net investment income
Class I (58,480) --
Class III (740,209) (3,484,400)
----------- -----------
Total distributions from net investment income (798,689) 3,484,400
----------- -----------
Net realized gains
Class III -- (2,181,543)
----------- -----------
Total distributions from net realized gains -- (2,181,543)
----------- -----------
In excess of net realized gains
(798,689) 5,665,943
----------- -----------
Net share transactions: (Note 5)
Class I 5,051,786 654,817
Class III 1,549,429 37,957,406
----------- -----------
Increase in net assets resulting from net share
transactions 6,601,215 38,612,223
----------- -----------
Total increase in net assets 9,022,774 40,341,892
Net assets:
Beginning of period 71,414,310 31,072,418
----------- -----------
End of period (including accumulated undistributed net
investment income of $2,722,095 and $1,195,168,
respectively) $80,437,084 $71,414,310
=========== ===========
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 6, 1997
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $10.15 $10.29
------- -------
Income from investment operations:
Net investment income 0.29+ 0.09
Net realized and unrealized gain (loss) 0.11 (0.23)
------- -------
Total from investment operations 0.40 (0.14)
------- -------
Less distributions to shareholders:
From net investment income (0.11) --
------- -------
Total distributions (0.11) --
------- -------
Net asset value, end of period $10.44 $10.15
======= =======
Total Return /(a)/ 3.94% (1.36)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $5,909 $ 646
Net expenses to average daily net assets 0.47%* 0.47%*
Net investment income to average daily net assets 5.74%* 6.05%*
Portfolio turnover rate 39% 72%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share
amounts: $ 0.02 $ 0.01
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a)Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28/29,
--------------------
(Unaudited) 1997 1996 *
----------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.16 $ 9.89 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income 0.30 0.61 0.05
Net realized and unrealized gain (loss) 0.11 0.59 (0.16)
-------- -------- --------
Total from investment operations 0.41 1.20 (0.11)
-------- -------- --------
Less distributions to shareholders:
From net investment income (0.11) (0.57) --
From net realized gains -- (0.36) --
-------- -------- --------
Total distributions (0.11) (0.93) --
-------- -------- --------
Net asset value, end of period $ 10.46 $ 10.16 $ 9.89
======== ======== ========
Total Return/(a)/ 4.02% 12.01% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $74,528 $70,768 $31,072
Net expenses to average daily net assets 0.34%** 0.34% 0.34%**
Net investment income to average daily net assets 5.91%** 6.31% 6.16%**
Portfolio turnover rate 39% 72% 0%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.01
</TABLE>
* Period from December 28, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
(a)Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the global fixed income securities market.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. As of August 31,1997, Class I and Class III were the only
active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
12
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar.
The U.S. dollar value of the currencies
13
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
the Fund has committed to buy or sell is shown under Note 6 and represents
the currency exposure the Fund has acquired or hedged through currency
contracts as of August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. See Note 6 for all open written option contracts as of
August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
14
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund loaned securities
having a market value of $265,625, collateralized by cash in the amount of
$271,000, which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
15
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. Effective June 1, 1996, the Manager will reduce such premium only
when any portion of a purchase is offset by a corresponding redemption
occurring on the same day. All purchase premiums are paid to and recorded
as paid-in capital by the Fund. For the six months ended August 31, 1997,
the Fund received $16,621 in purchase premiums. There is no premium for
cash redemptions, reinvested distributions or in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .35% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .19% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .34%;
thus the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $449. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
16
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------- ------------------
<S> <C> <C>
U.S. Government securities $ 3,967,860 $ 4,085,459
Investments (non-U.S. Government securities) 31,651,582 22,280,116
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
$ 81,380,739 $ 1,978,554 $ 2,256,401 $ 277,847
</TABLE>
4. Principal shareholders
At August 31, 1997, 86% of the outstanding shares of the Fund were held by
four shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from January 6, 1997
Six Months Ended (commencement of operations) to
August 31, 1997 February 28, 1997
-------------------------------- ------------------------------------
Class I: Shares Amount Shares Amount
-------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 496,553 $ 4,993,306 63,643 $ 654,817
Shares issued to shareholders
in reinvestment of distributions 5,667 58,480 - -
Shares repurchased - - - -
-------------- -------------- ---------------- ----------------
Net increase 502,220 $ 5,051,786 63,643 $ 654,817
============== ============== ================ ================
</TABLE>
17
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
-------------------------------- ------------------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 594,764 $ 6,087,036 4,047,314 $ 40,339,699
Shares issued to shareholders in
reinvestment of distributions 45,819 473,766 435,009 4,467,251
Shares repurchased (480,956) (5,011,373) (662,011) (6,849,544)
-------------- -------------- ---------------- ----------------
Net increase 159,627 $ 1,549,429 3,820,312 $ 37,957,406
============== ============== ================ ================
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 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
09/26/97 CAD 9,700,000 $ 6,997,715 $ (26,759)
09/02/97 DEM 604,481 335,876 495
09/05/97 DEM 106,100,000 58,965,869 (1,809,010)
10/17/97 GBP 9,100,000 14,727,524 (124,906)
10/09/97 JPY 2,000,000,000 16,725,410 (1,114,858)
----------------
$ (3,075,038)
================
Sales
11/28/97 AUD 900,000 $ 662,512 $ 10,868
09/26/97 CAD 10,800,000 7,791,270 34,917
09/05/97 DEM 71,000,000 39,458,781 1,003,165
10/17/97 GBP 6,200,000 10,034,137 30,000
10/09/97 JPY 950,000,000 7,944,570 225,991
09/23/97 NZD 3,400,000 2,170,022 144,378
03/23/98 THB 60,000,000 1,639,195 440,528
06/22/98 THB 30,000,000 811,030 211,117
----------------
$ 2,100,964
================
</TABLE>
18
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
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>
11/07/97 FRF 78,920,129 DEM 23,400,000 $ (10,662)
11/14/97 DKK 56,048,335 DEM 14,700,000 (5,306)
10/23/97 ESP 372,888,900 DEM 4,400,000 (443)
10/10/97 DEM 17,100,000 BEF 353,261,230 3,489
09/02/97 DEM 323,681 DKK 886,164 22
09/22/97 ITL 39,178,056,000 DEM 39,500,000 (255,812)
09/02/97 DEM 4,971,800 SEK 21,735,449 98
11/21/97 SEK 45,962,704 DEM 10,500,000 (6,719)
11/13/97 CHF 3,866,230 DEM 4,700,000 (5,018)
09/22/97 DEM 16,200,000 ITL 15,977,404,000 53,483
10/27/97 ECU 31,300,000 DEM 61,703,610 148,456
09/19/97 DEM 3,500,000 NLG 3,941,197 420
10/23/97 DEM 10,000,000 ESP 847,560,450 1,568
10/10/97 BEF 30,955,500 DEM 1,500,000 566
11/07/97 DEM 4,000,000 FRF 13,484,858 868
11/13/97 DEM 2,000,000 CHF 1,640,540 (1,036)
10/27/97 DEM 8,484,285 ECU 4,300,000 (24,526)
09/19/97 NLG 9,340,654 DEM 8,300,000 1,778
--------------
$ (98,774)
==============
</TABLE>
19
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------ --------------------------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Buys
25 Australian Government Bond 3 yr. September 1997 $ 2,157,794 $ 54,692
19 Australian Government Bond 10 yr September 1997 1,950,999 98,947
23 Canadian Government Bond September 1997 1,983,118 75,237
16 German Government Bond December 1997 2,250,861 (3,883)
16 Italian Government Bond 10 yr. December 1997 1,958,488 1,863
4 Japanese Government Bond September 1997 4,246,737 635
49 MATIF ECU Bond September 1997 5,173,501 122,535
92 U.S. Treasury Bond 30 yr. September 1997 10,407,500 375,437
11 U.S. Treasury Bond 30 yr. December 1997 1,240,250 1,668
87 U.K. Gilt September 1997 8,077,765 20,402
24 U.K. Gilt December 1997 2,221,051 (3,982)
--------------
$ 743,551
==============
<CAPTION>
Sales
<S> <C> <C> <C> <C>
15 Eurodollar September 1997 $ 3,534,938 $ (1,425)
75 FRF MATIF Bond September 1997 8,017,476 (110,932)
4 Japanese Government Bond September 1997 4,243,744 (204,613)
4 Japanese Government Bond December 1997 4,221,132 (695)
63 Spanish Government Bond 10 yr. September 1997 4,840,512 (123,106)
76 Swiss Government Bond September 1997 6,094,428 (1,355)
11 U.S. Treasury Note 10 yr. September 1997 1,199,344 3,699
7 U.S. Treasury Note 10 yr. December 1997 760,813 354
----------------
$ (438,073)
================
</TABLE>
At August 31, 1997, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
20
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal
Amount of Principal Amount
Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
----------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period $ 4,000 $199,000 $ 4,000 $ 170,400
Options written 4,000 20,000 2,727 46,637
Options exercised (4,000) (20,000) -- --
Options expired -- -- -- --
----------------- --------------- ------------------ ---------------
Outstanding, end
of period $ 4,000 $199,000 $ 6,727 $ 217,037
================= =============== ================== ===============
</TABLE>
Summary of written options outstanding
<TABLE>
<CAPTION>
Principal
Amount of
Contracts Expiration
(000's omitted) Exercise Price Date Value
----------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Calls
Japanese Yen $ 4,000 117 JPY 2/09/98 $ 130,000
Thai Baht 2,727 33 THB 10/16/97 75,364
Puts
Japanese Yen 4,000 117 JPY 2/09/98 130,800
--------------
$ 436,164
==============
</TABLE>
21
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net
Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
- ---------------------- ------------- --------------------------------------------------- ---------------
<S> <C> <C> <C>
TRL 93,625,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $(109,591)
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
TRL 38,500,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 9,515
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
---------------
Net unrealized depreciation $(100,076)
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
22
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 99.3%
New Zealand -- 3.3%
NZD 1,000,000 New Zealand Indexed Linked Bond, 4.50%, due
2/15/16 610,801
-----------
United States -- 96.0%
U.S. Government -- 96.0%
USD 17,618,000 U.S. Treasury Inflation Indexed Note,
3.375%, due 1/15/07 17,533,622
-----------
Total United States 17,533,622
-----------
TOTAL DEBT OBLIGATIONS (COST $18,093,975) 18,144,423
-----------
SHORT-TERM INVESTMENTS -- 0.5%
Repurchase Agreements -- 0.5%
USD 91,026 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value
of $91,077 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to
8/15/26 and with an aggregate market value
of $93,112. 91,026
-----------
TOTAL SHORT-TERM INVESTMENTS (COST
$91,026) 91,026
-----------
TOTAL INVESTMENTS -- 99.8%
(Cost $18,185,001) 18,235,449
Other Assets and Liabilities (net) -- 0.2% 34,204
-----------
TOTAL NET ASSETS -- 100% $18,269,653
===========
Currency Abbreviations
NZD - New Zealand Dollar
USD - United States Dollar
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $18,185,001) (Note 1) $18,235,449
Dividends and interest receivable 75,815
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 11,032
Receivable for expenses waived or borne by Manager (Note 2) 12,525
-----------
Total assets 18,334,821
-----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 2,996
Shareholder service fee 1,771
Accrued expenses 60,401
-----------
Total liabilities 65,168
-----------
Net assets $18,269,653
===========
Net assets consist of:
Paid-in-capital $18,090,519
Accumulated undistributed net investment income 118,480
Accumulated undistributed net realized loss (813)
Net unrealized appreciation 61,467
-----------
$18,269,653
===========
Net assets attributable to:
Class III shares $18,269,653
===========
Shares outstanding:
Class III 1,786,832
===========
Net asset value per share:
Class III $ 10.22
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations --
Period from March 31, 1997 (commencement of operations) to August 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest 127,503
---------
Expenses:
Custodian and transfer agent fees 43,593
Audit fees 16,682
Management fee (Note 2) 9,023
Registration fees 1,511
Legal fees 1,180
Trustees fees (Note 2) 236
Miscellaneous 384
Fees waived or borne by Manager (Note 2) (68,974)
---------
3,635
Shareholder service fee (Note 2)
Class III 5,388
---------
Net expenses 9,023
---------
Net investment income 118,480
---------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 4,126
Foreign currency, forward contracts and foreign currency
related transactions (4,939)
---------
Net realized loss (813)
---------
Change in net unrealized appreciation (depreciation) on:
Investments 50,448
Foreign currency, forward contracts and foreign currency
related transactions 11,019
---------
Net unrealized gain 61,467
---------
Net realized and unrealized gain 60,654
---------
Net increase in net assets resulting from operations $ 179,134
=========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from March 31, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
----------------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 118,480
Net realized loss (813)
Change in net unrealized appreciation
(depreciation) 61,467
-----------
Net increase in net assets resulting from
operations 179,134
-----------
Net share transactions: (Note 5)
Class I --
Class II --
Class III 18,090,519
-----------
Increase in net assets resulting from net
share transactions 18,090,519
-----------
Total increase in net assets 18,269,653
Net assets:
Beginning of period --
-----------
End of period (including accumulated undistributed
net investment income of $118,480) $18,269,653
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from March 31, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
---------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income from investment operations:
Net investment income 0.14+
Net realized and unrealized gain 0.08
-------
Total from investment operations 0.22
-------
Net asset value, end of period $10.22
=======
Total Return /(a)/ 2.20%
Ratios/Supplemental Data:
Net assets, end of period (000's) $18,270
Net expenses to average daily net assets 0.25%*
Net investment income to average daily net assets 3.28%*
Portfolio turnover rate 7%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following per
share amount: $ 0.08
</TABLE>
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums and redemption fees. The total return
would have been lower had certain expenses not been waived during the period
shown.
* Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Inflation Indexed Bond Fund (the "Fund"), which commenced operations on
March 31, 1997, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund seeks maximum total return by investing primarily in foreign and
U.S. government bonds that are indexed or otherwise linked to general
measures of inflation in the country of issue.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class III was the
only active class of shares of the fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates market value. Other assets and securities
for which no quotations are readily available are valued at fair value as
determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that
6
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
arise from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, currency
gains and losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales of
securities or to hedge the currency exposure associated with some or all of
the Fund's portfolio securities. A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of a forward currency contract fluctuates with
changes in forward currency exchange rates. Forward currency contracts are
marked to market daily and the change in value is recorded by the Fund as an
unrealized gain or loss. Realized gains or losses equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed are recorded upon delivery or receipt of the currency
or, if a forward currency contract is offset by entering into another
forward currency contract with the same broker, upon settlement of the net
gain or loss. These contracts may involve market risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. In addition, the Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value
of the currency changes unfavorably to the U.S. dollar. The U.S. dollar
value of the currencies the Fund has committed to buy or sell is shown under
Note 6 and represents the currency exposure the Fund has acquired or hedged
through currency contracts as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund had no
securities on loan.
7
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis. The difference
between original principal and the inflation component of principal is
included in unrealized gain or loss.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .10%
of the amount invested. The manager will reduce such premium or fee only
when any portion of a purchase or redemption is offset by corresponding
redemption or purchase occurring on the same day. All purchase premiums are
paid to and recorded as paid-in capital by the Fund. For the period ended
August 31, 1997, the Fund received $18,891 in purchase premiums and $801 in
redemption fees. There is no premium for reinvested distributions or in-kind
transactions.
8
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28% for
Class I shares, .22% for Class II shares, and .15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .10% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the period ended August 31, 1997 was $236. No remuneration is paid to
any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
For the period from March 31 to August 31, 1997, cost of purchases and
proceeds from sales of investments, other than short-term obligations, were
as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------------- --------------
<S> <C> <C>
U.S. Government securities $ 18,058,988 $ 583,454
Investments (non-U.S. Government securities) 614,298 -
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------- -------------------- ------------------ ----------------
<S> <C> <C> <C>
$18,185,001 $53,962 $3,514 $50,448
</TABLE>
4. Principal shareholders
At August 31, 1997, 52% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
9
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
March 31, 1997 (commencement of
Class III: operations) to August 31, 1997
--------------------------------
Shares Amount
------------ -------------
<S> <C> <C>
Shares sold 1,866,277 $ 18,891,131
Shares issued to shareholders in
reinvestment of distributions - -
Shares repurchased (79,445) (800,612)
------------ -------------
Net increase 1,786,832 $ 18,090,519
============ =============
</TABLE>
6. Financial Instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net
Settlement Units of Unrealized
Date Deliver Currency Value Appreciation
------------------- ------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales
9/23/97 NZD 900,000 $574,418 $11,032
============
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
10
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 91.5%
Advertising -- 0.0%
12,500 Interpublic Group Inc 609,375
-------------
Aerospace -- 0.9%
370,100 Raytheon Co 20,355,500
58,600 Textron Inc 3,651,513
168,700 TRW Inc 8,793,488
-------------
32,800,501
-------------
Automotive -- 1.6%
9,700 Bandag Inc 517,131
42,200 Chrysler Corp 1,482,275
19,900 Eaton Corp 1,792,244
599,300 Ford Motor Co 25,769,900
275,400 General Motors Corp 17,281,350
114,100 Genuine Parts Co 3,522,838
82,600 Goodyear Tire & Rubber Co 5,090,225
-------------
55,455,963
-------------
Banking and Financial Services -- 11.9%
281,600 Ahmanson (HF) & Co 14,291,200
137,200 Amsouth Bancorp 5,770,975
181,800 Bank of New York Inc 8,112,825
351,900 BankBoston Corp 29,251,687
159,900 Bankers Trust New York Corp 16,589,625
411,300 Barnett Banks Inc 28,019,812
242,999 Bear Stearns Inc 9,613,648
83,900 Beneficial Corp 6,004,094
25,900 Charles Schwab & Co Inc 1,099,131
487,308 Chase Manhattan Corp 54,182,557
65,700 Citicorp 8,384,963
6,250 Comdisco Inc 169,922
114,300 Countrywide Credit Industry Inc 3,850,481
58,700 Donaldson Lufkin & Jenrette 3,485,313
175,100 Edwards (AG) Inc 6,960,225
168,800 Fleet Financial Group Inc 10,877,050
90,500 Franklin Resources Inc 7,002,438
6,400 Golden West Financial Corp 526,800
132,500 Greenpoint Financial Corp 8,157,031
6,000 Household International Inc 665,625
193,900 Lehman Brothers Holding Inc 8,507,363
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- continued
372,200 Merrill Lynch 22,890,300
15,200 MGIC Investment Corp 764,750
82,200 Morgan Jersey Co Inc 8,815,950
545,412 Morgan Stanley Dean Witter Discover & Co 26,247,953
210,100 Paine Webber Group Inc 8,075,719
605,200 PNC Bank Corp 26,174,900
166,400 Providian Financial Corp 6,198,400
5,300 Republic New York Corp 567,431
268,600 Salomon Inc 16,082,425
20,700 SLM Holding Corp 2,804,850
88,200 Summit Bancorp 5,236,875
118,700 Synovus Financial Corp 3,108,456
543,373 Travelers Group Inc 34,504,185
355,170 Washington Mutual Inc 21,265,804
-------------
414,260,763
-------------
Chemicals -- 0.8%
97,900 Eastman Chemical Co 5,855,644
145,300 Great Lakes Chemical Corp 6,756,450
66,100 Lubrizol Corp 2,896,006
211,900 Union Carbide Corp 10,873,119
-------------
26,381,219
-------------
Computer and Office Equipment -- 3.7%
1,229,050 Compaq Computer Corp 80,502,774
294,100 EMC Corp * 15,091,006
48,200 Gateway 2000 Inc 1,885,825
490,800 Micron Technology Inc * 21,871,275
31,400 Pitney Bowes Inc 2,398,175
10,700 Sterling Software Inc 367,144
121,300 Western Digital Corp 5,837,563
-------------
127,953,762
-------------
Construction -- 0.1%
43,400 Georgia-Pacific Corp 3,960,250
-------------
Consumer Goods -- 3.7%
200,600 Callaway Golf Co 6,757,713
79,100 Clorox Co 10,381,875
38,200 Colgate-Palmolive Co 2,397,050
275,400 Eastman Kodak Co 18,004,275
443,600 Fortune Brands Inc 15,248,750
</TABLE>
2 See accompanying notes to financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- continued
42,700 Hasbro Inc 1,147,563
71,200 Jones Apparel Group Inc 3,573,350
89,000 Liz Claiborne Inc 3,966,063
96,500 Moore Corp Ltd 1,911,906
175,100 Newell Co 6,894,563
14,300 Nike Inc, Class B 763,263
276,700 Procter and Gamble Co 36,818,393
170,700 Reebok International Ltd 7,500,131
104,900 Sunbeam Corp 4,615,600
120,800 VF Corp 10,675,700
-------------
130,656,195
-------------
Electronic Equipment -- 0.8%
13,200 Arrow Electronics Inc * 810,975
51,300 Cooper Industries Inc 2,734,931
17,400 Harris Corp Inc 1,515,975
5,000 Hubbell Inc, Class B 229,375
41,800 Litton Industries * 2,084,775
183,900 Motorola Inc 13,493,663
61,100 Texas Instruments 6,942,488
-------------
27,812,182
-------------
Environmental Control -- 0.1%
201,700 Wheelabrator Technology Inc 3,164,169
-------------
Food and Beverage -- 6.8%
696,500 Anheuser Busch Cos Inc 29,688,312
1,041,768 Archer Daniels Midland Co 22,528,228
111,700 Campbell Soup Co 5,180,088
691,800 Coca Cola Co 39,648,787
401,300 Coca Cola Enterprises Inc 11,035,750
375,200 CPC International Inc 33,439,699
40,550 Dean Foods Co 1,799,406
353,300 Heinz (HJ) Co 14,706,113
1,000 Hormel (Geo A) and Co 29,750
190,800 IBP Inc 4,376,475
66,400 RJR Nabisco Holdings Corp 2,311,550
649,700 Sara Lee Corp 26,150,425
290,100 Seagrams Co Ltd 10,135,369
153,600 Unilever NV ADR 30,911,999
13,900 Universal Foods Corp 539,494
175,600 Whitman Corp 4,302,200
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage -- continued
18,100 Wrigley (William Jr) Co 1,312,250
-------------
238,095,895
-------------
Health Care -- 1.6%
19,400 Becton Dickinson & Co 929,988
119,600 Columbia HCA Healthcare Corp 3,774,875
51,000 Hillenbrand Industries Inc 2,240,813
215,200 Johnson & Johnson 12,199,150
169,100 Mallinckrodt Inc 6,151,013
55,300 McKesson Corp 5,180,919
295,900 Pharmacia & Upjohn Inc 10,079,094
379,750 Tenet Healthcare Corp * 10,348,188
113,800 United States Surgical Corp 3,748,288
32,400 Wellpoint Health Network * 1,761,750
-------------
56,414,078
-------------
Insurance -- 4.2%
182,800 AFLAC Corp 10,065,425
73,500 AMBAC Inc 5,939,719
20,100 CNA Financial Corp * 2,280,094
551,900 Conseco Inc 23,731,700
174,500 Lincoln National Corp 11,680,594
194,000 Loews Corp 19,775,875
78,200 MBIA Inc 8,856,150
89,400 Old Republic International Corp 3,212,813
107,700 Progressive Corp 10,662,300
50,000 Reliastar Financial Corp 3,737,500
209,200 Safeco Corp 10,276,950
194,800 Saint Paul Cos Inc 14,293,450
188,200 Torchmark Corp 7,092,788
107,809 Transamerica Corp 10,625,925
41,700 Transatlantic Holding Inc 2,947,669
-------------
145,178,952
-------------
Machinery -- 1.4%
403,800 Applied Materials Inc * 38,108,624
71,200 Cummins Engine Inc 5,477,950
47,400 FMC Corp * 3,937,163
-------------
47,523,737
-------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments--(Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing -- 5.5%
232,500 Corning Inc 12,293,438
990,300 General Electric Co 61,893,749
42,800 Gillette Co 3,544,375
615,400 IBM Corp 62,078,474
179,000 International Game Technology 3,580,000
88,800 Leggett & Platt Inc 3,818,400
171,500 Minnesota Mining And Manufacturing Co 15,413,563
111,100 Owens Illinois Inc * 3,867,669
105,500 Temple Inland Inc 6,804,750
202,900 Tyco International Ltd * 15,914,969
38,600 United Technologies Corp 3,013,213
-------------
192,222,600
-------------
Metals and Mining -- 0.1%
59,800 Phelps Dodge Corp 4,810,163
-------------
Oil and Gas -- 7.5%
209,400 Apache Corp 8,310,563
433,000 Atlantic Richfield Co 32,474,999
46,500 Burlington Resources Inc 2,354,063
184,400 Chevron Corp 14,279,475
61,200 Columbia Natural Gas Systems Inc 4,039,200
117,100 El Paso Natural Gas Co 6,586,875
200 Ensco International Inc 12,700
870,800 Exxon Corp 53,282,074
2,100 FINA Inc, Class A 138,600
52,500 Mobil Corp 3,819,375
147,700 Occidental Petroleum Corp 3,461,719
53,200 Oryx Energy Co * 1,406,475
65,900 Pennzoil Co 5,086,656
389,200 Phillips Petroleum Co 18,511,325
272,000 Schlumberger Ltd 20,723,000
199,600 Sonat Inc 9,942,575
235,800 Texaco Inc 27,175,950
342,700 Union Pacific Resources Group 8,567,500
490,800 Unocal Corp 19,171,875
670,500 USX - Marathon Group 21,833,156
-------------
261,178,155
-------------
Paper and Allied Products -- 1.3%
75,500 Champion International Corp 4,468,656
76,900 Fort James Corp 3,229,800
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Paper and Allied Products -- continued
298,900 International Paper Co 15,766,975
92,900 Mead Corp 6,590,094
79,000 Sonoco Products Co 2,572,438
183,200 Westvaco Corp 6,205,900
69,600 Willamette Industries Inc 5,550,600
-------------
44,384,463
-------------
Pharmaceuticals -- 7.5%
1,190,800 Abbott Laboratories 71,373,574
97,200 Allergan Inc 3,146,850
87,240 American Home Products Corp 6,281,280
1,080,400 Bristol Myers Squibb Co 82,110,399
71,600 Lilly (Eli) & Co 7,491,150
420,700 Merck & Co Inc 38,625,518
87,500 Pfizer Inc 4,845,313
343,500 Schering Plough Corp 16,488,000
250,200 Warner Lambert Co 31,791,037
-------------
262,153,121
-------------
Primary Materials -- 0.1%
46,400 Rubbermaid Inc 1,160,000
37,400 Vulcan Materials Co 3,286,525
-------------
4,446,525
-------------
Primary Processing -- 0.3%
66,800 Du Pont (EI) De Nemours & Co 4,162,475
129,700 USX-US Steel Group Inc 4,555,713
-------------
8,718,188
-------------
Refining -- 0.8%
23,300 Murphy Oil Corp 1,250,919
415,700 Royal Dutch Petroleum 21,096,775
182,600 Tosco Corp 6,037,213
-------------
28,384,907
-------------
Retail Trade -- 4.5%
474,800 Albertsons Inc 16,321,250
556,900 American Stores Co 13,191,569
564,500 Costco Cos Inc * 20,357,281
356,700 Dayton Hudson Corp 20,331,900
4,900 DG Corp 203,044
54,800 Dillards Department Stores Inc 2,192,000
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
163,300 Fruit of the Loom Inc * 4,368,275
1,600,000 Kmart Corp * 22,200,000
277,000 Limited Inc 6,301,750
29,600 Penney (JC) Co Inc 1,776,000
139,800 Rite Aid Corp 6,998,738
239,870 Safeway Inc * 12,218,353
98,600 TJX Cos Inc 2,711,500
68,900 Toys R Us Inc * 2,381,356
686,600 Wal Mart Stores Inc 24,374,300
-------------
155,927,316
-------------
Services -- 0.3%
14,900 BHC Communications Inc, Class A 1,828,975
65,900 Disney Walt Co 5,061,944
5,000 Fleming Cos Inc 94,375
126,300 Supervalu Inc 4,957,275
-------------
11,942,569
-------------
Technology -- 10.6%
343,900 Advanced Micro Devices Inc * 12,874,756
96,800 Avnet Inc 6,697,350
43,700 Cisco Systems Inc * 3,293,888
596,800 Dell Computer Corp 48,974,899
43,000 Grainger (WW) Inc 3,818,938
1,413,600 Intel Corp 130,227,899
804,500 Microsoft Corp 106,344,843
109,150 Oracle Corp 4,161,344
260,600 Seagate Technology Corp 9,951,663
262,500 Storage Technology Corp * 13,371,094
128,000 Teradyne Inc * 7,128,000
323,200 Xerox Corp 24,401,600
-------------
371,246,274
-------------
Telecommunications -- 4.8%
1,442,400 AT & T Corp 56,253,599
278,958 Bell Atlantic Corp 20,189,556
17,700 Bellsouth Corp 778,800
72,200 Cincinnati Bell Inc 1,944,888
242,500 GTE Corp 10,806,406
868,300 MCI Communications Corp 24,746,550
175,601 SBC Communications 9,548,295
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications -- continued
841,800 Sprint Corp 39,564,599
152,000 US West Inc 5,443,500
-------------
169,276,193
-------------
Tobacco -- 1.1%
873,600 Philip Morris Cos Inc 38,110,799
-------------
Transportation -- 1.8%
410,300 Burlington Northern Santa Fe Railroad Co 37,619,380
149,700 CSX Corp 8,560,969
174,600 Federal Express Corp 11,599,988
79,900 Ryder System Inc 2,851,431
53,100 UAL Corp * 4,045,556
-------------
64,677,324
-------------
Utilities -- 7.7%
434,600 AES Corp 16,080,200
207,300 Allegheny Power System Inc 6,024,656
305,900 American Electric Power Inc 13,364,006
460,200 Baltimore Gas and Electric Co 12,425,400
143,400 Carolina Power and Light Co 4,839,750
42,300 Central & South West Corp 875,081
396,300 Cinergy Corp 13,102,669
133,724 Citizens Utilities, Class B 1,119,939
178,700 CMS Energy Corp 6,422,031
131,800 Coastal Corp 7,611,450
286,000 Dominion Resources Inc 10,296,000
209,100 DPL Inc 4,953,056
154,200 DQE Inc 4,895,850
275,200 Duke Power Co 13,330,000
739,300 Edison International 17,835,613
23,800 Enova Corp 571,200
730,700 Entergy Corp 18,130,494
218,900 Florida Progress Corp 7,045,844
909,498 Houston Industries Inc 18,417,327
207,900 Illinova Corp 4,781,700
93,600 LG&E Energy Corp 2,117,700
246,100 Long Island Lighting Co 6,075,594
77,600 New Century Energies Inc * 3,133,100
94,000 Nipsco Industries Inc 3,836,375
78,100 Northern States Power Co 3,758,563
7,800 Ohio Edison Co 171,600
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
428,300 Pacificorp 8,887,225
99,100 PG & E Corp 2,297,881
150,700 Potomac Electric Power Co 3,419,006
47,100 PP & L Resources Inc 1,033,256
102,800 Scana Corp 2,480,050
1,436,100 Southern Co 30,247,855
143,300 Teco Energy Inc 3,448,156
355,800 Texas Utilities Co 12,408,525
139,800 Wisconsin Energy Corp 3,573,638
-------------
269,010,790
-------------
TOTAL COMMON STOCKS (COST $2,577,016,015) 3,196,756,428
-------------
SHORT-TERM INVESTMENTS -- 15.6%
Cash Equivalents -- 6.5%
$48,364,924 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/2/97/(a)/ 48,364,924
$5,196,064 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due
9/2/97/(a)/ 5,196,064
$14,188,190 Harris Bank and Trust Eurodollar Time
Deposit, 5.625% due 9/2/97/(a)/ 14,188,190
107,444,941 Merrimac Cash Fund Premium Class/(a)/ 107,444,941
$51,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 51,000,000
-------------
226,194,119
-------------
U.S. Government -- 0.4%
$12,700,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 12,543,765
-------------
Repurchase Agreements -- 8.7%
$175,040,721 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$175,138,938 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to
8/15/26 and with an aggregate market value of
$179,051,781. 175,040,721
$129,578,425 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/2/97, with a
maturity value of $129,650,269 and an
effective yield of 4.99%, collateralized by
U.S. Government and Agency Obligations with
rates ranging from 5.337% to 8.000%, with
maturity dates ranging from 5/31/99 to 1/1/35
and an aggregate market value of $132,170,434. 129,578,425
-------------
304,619,146
-------------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- -------------------------------------------------------------------------------------------
<S> <C>
TOTAL SHORT-TERM INVESTMENTS
(COST $543,350,758) $ 543,357,030
--------------
TOTAL INVESTMENTS -- 107.1%
(COST $3,120,366,773) 3,740,113,458
Other Assets and Liabilities (net) -- (7.1)% (247,130,754)
--------------
TOTAL NET ASSETS -- 100% $3,492,982,704
==============
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
/(a)/ Represents investments of security lending collateral (Note 1).
/(b)/ Security has been segregated to cover margin requirements on open
financial futures contracts.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $3,120,366,773) (Note 1) $3,740,113,458
Receivable for investments sold 37,361,942
Dividends and interest receivable 6,005,726
Receivable for open swap contracts (Notes 1 and 6) 4,110,228
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 894,043
Receivable for expenses waived or borne by Manager (Note 2) 597,191
Receivable for Fund shares sold 4,230,538
Miscellaneous receivable 5,931
--------------
Total assets 3,793,319,057
--------------
Liabilities:
Payable for investments purchased 60,838,426
Payable upon return of securities loaned (Note 1) 226,194,119
Payable for Fund shares repurchased 11,215,936
Payable to affiliate for (Note 2):
Management fee 1,439,773
Shareholder service fee 414,956
Accrued expenses 233,143
--------------
Total liabilities 300,336,353
--------------
Net assets $3,492,982,704
==============
Net assets consist of:
Paid-in-capital $2,600,901,234
Accumulated undistributed net investment income 9,554,200
Accumulated undistributed net realized gain 264,935,429
Net unrealized appreciation 617,591,841
--------------
$3,492,982,704
==============
Net assets attributable to:
Class I shares $ 12,304,728
==============
Class II shares $ 39,157,489
==============
Class III shares $3,441,520,487
==============
Shares outstanding:
Class I 637,713
==============
Class II 2,030,993
==============
Class III 178,331,768
==============
Net asset value per share:
Class I $ 19.30
==============
Class II $ 19.28
==============
Class III $ 19.30
==============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $3,793) $ 29,429,375
Interest (including securities lending income of $29,155) 6,852,294
------------
Total income 36,281,669
------------
Expenses:
Management fee (Note 2) 8,440,695
Custodian and transfer agent fees 239,637
Legal fees 71,562
Audit fees 29,078
Trustees fees (Note 2) 16,604
Miscellaneous 10,342
Fees waived or borne by Manager (Note 2) (3,502,338)
------------
5,305,580
Shareholder service fee (Note 2)
Class I 14,445
Class II 71,143
Class III 2,355,128
------------
Net expenses 7,746,296
------------
Net investment income 28,535,373
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 238,777,934
Closed futures contracts 29,185,386
Closed swap contracts (7,698,505)
------------
Net realized gain 260,264,815
------------
Change in net unrealized appreciation (depreciation) on:
Investments 210,513,756
Open futures contracts (4,894,098)
Open swap contracts 10,037,664
------------
Net unrealized gain 215,657,322
------------
Net realized and unrealized gain 475,922,137
------------
Net increase in net assets resulting from operations $504,457,510
============
</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>
Six Months
Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 28,535,373 $ 56,560,600
Net realized gain 260,264,815 857,162,171
Change in net unrealized appreciation (depreciation) 215,657,322 (272,499,847)
------------- --------------
Net increase in net assets resulting from operations 504,457,510 641,222,924
------------- --------------
Distributions to shareholders from:
Net investment income
Class I (74,956) (60,981)
Class II (513,250) (622,038)
Class III (23,771,559) (60,383,941)
------------- --------------
Total distributions from net investment income (24,359,765) (61,066,960)
------------- --------------
Net realized gains
Class I (1,989,360) (574,148)
Class II (12,616,955) (6,542,685)
Class III (555,275,629) (430,596,024)
------------- --------------
Total distributions from net realized gains (569,881,944) (437,712,857)
------------- --------------
(594,241,709) (498,779,817)
------------- --------------
Net share transactions: (Note 5)
Class I 3,642,439 8,598,090
Class II (24,586,852) 65,659,589
Class III 478,499,701 (270,803,491)
------------- --------------
Increase (decrease) in net assets resulting from net
share transactions 457,555,288 (196,545,812)
------------- --------------
Total increase (decrease) in net assets 367,771,089 (54,102,705)
Net assets:
Beginning of period 3,125,211,615 3,179,314,320
------------- --------------
End of period (including accumulated undistributed
net investment income of $9,554,200 and
$5,378,592, respectively) $3,492,982,704 $3,125,211,615
============== ==============
</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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Period from July 2, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- --------------------------
<S> <C> <C>
Net asset value, beginning of period $20.12 $ 18.97
------ -------
Income from investment operations:
Net investment income 0.17+ 0.20
Net realized and unrealized gain 3.06 2.88
------ -------
Total from investment operations 3.23 3.08
------ -------
Less distributions to shareholders:
From net investment income (0.15) (0.19)
From net realized gains (3.90) (1.74)
------ -------
Total distributions (4.05) (1.93)
------ -------
Net asset value, end of period $19.30 $ 20.12
====== =======
Total Return /(a)/ 17.02% 16.84%
Ratios/Supplemental Data:
Net assets, end of period (000's) $12,305 $ 9,104
Net expenses to average daily net assets 0.61%* 0.61%*
Net investment income to average daily net assets 1.65%* 1.55%*
Portfolio turnover rate 31% 107%
Average broker commission rate per equity share $0.0301 $0.0297
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.02 $ 0.02
</TABLE>
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
14 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from June 7, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 20.10 $ 20.12
------- -------
Income from investment operations:
Net investment income 0.17+ 0.25
Net realized and unrealized gain 3.07 2.92
------- -------
Total from investment operations 3.24 3.17
------- -------
Less distributions to shareholders:
From net investment income (0.16) (0.30)
From net realized gains (3.90) (2.89)
------- -------
Total distributions (4.06) (3.19)
------- -------
Net asset value, end of period $ 19.28 $ 20.10
======= =======
Total Return/(a)/ 17.00% 17.46%
Ratios/Supplemental Data:
Net assets, end of period (000's) $39,157 $64,763
Net expenses to average daily net assets 0.55%* 0.55%*
Net investment income to average daily net assets 1.68%* 1.63%*
Portfolio turnover rate 31% 107%
Average broker commission rate per equity share $0.0301 $0.0297
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.02 $ 0.03
per share amounts:
</TABLE>
+ Computed using average shares outstanding throughout the period.
/(a)/Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
August 31,
1997 Year Ended February 28/29,
----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73 $ 15.96
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.18+ 0.36 0.41 0.41 0.42 0.45
Net realized and
unrealized gain 3.06 3.58 5.49 0.66 1.59 1.13
---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations 3.24 3.94 5.90 1.07 2.01 1.58
---------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment
income (0.16) (0.39) (0.42) (0.39) (0.43) (0.46)
From net realized
gains (3.90) (2.89) (1.47) (1.01) (1.53) (1.35)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (4.06) (3.28) (1.89) (1.40) (1.96) (1.81)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end
of period $ 19.30 $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73
========== ========== ========== ========== ========== ==========
Total Return /(a)/ 17.07% 22.05% 39.08% 7.45% 13.36% 10.57%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $3,441,520 $3,051,344 $3,179,314 $2,309,248 $1,942,005 $1,892,955
Net expenses to
average daily
net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income
to average daily 1.78%* 1.78% 2.25% 2.63% 2.56% 2.79%
net assets
Portfolio turnover rate 31% 107% 77% 99% 40% 54%
Average broker
commission rate per
equity share /(b)/ $ 0.0301 $ 0.0297 N/A N/A N/A N/A
Fees and expenses
voluntarily waived
or borne by the
Manager consisted
of the following
per share amounts: $ 0.02 $ 0.04 $ 0.01 $ 0.01 $ 0.01 $ 0.01
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
/(a)/ Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
16 See accompanying notes to the financial statements.
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange, and/or shares of other domestic equity funds of the
trust.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II, and Class III. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus. Class III
shares are the continuation of the Trust's shares that existed prior to
June 1, 1996, and bear the same total operating expenses (after the
voluntary expense waiver) as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S.
17
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $217,592,899, collateralized by
cash in the amount of $226,194,119, which was invested in short-term
instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these
18
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to
19
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
and recorded as paid-in capital by the Fund. For the six months ended
August 31, 1997, the Fund received $196,853 in purchase premiums. There is
no premium for cash redemptions, reinvested distributions or in-kind
transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .525% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $16,604. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $908,055,570 and $1,154,788,973, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and deprecation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
$3,120,366,773 $ 647,227,901 $ 27,481,216 $ 619,746,685
</TABLE>
4. Principal shareholder
At August 31, 1997, 10% of the outstanding shares of the Fund were held by
one shareholder.
20
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 2, 1996
Six Months Ended (commencement of operations)
Class I: August 31, 1997 to February 28, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 76,715 $ 1,635,079 422,178 $ 8,023,942
Shares issued to shareholders in
reinvestment of distribution 108,520 2,007,960 30,330 574,148
Shares repurchased (30) (600) -- --
-------------- -------------- -------------- ---------------
Net increase 185,205 $ 3,642,439 452,508 $ 8,598,090
============== ============== ============== ===============
<CAPTION>
Period from June 7, 1996
Six Months Ended (commencement of operations)
Class II: August 31, 1997 to February 28, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 2,843,284 $ 58,494,866
Shares issued to shareholders in
reinvestment of distributions 709,887 13,117,185 378,119 7,164,723
Shares repurchased (1,900,297) (37,704,037) -- --
-------------- -------------- -------------- ---------------
Net increase (decrease) (1,190,410) $(24,586,852) 3,221,403 $ 65,659,589
============== ============== ============== ===============
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 28, 1997
------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 17,473,181 $ 343,374,583 15,209,862 $ 294,136,127
Shares issued to shareholders in
reinvestment of distributions 30,676,388 567,872,589 25,657,273 468,161,533
Shares repurchased (21,493,483) (432,747,471) (51,595,821) (1,033,101,151)
-------------- -------------- -------------- ---------------
Net increase (decrease) 26,656,086 $ 478,499,701 (11,725,686) $ (270,803,491)
============== ============== ============== ===============
</TABLE>
21
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
545 S&P 500 September 1997 $ 246,094,750 $ 6,265,072
================
</TABLE>
At August 31, 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>
$ 106,169,066/ 9/11/97 Agreement with Morgan Stanley Capital $ 6,217,894
102,378,940 Services, Inc. dated September 9, 1996
to pay (receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread and to receive
(pay) the change in market value of a
basket of selected securities
(including dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread .
15,380,772/ 10/2/97 Agreement with Morgan Stanley Capital 770,708
14,350,837 Services, Inc. dated 8/20/97 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to receive (pay)
the counterparty's notional amount
multiplied by the return on the
Russell 2000 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread.
</TABLE>
22
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements -- (Continued)
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
$ 27,853,318/ 10/7/97 Agreement with Morgan Stanley Capital $ 579,432
24,427,455 Services, Inc. dated December 30, 1996
to pay (receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread and to receive
(pay) the counterparty's notional
amount multiplied by the return on the
Russell 2000 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread.
107,930,602/ 5/6/98 Agreement with NatWest Markets dated (12,425,863)
107,930,602 5/6/97 to receive (pay) the
counterparty's notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to pay (receive)
the change in market value of a basket
of selected securities (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread.
8,726,409/ 5/6/98 Agreement with NatWest Markets dated 146,493
7,753,340 8/20/97 to receive (pay) the
counterparty's notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to pay (receive)
the change in market value of a basket
of selected securities (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread.
</TABLE>
23
<PAGE>
GMO Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements -- (Continued)
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
$ 109,371,445/ 5/13/98 Agreement with Morgan Stanley Capital $ 8,821,564
101,009,713 Services, Inc. dated 5/13/97 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to receive (pay)
the change in market value of a basket
of selected securities (including
dividends) less the counterparty's
notional amount multiplied by LIBOR
adjusted by a specified spread.
================
Net unrealized appreciation $ 4,110,228
================
</TABLE>
24
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 47.3%
Argentina -- 11.2%
ARP 35,134,370 Argentina Pro-1 Co-Participation Rights,
Variable Rate, 1 mo. Peso Deposit
Rate, 3.24%, due 4/01/07 23,615,020
ARP 10,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit
Rate, 3.24%, due 4/01/07 10,512,102
USD 3,600,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%,
6.88%, due 3/31/23 3,260,250
USD 900,000 Republic of Argentina Global Bond,
11.38%, due 1/30/17 1,050,300
USD 27,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.50%, due
3/31/23 19,895,625
-----------
58,333,297
-----------
Brazil -- 2.6%
USD 16,693,636 Brazil Capitalization Bond, PIK, 8.00%,
due 4/15/14 13,605,313
-----------
Bulgaria -- 0.4%
USD 18,000,000 Bulgaria Discount Bond, Series B Strips,
Basket 2, due 7/28/24 1,981,080
USD 5,000,000 Bulgaria Par Bond, Series B Strips,
Tranche 2, due 7/28/24 300,300
-----------
2,281,380
-----------
Costa Rica -- 0.8%
USD 2,099,136 Central Bank of Costa Rica Interest
Series A,
Variable Rate, 3 mo. LIBOR + .81%,
6.66%, due 5/21/05 2,046,658
USD 1,194,336 Central Bank of Costa Rica Interest
Series B,
Variable Rate, 3 mo. LIBOR + .81%,
6.66%, due 5/21/05 1,158,506
USD 1,000,000 Central Bank of Costa Rica Principal
Bond Series A, 6.25%, due 5/21/10 865,000
-----------
4,070,164
-----------
Dominican Republic -- 1.6%
USD 10,957,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%,
6.88%, due 8/30/24 8,382,105
-----------
Ecuador -- 5.8%
USD 8,215,000 Republic of Ecuador Discount Bond
(Global Registered), Variable Rate,
6 mo. LIBOR + .81%, 6.69%, due 2/28/25 6,387,163
USD 44,500,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.50%, due
2/28/25 23,306,875
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
Ecuador -- continued
USD 765,558 Republic of Ecuador PDI, (Global Bearer
Capitalization Bond), PIK, Variable
Rate, 6 mo. LIBOR + .81%, 6.69%, due
2/27/15 538,283
------------
30,232,321
------------
Jordan -- 5.0%
USD 21,250,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up 144A, 4.00%,
due 12/23/23 14,662,500
USD 11,631,619 Hashemite Kingdom of Jordan PDI,
Variable Rate, 6 mo. LIBOR + .81%,
6.75%, due 12/23/05 11,166,354
------------
25,828,854
------------
Macedonia -- 0.2%
USD 1,721,615 Macedonia Capitalization Bond, PIK,
Variable Rate, 9 mo. and 10 mo.
interpolated LIBOR + .81%, 6.88%,
due 7/02/12 1,196,523
------------
Mexico -- 9.1%
USD 550,000 Mexico Discount Bond Series C,
Variable Rate, 6 mo. LIBOR + .81%,
6.82%, due 12/31/19 518,031
FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 47,188,144
------------
47,706,175
------------
Nigeria -- 1.8%
USD 13,500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up, 6.25%, due
11/15/20 9,585,000
------------
Panama -- 1.1%
USD 7,518,000 Panama Interest Reduction Bond,
Variable Rate, Step up, 3.75%, due
7/17/14 5,798,258
------------
Peru -- 0.6%
USD 5,000,000 Peru FLIRB,
Variable Rate, Step up 144A, 3.25%,
due 3/07/17 2,968,750
------------
Supra National -- 0.9%
ZAR 150,000,000 International Bank Recon and Development,
0.00%, due 5/14/12 4,453,799
------------
United States -- 0.4%
Structured Notes -- 0.4%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10%,
due 10/14/97(a) 2,188,800
-----------
Total United States 2,188,800
------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
Venezuela -- 5.8%
USD 15,000,000 Republic of Venezuela DCB, Variable
Rate, 6 mo. LIBOR + .88%, 6.88%, due
12/18/08 13,659,375
USD 360,000 Republic of Venezuela FLIRB Series B Odd
Lot, Variable Rate, 6 mo. LIBOR +
.88%, 6.75%, due 3/31/07 333,675
USD 15,265,500 Republic of Venezuela New Money Bond
Series A, Variable Rate, 6 Mo.
LIBOR + 1, 6.88%, due 12/18/05 14,425,900
USD 2,062,500 Republic of Venezuela New Money Bond
Series B Odd Lot, Variable Rate, 6
mo. LIBOR + .88%, 6.75%, due 12/18/05 1,949,063
------------
30,368,013
------------
TOTAL DEBT OBLIGATIONS
(COST $191,852,333) 246,998,752
------------
LOAN ASSIGNMENTS -- 9.0%
Congo Republic -- 1.7%
ECU 8,195,761 Congo Loan Agreement (Direct Assignment
with F.H. International and Bank of
America)* 3,088,519
FRF 102,097,963 Congo Loan Agreement (Direct Assignment
with F.H. International, Salomon and
Bank of America)* 5,807,237
------------
8,895,756
------------
Ivory Coast -- 6.0%
FRF 298,297,436 Ivory Coast Credit Agreement (Assignment
with Banque Paribas, J.P. Morgan,
Bank of America, Chase Manhattan and
Salomon)* 25,819,166
USD 2,014,873 Ivory Coast Credit Agreement (Assignment
with J.P. Morgan)* 967,139
DEM 361,735 Ivory Coast Credit Agreement (Assignment
with Salomon)* 88,414
SDR 2,974,383 Ivory Coast Credit Agreement (Assignment
with Salomon)* 1,784,582
FRF 1,150,000 Ivory Coast Credit Agreement (Assignment
with Salomon)* 99,538
JPY 428,291,342 Ivory Coast Refinancing Agreement
(Assignment with Salomon)* 1,566,616
USD 1,641,700 Ivory Coast Refinancing Agreement
(Assignment with Salomon)* 705,931
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------
<C> <C> <S> <C>
Ivory Coast -- continued
BEF 18,333,554 Ivory Coast Refinancing Agreement
(Assignment with Salomon)* 217,082
------------
31,248,468
------------
Russia -- 1.3%
CHF 1,500,000 International Bank for Economic
Cooperation Loan Agreement (Direct
Assignment with Oppenheimer)* 704,973
ECU 5,000,000 International Bank for Economic
Cooperation Loan Agreement (Direct
Assignment with Salomon)* 3,809,396
DEM 5,208,190 Russia Vnesheconombank Note Purchase
Agreement (Direct Assignment with
German Hermes Club)* 2,473,615
------------
6,987,984
------------
TOTAL LOAN ASSIGNMENTS
(COST $28,472,793) 47,132,208
------------
LOAN PARTICIPATIONS -- 30.6%
Algeria -- 3.3%
JPY 217,500,000 Algeria Tranche 1, Japanese LIBOR +
13/16, 1.375%, (Participation with
Bank of America) 1,417,122
USD 2,000,000 Algeria Tranche 2, LIBOR + 13/16,
6.50%, (Participation with Salomon) 1,737,500
JPY 500,000,000 Algeria Tranche 3, Japanese 6 mo. LIBOR
+13/16, 1.375% (Participation with
Credit Agricole Indosuez) 3,086,291
FRF 50,564,324 Algeria Tranche 3, PIBOR + 13/16,
4.1875%, (Participation with Salomon
and Union De Banques Arabes Et
Francaises) 6,231,445
FRF 40,000,000 Algeria Tranche 3, PIBOR + 13/16,
4.1875%, (Participation with Salomon) 4,929,519
------------
17,401,877
------------
Cameroon -- 0.8%
NLG 28,052,902 Cameroon Loan Agreement (Participation
with Bank of America and Salomon)* 4,014,479
------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------
<C> <C> <S> <C>
Congo Republic -- 0.3%
USD 4,179,127 Republic of Congo Loan (Participation
with F.H. International)* 1,441,799
------------
Jamaica -- 1.0%
USD 6,000,000 Jamaica Refinancing Agreement Tranche
B, LIBOR + 13/16, 6.56%,
(Participation with Salomon and
Chase Manhattan Bank) 5,550,000
------------
Morocco -- 4.4%
JPY 384,300,844 Morocco Restructuring and Consolidating
Agreement Tranche A, Japanese Long
Term Fixed Prime + .2175%, 3.0175%,
(Participation with J.P. Morgan) 2,647,679
JPY 2,971,603,837 Morocco Restructuring and Consolidating
Agreement Tranche A, Japanese Long
Term Floating Prime + .1175%,
2.6175%, (Participation with Bankers
Trust Co. and J.P. Morgan) 20,473,162
------------
23,120,841
------------
Russia -- 20.0%
USD 24,000,000 International Investment Bank Loan
Agreement (Participation with Bank
of America and Salomon)* 17,280,000
JPY 900,000,000 International Investment Bank Loan
Agreement (Participation with Bank
of America)* 4,863,247
DEM 10,000,000 International Investment Bank Loan
Agreement (Participation with Bank
of America)* 3,999,556
ECU 2,550,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 2,879,371
FRF 313,826,550 Russia Vnesheconombank Loan Agreement
(Participation with Banque Paribas,
Chase Manhattan, Bank of America,
Lehman Brothers and J.P. Morgan)* 53,485,812
GBP 8,311,366 Russia Vnesheconombank Loan Agreement
(Participation with Chase Manhattan
Bank and Bank of America)* 13,934,302
ECU 3,000,000 Russia Vnesheconombank Note Purchase
Agreement (Participation with Bank
of America)* 3,387,495
ECU 5,000,000 Russia Vnesheconombank Note Purchase
Agreement (Participation with J.P.
Morgan)* 4,580,833
------------
104,410,616
------------
</TABLE>
5 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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------
<C> <C> <S> <C>
Yugoslavia -- 0.8%
USD 2,144,772 Yugoslavia Loan Participation Note
Tranche A (Participation with Chase
Manhattan Bank)* 1,045,576
USD 3,202,321 Yugoslavia Loan Participation Note
Tranche B (Participation with Chase
Manhattan Bank)* 1,561,131
USD 3,181,156 Yugoslavia Loan Participation Note
Tranche C (Participation with Chase
Manhattan Bank and J.P. Morgan)* 1,550,814
-------------
4,157,521
-------------
TOTAL LOAN PARTICIPATIONS (COST
$85,419,755) 160,097,133
-------------
<CAPTION>
Principal Amount
-------------------
<C> <C> <S> <C>
CALL OPTIONS PURCHASED -- 4.8%
Options on Bonds -- 4.8%
USD 55,000,000 Argentina Discount Bond, Expires
9/19/97 Knock out 78.00, Strike 75.00 6,891,500
USD 60,000,000 Brazil Discount Bond, Expires 11/07/97,
Strike 80.00 3,492,300
USD 30,000,000 Brazil Discount Bond, Expires 9/12/97
Knock Out 77.00, Strike 77.00 2,799,000
USD 83,000,000 Brazil Par Bond, Expires 11/21/97,
Strike 58.00 3,278,500
USD 50,000,000 Mexico Discount Bond, Expires 9/05/97
Knock Out 86.00, Strike 86.00 4,360,000
USD 58,000,000 Venezuela Par Bond, Expires 12/05/97,
Strike 74.00 4,437,000
-------------
25,258,300
-------------
TOTAL CALL OPTIONS PURCHASED
(COST $21,254,400) 25,258,300
-------------
PUT OPTIONS PURCHASED -- 0.0%
Cross Currency Options -- 0.0%
USD 3,914,929 TRL Put/USD, DEM Basket Call, Expires
12/15/97, Strike 425 17,500
-------------
Options on Bonds -- 0.0%
USD Russia Ministry of Finance Series 3,
15,000,000 Expires 10/06/97, Strike 77.125 60
USD 30,000,000 Russia Ministry of Finance Series 3,
Expires 9/29/97, Strike 76.3125 --
-------------
60
-------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options on Commodities -- 0.0%
USD 200,000 NYMEX, Expires 6/05/98, Strike 16.2 42,000
------------
TOTAL PUT OPTIONS PURCHASED
(COST $356,998) 59,560
------------
<CAPTION>
Par Value/
Shares
-----------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
75,017,000 United Mexican States Warrants, Expires
6/30/03 ** --
------------
Nigeria -- 0.0%
14,000 Central Bank of Nigeria Payment
Adjusted Warrants, Expires 11/15/20 ** --
------------
Venezuela -- 0.0%
312,840 Republic of Venezuela Recovery Warrants,
Expires 04/15/20 ** --
------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
------------
SHORT-TERM INVESTMENTS -- 11.2%
Cash Equivalents -- 4.9%
USD 10,188,707 BankBoston Eurodollar Time Deposit,
5.7875% due 9/2/97/(b)/ 10,188,707
USD 536,856 First Union National Bank of North
Carolina Eurodollar Time Deposit,
5.5625% due 9/2/97/(b)/ 536,856
USD 1,610,568 Harris Bank and Trust Eurodollar Time
Deposit, 5.625% due 9/2/97/(b)/ 1,610,568
13,400,000 Janus Money Market Fund Institutional
Shares/(b)/ 13,400,000
------------
25,736,131
------------
Repurchase Agreements -- 5.5%
USD 2,403,588 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/2/97,
with a maturity value of $2,404,920 and
an effective yield of 4.99%,
collateralized by a U.S. Government
Agency Obligation with a rate of
6.811%, with a maturity date of 3/1/35
and a market value of $2,451,668. 2,403,588
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements -- continued
USD 26,352,125 Salomon Brothers Repurchase Agreement,
dated 8/29/97, due 9/2/97, with a
maturity value of $26,366,911 and an
effective yield of 5.05%,
collateralized by U.S. Treasury
Obligations with rates ranging from
5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and
with an aggregate market value of
$26,955,984. 26,352,125
-------------
28,755,713
-------------
U.S. Government -- 0.8%
USD 4,000,000 U.S. Treasury Bill, 5.31% due 1/08/98(c) 3,926,752
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $58,413,888) 58,418,596
-------------
TOTAL INVESTMENTS -- 102.9%
(COST $385,770,167) 537,964,549
Other Assets and Liabilities (net) --
(2.9)% (14,931,755)
-------------
TOTAL NET ASSETS -- 100% $523,032,794
=============
</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.
8 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)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments -- continued
Variable and Step up rates -- The rates
shown on variable and step up rate notes are the
current interest rates at August 31, 1997, which are
subject to change based on the terms of the security.
Currency Abbreviations:
ARP - Argentinian Peso
BEF - Belgian Franc
CHF - Swiss Franc
DEM - German Mark
ECU - European Currency Unit
FRF - French Franc
GBP - British Pound
JPY - Japanese Yen
NLG - Netherlands Guilder
SDR - Special Drawing Rights
ZAR - South African Rand
THB - Thailand Baht
TRL - Turkish Lira
USD - United States Dollar
(a) Principal is linked to the value of the Brazilian
Capitalization Bond and the Brazilian IDU Bond. Restricted as
to public resale. At the date of aquisition, this security was
valued at cost. There were no outstanding unrestricted
securities of the same class as those held.
(b) Represents investments of security lending collateral (Note 1).
(c) All or a portion of this security is held as collateral
for open futures contracts.
* Non-performing. Borrower not currently paying interest.
** Non-income producing security.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $385,770,167) (Note 1) $537,964,549
Cash 6,063
Foreign currency, at value (cost $155,680) (Note 1) 153,814
Receivable for investments sold 2,684,762
Interest receivable 4,681,548
Receivable for open swap contracts (Notes 1 and 6) 6,500,602
Receivable for open forward foreign currency contracts
(Notes 1 and 6) 13,998,805
Receivable for expenses waived or borne by Manager (Note 2) 74,544
Receivable for Fund shares sold 120,823
Miscellaneous receivable 300,000
------------
Total assets 566,485,510
------------
Liabilities:
Payable for investments purchased 5,594,370
Payable upon return of securities loaned (Note 1) 25,736,131
Written options outstanding, at value (premiums $1,155,454)
(Notes 1 and 6) 1,909,595
Payable for Fund shares repurchased 613,591
Payable to affiliate for (Note 2):
Management fee 210,057
Shareholder service fee 64,088
Accrued expenses 207,799
Payable for open forward foreign currency contracts
(Notes 1 and 6) 6,300,031
Payable for variation margin on open futures contracts
(Notes 1 and 6) 2,773,247
Miscellaneous payable 43,807
------------
Total liabilities 43,452,716
------------
Net assets $523,032,794
============
Net assets consist of:
Paid-in capital $281,826,473
Accumulated undistributed net investment income 32,440,493
Accumulated undistributed net realized gain 43,714,761
Net unrealized appreciation 165,051,067
------------
$523,032,794
============
Net assets attributable to:
Class I shares $ 8,987,503
============
Class II shares $ 2,684,668
============
Class III shares $511,360,623
============
Shares outstanding:
Class I 674,958
============
Class II 201,559
============
Class III 38,335,213
============
Net asset value per share:
Class I $ 13.32
============
Class II $ 13.32
============
Class III $ 13.34
============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest $17,814,562
-----------
Expenses:
Management fee (Note 2) 1,299,053
Custodian and transfer agent fees 149,821
Audit fees 35,199
Transfer agent and dividend disbursing agent fees 16,699
Legal fees 14,779
Trustees fees (Note 2) 2,460
Miscellaneous 3,073
Fees waived or borne by Manager (Note 2) (453,402)
-----------
1,067,682
Shareholder service fee (Note 2)
Class I 5,773
Class II 2,327
Class III 384,783
-----------
Net expenses 1,460,565
-----------
Net investment income 16,353,997
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 52,283,801
Closed futures contracts 1,098,035
Closed swap contracts 1,061,908
Written options (1,880,000)
Foreign currency, forward contracts and foreign currency
related transactions 18,924,826
-----------
Net realized gain 71,488,570
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,399,269
Open futures contracts (1,202,746)
Open swap contracts 4,992,543
Written options (754,141)
Foreign currency, forward contracts and foreign currency
related transactions (1,250,977)
-----------
Net unrealized gain 3,183,948
-----------
Net realized and unrealized gain 74,672,518
-----------
Net increase in net assets resulting from operations $91,026,515
===========
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
August 31, 1997 February
(Unaudited) 28, 1997
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $16,353,997 $ 53,277,149
Net realized gain 71,488,570 223,812,662
Change in net unrealized appreciation (depreciation) 3,183,948 74,007,909
------------ -------------
Net increase in net assets resulting from operations 91,026,515 351,097,720
------------ -------------
Distributions to shareholders from:
Net investment income
Class I (87,057) --
Class II (27,620) --
Class III (5,393,380) (60,410,173)
------------ -------------
Total distributions from net investment income (5,508,057) (60,410,173)
------------ -------------
Net realized gains
Class I (1,536,333) --
Class II (487,418) --
Class III (99,192,711) (149,956,551)
------------ -------------
Total distributions from net realized gains (101,216,462) (149,956,551)
------------ -------------
(106,724,519) (210,366,724)
------------ -------------
Net share transactions: (Note 5)
Class I 9,415,878 34,101
Class II 2,710,273 --
Class III (28,883,710) (200,761,783)
------------ -------------
Decrease in net assets resulting from net share
transactions (16,757,559) (200,727,682)
------------ -------------
Total decrease in net assets (32,455,563) (59,996,686)
Net assets:
Beginning of period 555,488,357 615,485,043
------------ -------------
End of period (including accumulated undistributed net
investment income of $32,440,493 and $21,594,553,
respectively) $523,032,794 $555,488,357
============ =============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from December 31, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $14.08 $12.87
------ ------
Income from investment operations:
Net investment income 0.40 ** 0.10
Net realized and unrealized gain 2.06 1.11
------ ------
Total from investment operations 2.46 1.21
------ ------
Less distributions to shareholders:
From net investment income (0.17) --
From net realized gains (3.05) --
------ ------
Total distributions (3.22) --
------ ------
Net asset value, end of period $13.32 $14.08
====== ======
Total Return (a) 19.43% 9.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $8,988 $ 36
Net expenses to average daily net assets 0.69%* 0.71%*
Net investment income to average daily net
assets 5.24%* 6.06%*
Portfolio turnover rate 61% 152%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.00(b)
</TABLE>
* Annualized.
** Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
See accompanying notes to the financial statements. 13
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from March 21, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
--------------------------
<S> <C>
Net asset value, beginning of period $ 13.74
-------
Income from investment operations:
Net investment income 0.35
Net realized and unrealized gain 2.45
-------
Total from investment operations 2.80
-------
Less distributions to shareholders:
From net investment income (0.17)
From net realized gains (3.05)
-------
Total distributions (3.22)
-------
Net asset value, end of period $ 13.32
=======
Total Return/(a)/ 22.39%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,685
Net expenses to average daily net assets 0.63%*
Net investment income to average daily net assets 6.06%*
Portfolio turnover rate 61%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amount: $ 0.01
</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 periods shown.
14 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1997 Year Ended February 28/29,
-------------------------------
(Unaudited) 1997 1996 1995*
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.09 $ 11.76 $ 8.39 $ 10.00
--------- --------- --------- ---------
Income from investment operations:
Net investment income 0.46 1.48 1.35 0.48
Net realized and unrealized gain (loss) 2.01 6.40 3.84 (1.59)
--------- --------- --------- ---------
Total from investment operations 2.47 7.88 5.19 (1.11)
--------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.17) (1.58) (1.17) (0.40)
From net realized gains (3.05) (3.97) (0.65) --
In excess of net realized gains -- -- -- (0.10)
--------- --------- --------- ---------
Total distributions (3.22) (5.55) (1.82) (0.50)
--------- --------- --------- ---------
Net asset value, end of period $ 13.34 $ 14.09 $ 11.76 $ 8.39
========= ========= ========= =========
Total Return /(a)/ 19.52% 74.32% 63.78% (11.65)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $511,361 $555,452 $615,485 $243,451
Net expenses to average daily net assets 0.56%** 0.57% 0.50% 0.50%**
Net investment income to average daily net
assets 6.29%** 8.35% 12.97% 10.57%**
Portfolio turnover rate 61% 152% 158% 104%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ 0.03 $ 0.02 $ 0.01
</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. 15
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in sovereign debt
of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
16
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
17
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1997.
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. See Note 6 for all open written option contracts as of
August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Loan agreements
The Fund may invest in direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable or unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
18
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $25,204,816 collateralized by
cash in the amount of $25,736,131, which was invested in short-term
instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
19
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. Income is not recognized and discounts are not amortized on
securities for which collection is not expected. In determining the net
gain or loss on securities sold, the cost of securities is determined on
the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .50% of the amount
invested. In the case of cash redemptions, the fee is .25% of the amount
redeemed. Effective June 1, 1996, the Manager will reduce such premium or
fee only when any portion of a purchase is offset by a corresponding
redemption occurring on the same day. All purchase premiums and redemption
fees are paid to and recorded as paid-in capital by the Fund. For the six
months ended August 31, 1997, the Fund received $230,182 in purchase
premiums and $234,487 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
Investment risk
Investments in emerging country debt present certain risks that are not
inherent in many other securities. Many emerging countries present elements
of political and/or economic instability, which may result in the fund's
inability to collect on a timely basis, or in full, principal and interest
payments. Further, countries may impose various types of foreign currency
regulations or controls which may impede the
20
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
fund's ability to repatriate amounts it receives. The fund may acquire
interests in securities or bank loans which are in default at the time of
acquisition in anticipation of improving conditions in the related
countries. These factors may result in significant volatility in the values
of its holdings. The markets for emerging country debt are relatively
illiquid. Accordingly, the fund may not be able to realize in an actual
sale amounts approximating those used to value its holdings.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding custody fees, brokerage commissions, certain
other transaction costs (including transfer taxes), shareholder service
fees and extraordinary expenses) exceed .35% of average daily net assets.
Prior to June 1, 1996, a similar waiver existed for annual expenses
exceeding .50%; thus the net annual expense ratio after the waiver for a
Class III shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997, was $2,460. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
For the six months ended August 31, 1997, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
----------------- ------------------
<S> <C> <C>
Investments (non-U.S. Government securities) $ 284,799,692 $ 352,012,908
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$385,770,167 $154,228,351 $2,033,969 $152,194,382
</TABLE>
21
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1997, 31% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from December 31, 1996
Six Months Ended (commencement of operations) to
August 31, 1997 February 28, 1997
---------------------------------- --------------------------------------
Class I: Shares Amount Shares Amount
-------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 547,047 $ 7,875,387 2,566 $ 34,101
Shares issued to shareholders in
reinvestment of
distributions 125,345 1,540,491 -- --
Shares repurchased -- -- -- --
-------------- --------------- ----------------- ----------------
Net increase 672,392 $ 9,415,878 2,566 $ 34,101
============== =============== ================= ================
<CAPTION>
Period from March 21, 1997
(commencement of operations) to
August 31, 1997
------------------------------------
Class II: Shares Amount
--------------- ----------------
Shares sold 159,652 $ 2,195,235
Shares issued to shareholders in
reinvestment of
distributions 41,907 515,038
Shares repurchased -- --
--------------- ----------------
Net increase 201,559 $ 2,710,273
=============== ================
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28, 1997
------------------------------------ ------------------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 5,703,905 $ 84,484,383 11,310,056 $ 162,038,721
Shares issued to shareholders in
reinvestment of
distributions 8,351,431 102,806,110 14,440,766 185,738,098
Shares repurchased (15,129,948) (216,174,203) (38,680,281) (548,538,602)
-------------- --------------- ---------------- ----------------
Net decrease (1,074,612) $ (28,883,710) (12,929,459) $ (200,761,783)
============== =============== ================ ================
</TABLE>
22
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
------------ ----------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Buys
9/05/97 DEM 3,600,000 $ 2,000,727 $ 70,587
9/19/97 DEM 70,000,000 38,939,987 (1,958,082)
10/31/97 FRF 76,900,000 12,731,230 101,896
9/19/97 NLG 78,767,500 38,920,497 (1,937,468)
9/02/97 THB 522,000,000 15,237,910 (70,008)
9/02/97 ZAR 7,025,000 1,495,646 (308)
9/03/97 ZAR 3,525,000 750,266 (373)
-----------------
$ (3,793,756)
=================
<CAPTION>
Sales
<S> <C> <C> <C> <C>
12/22/97 ARP 6,000,000 $ 5,983,545 $ (4,472)
1/15/98 ARP 3,000,000 2,988,197 1,340
8/11/98 ARP 7,000,000 6,983,906 (49,781)
1/09/98 BRL 4,000,000 3,536,199 6,760
10/03/97 CHF 1,000,000 676,693 (16,714)
9/05/97 DEM 39,600,000 22,007,996 1,066,574
9/19/97 DEM 70,000,000 38,939,987 1,917,979
11/20/97 ECU 6,350,000 6,957,750 (124,991)
10/31/97 FRF 725,000,000 120,027,847 (2,137,834)
10/17/97 GBP 8,600,000 13,918,320 557,200
10/09/97 JPY 3,136,000,000 26,225,443 2,027,013
9/19/97 NLG 78,767,500 38,920,497 1,977,572
9/02/97 THB 1,044,000,000 30,475,820 4,095,975
3/23/98 THB 200,000,000 5,463,983 1,468,426
6/22/98 THB 100,000,000 2,703,433 703,722
11/14/97 ZAR 17,500,000 3,653,101 3,761
-----------------
$ 11,492,530
=================
</TABLE>
23
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Short futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------- -------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
100 MATIF FRF Bond September 1997 $ 11,233,803 $ (158,292)
100 U.S. Treasury Bond September 1997 11,275,000 (41,375)
150 U.S. Treasury Bill September 1997 35,598,750 (121,475)
-----------------
$ (321,142)
=================
</TABLE>
At August 31, 1997, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
Written call option transactions
<TABLE>
<CAPTION>
Principal
Amount of
Contracts
(000's omitted) Premiums
----------------- ----------------
<S> <C> <C>
Outstanding, beginning
of period $ -- $ --
Options written 109,091 2,025,454
Options exercised (50,000) (870,000)
----------------- ----------------
Outstanding, end
of period $ 59,091 $ 1,155,454
================= ================
</TABLE>
Summary of written call options outstanding
<TABLE>
<CAPTION>
Principal
Amount of
Contracts Expiration
(000's omitted) Exercise Price Date Value
----------------- --------------- ------------------ --------------
<S> <C> <C> <C> <C>
Thai Baht $ 9,091 33 THB 10/16/97 $ 584,545
Venezuela Par Bond 50,000 $ 79.50 9/25/97 1,325,050
--------------
$ 1,909,595
==============
</TABLE>
24
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net
Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
- ---------------------- ------------ --------------------------------------------------- ---------------
<S> <C> <C> <C>
$5,000,000 9/08/97 Agreement with Morgan Guaranty Trust Company $ (311,336)
dated 8/6/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Republic
of Argentina, 11.75% due 2/12/07 and to
pay the notional amount multiplied by 1
month LIBOR adjusted by a specified
spread.
6,000,000 9/16/97 Agreement with Morgan Guaranty Trust Company 147,871
dated 6/12/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil Par ZL
Floating Rate Note 8/15/24 and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
40,000,000 9/16/97 Agreement with Morgan Guaranty Trust Company (2,489,200)
dated 3/20/97 to pay the notional amount
multiplied by the J.P. Morgan Emerging Markets
Bond Index on 9/16/97, adjusted by a specified
percentage, and to receive 3.45% per year times
the notional amount.
68,500,000 11/28/97 Agreement with Credit Suisse Financial Products 6,612,111
dated 5/23/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Ecuador PDI Floating Rate Note due 2/27/15 and to
pay a fixed amount upon termination.
30,000,000 4/24/98 Agreement with Morgan Guaranty Trust Company (1,908,258)
dated 4/24/97 to pay the notional amount
multiplied by the J.P. Morgan Emerging Markets
Bond Index on 4/24/98, adjusted by a specified
percentage, and to receive 4.78% per year times
the notional amount.
</TABLE>
25
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<S> <C> <C> <C>
$54,278,259 2/26/99 Agreement with Credit Suisse Financial Products $8,536,814
dated 2/12/97 to purchase, for a set price, a
specified amount of Bulgaria FLIRB Fixed/Floating
Rate Note Series A due July 28, 2012 and Bulgaria
FLIRB Fixed/Floating Rate Note Series B due July
28, 2012. In the event of default by Bulgaria,
the agreement to purchase the bonds is
eliminated; in its place, Credit Suisse Financial
Products acquires the option to sell the same
amount of the bonds to the Fund for a lower set
price.
TRL 550,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 135,955
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
21,500,000 5/27/01 Agreement with Credit Suisse Financial Products (1,288,434)
dated 5/21/97 to pay 4.78% per year times the
notional amount. The Fund receives payment only
upon a default event in Ecuador, the notional
amount times the difference between par value and
the then-market value of the Republic of Ecuador
PDI Floating Rate Note maturing 2/27/15.
47,000,000 5/29/01 Agreement with Credit Suisse Financial Products (2,934,926)
dated 5/23/97 to pay 3.30% per year times the
notional amount. The Fund receives payment only
upon a default event in Ecuador, the notional
amount times the difference between 60.25 and the
then-market value of the Republic of Ecuador PDI
Floating Rate Note maturing 2/27/15.
===============
Net unrealized appreciation $ 6,500,602
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
26
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 92.0%
Aerospace -- 0.1%
3,000 Boeing Company 163,313
-----------
Automotive -- 2.0%
10,000 Chrysler Corp 351,250
20,000 General Motors Corp 1,255,000
122,500 Mascotech Industries Inc 2,564,844
-----------
4,171,094
-----------
Banking and Financial Services -- 9.3%
32,500 American Express Co 2,526,875
105,000 Block (HR) Inc 4,121,249
45,000 Chase Manhattan Corp 5,003,437
30,000 Citicorp 3,828,749
15,000 PNC Bank Corp 648,750
40,000 Travelers Group Inc 2,540,000
2,500 Wells Fargo & Co 635,625
-----------
19,304,685
-----------
Chemicals -- 1.0%
20,000 Albemarle Corp 491,250
5,000 Borden Chemical & Plastics L. P. 52,188
10,000 Engelhard Corp 208,750
12,300 Georgia Gulf Corp 353,625
10,000 IMC Global Inc 351,875
10,000 Millenium Chemicals Inc 210,000
15,000 Wellman Inc 341,250
-----------
2,008,938
-----------
Computer and Office Equipment -- 0.5%
95,000 Intergraph Corp * 944,063
1 NCR Corp * 9
5,000 Silicon Graphics Inc * 137,188
-----------
1,081,260
-----------
Consumer Goods -- 4.4%
25,000 Black and Decker Corp 957,813
10,000 Burlington Industries Inc * 120,625
62,500 Eastman Kodak Co 4,085,937
15,000 Hasbro Inc 403,125
42,500 Maytag Corp 1,166,094
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Consumer Goods -- continued
100,000 Safety Kleen 2,018,750
12,500 Scotts Company, Class A * 350,000
-----------
9,102,344
-----------
Electronic Equipment -- 0.5%
50,000 International Rectifier Corp * 1,140,625
-----------
Environmental Control -- 0.3%
37,500 Wheelabrator Technology Inc 588,281
-----------
Food and Beverage -- 3.2%
35,000 Anheuser Busch Cos Inc 1,491,875
12,500 Coors (Adolph) Co 460,938
25,000 Cott Corp 239,063
5,000 Darden Restaurants Inc 50,313
42,500 Nestle SA ADR 2,477,104
50,000 RJR Nabisco Holdings Corp 1,740,625
5,000 Sara Lee Corp 201,250
-----------
6,661,168
-----------
Health Care -- 1.9%
32,500 Baxter International Inc 1,728,594
62,500 Beverly Enterprises Inc * 1,019,531
5,000 Haemonetics Corp * 91,250
5,000 Johnson & Johnson 283,438
42,500 Owens and Minor Holdings Co 576,406
15,000 Perrigo Co * 214,688
5,625 Quest Diagnostics Inc * 105,117
-----------
4,019,024
-----------
Insurance -- 5.8%
7,500 Aetna Life and Casualty Co 715,781
7,500 Allmerica Financial Corp 310,313
22,500 Allstate Corp 1,643,906
25,000 Chartwell Re Corp 856,250
2,500 Cigna Corp 458,438
127,500 Reliance Group Holdings Inc 1,561,875
50,000 Sedgwick Group ADR 500,000
125,000 TIG Holdings Inc 3,906,249
35,600 USF & G Corp 780,975
20,000 Washington National Corp 590,000
75,000 Willis Corroon Group Plc ADR 773,438
-----------
12,097,225
-----------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Machinery -- 0.9%
42,500 Cincinnati Milacron Inc 1,094,375
10,000 FMC Corp * 830,625
---------------
1,925,000
---------------
Manufacturing -- 10.7%
35,000 American Greetings Corp 1,216,250
27,500 Clayton Homes Inc 462,344
22,500 Corning Inc 1,189,688
32,500 General Electric Co 2,031,250
41,000 Griffon Corp * 574,000
46,000 IBM Corp 4,640,249
15,000 Lafarge Corp 487,500
89,500 Owens Corning 3,630,343
27,500 Rockwell International Corp 1,650,000
22,500 Tenneco Inc 1,092,656
30,000 United Technologies Corp 2,341,875
110,001 Westinghouse Electric Corp 2,832,512
---------------
22,148,667
---------------
Metals and Mining -- 1.7%
7,500 Alcan Aluminum Ltd 262,031
50,000 Allegheny Teledyne Inc 1,543,750
32,500 Amcol International Corp 552,500
7,500 Asarco Inc 230,625
10,000 Cyprus Amax Minerals Co 252,500
5,000 Newmont Mining Corp 211,563
25,000 Pittston Minerals Group 279,688
10,000 Placer Dome Inc 166,250
---------------
3,498,907
---------------
Oil and Gas -- 7.8%
10,000 Amerada Hess Corp 581,250
20,000 Cabot Oil & Gas Corp, Class A 463,750
5,000 Dresser Industries Inc 208,750
35,000 Enron Oil & Gas 844,375
37,488 Enserch Exploration Inc * 337,389
75,000 Lasmo Plc ADR 923,438
25,000 Mitchell Energy, Class A 621,875
50,300 Mitchell Energy, Class B 1,257,500
</TABLE>
See accompanying notes to the financial statements 3
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas -- continued
22,053 Monterey Resources Inc 454,843
112,500 Occidental Petroleum Corp 2,636,718
5,000 Questar Corp 200,000
50,000 Santa Fe Energy Resources Inc 553,125
5,000 Texaco Inc 576,250
5,000 Total SA 236,875
35,000 Union Texas Petroleum Holdings Inc 815,938
30,000 Unocal Corp 1,171,875
90,000 USX - Marathon Group 2,930,624
75,000 Westcoast Energy Inc 1,434,375
---------------
16,248,950
---------------
Paper and Allied Products -- 0.5%
5,000 Champion International Corp 295,938
7,500 International Paper Co 395,625
5,000 Weyerhaeuser Co 288,750
---------------
980,313
---------------
Pharmaceuticals -- 1.7%
5,000 Glaxo Wellcome Plc ADR 199,375
25,000 Lilly (Eli) & Co 2,615,625
15,000 Medpartners Inc * 320,625
10,000 Smithkline Beecham Plc 433,125
---------------
3,568,750
---------------
Primary Materials -- 0.1%
12,500 Rubbermaid Inc 312,500
---------------
Primary Processing -- 0.9%
25,000 Armco Inc * 148,438
5,000 Dow Chemical Co 442,500
10,000 Du Pont (EI) De Nemours & Co 623,125
20,000 Intermet Corp 346,250
10,000 USX-US Steel Group Inc 351,250
---------------
1,911,563
---------------
Real Estate -- 3.9%
50,000 Amli Residential Properties Trust 1,137,500
35,000 Boston Properties Inc * 1,043,439
25,000 Crown American Realty Trust 242,188
85,000 JP Realty Inc 2,093,125
25,000 Simon Debartolo Group Inc 792,188
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<C> <S> <C>
Real Estate -- continued
77,500 Summit Properties Inc 1,545,156
50,000 Walden Residential Properties Inc 1,193,750
-----------
8,047,346
-----------
Refining -- 0.4%
7,500 Ashland Inc 375,938
35,000 Quaker State Corp 542,500
-----------
918,438
-----------
Retail Trade -- 3.4%
25,000 Costco Cos Inc * 901,563
75,000 Federated Department Stores * 3,149,999
85,000 Wal Mart Stores Inc 3,017,499
-----------
7,069,061
-----------
Services -- 4.3%
20,000 Cordiant Plc ADR 112,500
37,500 Ogden Corp 869,531
15,000 Pinkertons Inc 349,688
5,000 Time Warner Inc 257,500
200,000 Waste Management Inc 6,399,999
115,000 Waste Management International PLC ADR * 934,375
-----------
8,923,593
-----------
Technology -- 8.9%
25,000 Avnet Inc 1,729,688
10,000 Bay Networks Inc * 353,750
22,500 Data General Corp * 808,594
75,000 Digital Equipment Corp * 3,224,999
15,000 G TECH Holdings Corp * 450,938
17,500 Intel Corp 1,612,188
10,000 Novell Inc * 93,750
95,000 Storage Technology Corp * 4,839,062
137,500 Tandem Computers Inc * 4,674,999
10,000 Xerox Corp 755,000
-----------
18,542,968
-----------
Telecommunications -- 6.0%
5,000 AT & T Corp 195,000
32,500 Cox Communications, Class A * 879,531
90,000 GTE Corp 4,010,624
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<C> <S> <C>
Telecommunications -- continued
5,000 Liberty Media Group, Class A 131,875
25,000 MCI Communications Corp 712,500
25,000 SBC Communications 1,359,389
50,000 Tele-Communications, Class A 875,000
47,500 US West Inc 1,701,094
125,000 US West Media Group * 2,500,000
-----------
12,365,013
-----------
Tobacco -- 0.5%
75,000 Imperial Tobacco Group Plc ADR 939,008
-----------
Transportation -- 2.1%
10,500 AMR Corp * 1,057,875
70,000 Canadian Pacific 2,043,125
7,500 Delta Air Lines Inc 648,750
10,000 Ryder System Inc 356,875
5,000 USAir Group Inc * 170,625
-----------
4,277,250
-----------
Utilities -- 9.2%
35,000 Calpine Corp * 647,500
20,000 Cinergy Corp 661,250
25,000 DPL Inc 592,188
62,500 Duke Power Co 3,027,343
10,000 Energy Group PLC ADR 404,375
60,000 Entergy Corp 1,488,750
74,963 Houston Industries Inc 1,518,001
20,900 Illinova Corp 480,700
112,500 Niagara Mohawk Power Corp * 1,005,469
10,000 Northeast Utilities 100,625
25,000 Ohio Edison Co 550,000
32,500 Pacificorp 674,375
20,000 PG & E Corp 463,750
25,000 Public Service Enterprise Group Inc 620,313
25,000 Southern Co 526,563
105,625 Texas Utilities Co 3,683,671
30,000 TransCanada Pipeline Ltd 562,500
85,000 Unicom Corp 2,008,125
-----------
19,015,498
===========
TOTAL COMMON STOCKS (COST $131,521,188) 191,030,782
-----------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 5.4%
Banking and Financial Services -- 0.1%
5,000 Time Warner Financing Convertible $.31 195,000
----------
Metals and Mining -- 0.8%
5,000 Battle Mountain Gold Convertible $3.25 249,375
50,300 Freeport McMoran Corp $0.34 1,499,569
----------
1,748,944
----------
Oil and Gas -- 0.2%
15,000 Atlantic Richfield Co Convertible 9.00% 356,250
----------
Paper and Allied Products -- 1.7%
95,000 Fort James Corp Convertible 9.00% 3,621,874
----------
Primary Processing -- 0.1%
5,000 Armco Inc Convertible $3.625 250,625
----------
Refining -- 0.8%
30,000 Unocal Corp Convertible 6.25% 144A 1,736,250
----------
Services -- 0.2%
25,000 International Technology Corp
Convertible 7.00% 481,250
----------
Telecommunications -- 0.3%
15,000 Sprint Corp Convertible 8.25% 534,375
----------
Transportation -- 1.2%
26,100 Navistar International Corp $6.00
10,000 US Air Group Inc Convertible 1,562,738
Series B $8.759 856,250
----------
2,418,988
----------
TOTAL PREFERRED STOCKS (COST $8,671,197) 11,343,556
----------
DEBT OBLIGATIONS -- 1.0%
Health Care -- 0.6%
$2,500,000 Roche Holdings Inc, 0.00% due 4/20/10 1,200,000
----------
Oil and Gas -- 0.4%
$1,000,000 Noram Energy Corp, 6.00% due 3/15/12 897,500
----------
TOTAL DEBT OBLIGATIONS (COST $1,855,832) 2,097,500
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 7.2%
Cash Equivalents -- 5.7%
$1,760,158 BankBoston Eurodollar Time Deposit, 5.7875% due
9/2/97/(a)/ 1,760,158
$ 244,891 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 244,891
$ 734,672 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 734,672
$9,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 9,000,000
-----------
11,739,721
-----------
Repurchase Agreement -- 1.5%
$3,073,181 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$3,074,906 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26
and with an aggregate market value of
$3,143,603. 3,073,181
-----------
TOTAL SHORT-TERM INVESTMENTS (COST
$14,812,902) 14,812,902
-----------
TOTAL INVESTMENTS -- 105.6%
(COST $156,861,119) 219,284,740
Other Assets and Liabilities (net) -- (5.6)% (11,555,233)
-----------
TOTAL NET ASSETS-- 100% $207,729,507
============
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
144A - Securities exempt from registration
under rule 144A of the Securities Act of 1933.
These securities may be resold in transactions
exempt from registration, normally to
qualified institutional investors.
* Non-income producing security.
/(a)/ Represents investments of security lending
collateral (Note 1).
8 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $156,861,119) (Note 1) $219,284,740
Receivable for investments sold 282,522
Dividends and interest receivable 502,920
Receivable for expenses waived or borne by Manager (Note 2) 39,356
------------
Total assets 220,109,538
------------
Liabilities:
Payable for investments purchased 447,100
Payable upon return of securities loaned (Note 1) 11,739,721
Payable to affiliate for (Note 2):
Management fee 129,427
Shareholder service fee 25,874
Accrued expenses 37,909
------------
Total liabilities 12,380,031
------------
Net assets $207,729,507
============
Net assets consist of:
Paid-in-capital $116,965,400
Accumulated undistributed net investment income 843,392
Accumulated undistributed net realized gain 27,497,094
Net unrealized appreciation 62,423,621
------------
$207,729,507
============
Net assets attributable to:
Class III shares $207,729,507
============
Shares outstanding:
Class III 11,632,360
============
Net asset value per share:
Class III $ 17.86
============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $ 2,931,866
Interest (including securities lending income of $13,586) 161,149
------------
Total income 3,093,015
------------
Expenses:
Management fee (Note 2) 847,830
Audit fees 23,484
Custodian and transfer agent fees 21,413
Registration fees 7,188
Legal fees 5,229
Trustees fees (Note 2) 1,059
Miscellaneous 629
Fees waived or borne by Manager (Note 2) (228,568)
------------
678,264
Shareholder service fee (Note 2)
Class III 169,566
------------
Net expenses 847,830
------------
Net investment income 2,245,185
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 27,845,315
------------
Net realized gain 27,845,315
------------
Change in net unrealized appreciation (depreciation) on:
Investments 2,943,114
------------
Net unrealized gain 2,943,114
------------
Net realized and unrealized gain 30,788,429
------------
Net increase in net assets resulting from operations $33,033,614
============
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,245,185 $ 4,658,349
Net realized gain 27,845,315 18,434,364
Change in net unrealized appreciation (depreciation) 2,943,114 17,227,189
------------ ------------
Net increase in net assets resulting from operations 33,033,614 40,319,902
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,339,999) (4,445,572)
------------ ------------
Total distributions from net investment income (2,339,999) (4,445,572)
------------ ------------
Net realized gains
Class III (9,663,730) (17,043,498)
------------ ------------
Total distributions from net realized gains (9,663,730) (17,043,498)
------------ ------------
(12,003,729) (21,489,070)
------------ ------------
Net share transactions: (Note 5)
Class III (45,883,602) 1,324,046
------------ ------------
Increase (decrease) in net assets resulting from net
share transactions (45,883,602) 1,324,046
------------ ------------
Total increase (decrease) in net assets (24,853,717) 20,154,878
Net assets:
Beginning of period 232,583,224 212,428,346
------------ ------------
End of period (including accumulated undistributed net
investment income of $843,392 and $938,206,
respectively) $207,729,507 $232,583,224
============ ============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82
------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.18 0.33 0.37 0.34 0.27 0.30
Net realized and unrealized gain 2.26 2.53 3.26 0.55 1.64 1.32
------- -------- ------- ------- ------- -------
Total from investment
operations 2.44 2.86 3.63 0.89 1.91 1.62
------- -------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.17) (0.32) (0.37) (0.32) (0.28) (0.30)
From net realized gains (0.74) (1.25) (0.76) (0.52) (0.85) (0.43)
------- -------- ------- ------- ------- -------
Total distributions (0.91) (1.57) (1.13) (0.84) (1.13) (0.73)
------- -------- ------- ------- ------- -------
Net asset value, end of period $ 17.86 $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71
======= ======== ======= ======= ======= =======
Total Return/(a)/ 15.31% 20.03% 29.95% 7.75% 16.78% 15.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $207,730 $232,583 $212,428 $182,871 $147,767 $62,339
Net expenses to average
daily net assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.73%
Net investment income to average
daily net assets 1.99%* 2.15% 2.61% 2.84% 2.32% 2.77%
Portfolio turnover rate 10% 25% 34% 49% 65% 83%
Average broker commission rate
per equity share/(b)/ $0.0674 $ 0.0590 N/A N/A N/A N/A
Fees and expenses voluntarily waived
or borne by the Manager consisted
of the following per share
amounts: $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.03
</TABLE>
* Annualized.
/(a)/ Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
/(b)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged.
12 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Fundamental Value Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term capital growth through investment primarily in
equity securities.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
13
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $11,260,103, collateralized by
cash in the amount of $11,739,721, which was invested in short-term
instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
14
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)--(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the six months ended August 31, 1997, the Fund received $150 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .60% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .75%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $1,059. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $21,498,027 and $83,556,415, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 156,861,119 $ 65,890,956 $ 3,467,335 $ 62,423,621
</TABLE>
15
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)--(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1997, 93% of the outstanding shares of the Fund were held by
four shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 29, 1997
----------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Shares sold 5,670 $ 100,000 7,028 $ 107,000
Shares issued to shareholders
in reinvestment of distributions 587,700 10,016,398 1,161,012 17,805,046
Shares repurchased (3,207,188) (56,000,000) (1,045,307) (16,588,000)
------------ ------------ ----------- -----------
Net increase (decrease) (2,613,818) $(45,883,602) 122,733 $ 1,324,046
============ ============= =========== ===========
</TABLE>
16
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
518,570 GMO Core Fund (Class III Shares) 10,008,400
371,774 GMO Currency Hedged International Core Fund (Class III Shares) 4,665,765
1,112,286 GMO Domestic Bond Fund (Class III Shares) 11,467,667
80,083 GMO Emerging Country Debt Fund (Class III Shares) 1,068,309
318,066 GMO Emerging Markets Fund (Class III Shares) 4,138,041
91,342 GMO Growth Fund (Class III Shares) 419,261
110,004 GMO Inflation Indexed Bond Fund (Class III Shares) 1,124,236
93,508 GMO International Bond Fund (Class III Shares) 1,018,303
206,140 GMO International Core Fund (Class III Shares) 5,040,116
38,851 GMO International Small Companies Fund (Class III Shares) 543,912
286,810 GMO REIT Fund (Class III Shares) 3,831,782
214,739 GMO Small Cap Growth Fund (Class III Shares) 2,684,238
152,344 GMO Small Cap Value Fund (Class III Shares) 2,780,272
1,271,234 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 13,424,235
105,596 GMO Value Fund (Class III Shares) 1,648,347
-----------
TOTAL MUTUAL FUNDS (COST $61,597,727) 63,862,884
-----------
SHORT-TERM INVESTMENT -- 0.0%
Repurchase Agreement -- 0.0%
$ 6,708 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $6,712 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate
market value of $6,862. 6,708
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $6,708) 6,708
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $61,604,435) 63,869,592
Other Assets and Liabilities (net) -- 0.0% (336)
-----------
TOTAL NET ASSETS-- 100% $63,869,256
===========
</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 -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $61,604,435) (Note 1) $63,869,592
Receivable for expenses waived or borne by Manager (Note 2) 16,793
------------
Total assets 63,886,385
------------
Liabilities:
Payable to affiliate for (Note 2):
Shareholder service fee 3,383
Accrued expenses 13,746
------------
Total liabilities 17,129
------------
Net assets $63,869,256
============
Net assets consist of:
Paid-in-capital $58,388,148
Accumulated undistributed net investment income 433,389
Accumulated undistributed net realized gain 2,782,562
Net unrealized appreciation 2,265,157
============
$63,869,256
============
Net assets attributable to:
Class I shares $14,107,807
============
Class II shares $34,592,428
============
Class III shares $15,169,021
============
Shares outstanding:
Class I 1,160,947
============
Class II 2,844,780
============
Class III 1,247,141
============
Net asset value per share:
Class I $ 12.15
============
Class II $ 12.16
============
Class III $ 12.16
============
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends from investment company shares $ 447,920
Interest 1,935
-----------
Total income 449,855
-----------
Expenses:
Custodian and transfer agent fees 12,191
Registration fees 8,214
Audit fees 7,576
Legal fees 786
Trustees fees (Note 2) 171
Fees waived or borne by Manager (Note 2) (28,938)
-----------
--
Shareholder service fee (Note 2)
Class I 6,619
Class II 9,847
-----------
Net expenses 16,466
-----------
Net investment income 433,389
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 104,856
Realized gain distributions from investment company shares 2,683,941
-----------
Net realized gain 2,788,797
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,491,067
-----------
Net unrealized gain 1,491,067
-----------
Net realized and unrealized gain 4,279,864
-----------
Net increase in net assets resulting from operations $4,713,253
===========
</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>
Six Months Ended Period from July 29, 1996
August 31, 1997 (commencement of operations)
(Unaudited) February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 433,389 $ 64,042
Net realized gain 2,788,797 206,668
Change in net unrealized appreciation
(depreciation) 1,491,067 774,090
----------- -----------
Net increase in net assets resulting
from operations 4,713,253 1,044,800
----------- -----------
Distributions to shareholders from:
Net investment income
Class I -- (64,042)
----------- -----------
Total distributions from net
investment income -- (64,042)
----------- -----------
In excess of net investment income
Class I -- (1,958)
----------- -----------
Total distributions in excess of
net investment income -- (1,958)
----------- -----------
Net realized gains
Class I (31,446) (48,900)
Class II (90,795) --
Class III (39,804) --
----------- -----------
Total distributions from net
realized gains (162,045) (48,900)
----------- -----------
(162,045) (114,900)
----------- -----------
Net share transactions: (Note 5)
Class I 6,467,806 6,386,281
Class II 17,216,657 13,891,398
Class III 14,426,006 --
----------- -----------
Increase in net assets resulting from
net share transactions 38,110,469 20,277,679
----------- -----------
Total increase in net assets 42,661,677 21,207,579
Net assets:
Beginning of period 21,207,579 --
----------- -----------
End of period (including accumulated
undistributed net investment income
of $433,389 and $0, respectively) $63,869,256 $21,207,579
=========== ===========
</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 each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from July 29, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
--------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.19 $10.00
-------- -------
Income from investment operations:
Net investment income (b) 0.08 0.22
Net realized and unrealized gain 0.91 1.35
-------- -------
Total from investment operations 0.99 1.57
-------- -------
Less distributions to shareholders:
From net investment income -- (0.22)
From net realized gains (0.03) (0.16)
-------- -------
Total distributions (0.03) (0.38)
-------- -------
Net asset value, end of period $ 12.15 $11.19
======== =======
Total Return/(a)/ 8.86% 15.85%
Ratios/Supplemental Data:
Net assets, end of period (000's) $14,108 $6,848
Net expenses to average daily net assets 0.13%* 0.15%*
Net investment income to average daily net
assets/(b)/ 1.83%* 2.75%*
Portfolio turnover rate 18% 33%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.03
</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)/ 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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from December 31, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $11.19 $ 10.86
------- --------
Income from investment operations:
Net investment income (b) 0.09 --
Net realized and unrealized gain 0.91 0.33
------- --------
Total from investment operations 1.00 0.33
------- --------
Less distributions to shareholders:
From net realized gains (0.03) --
------- --------
Total distributions (0.03) --
------- --------
Net asset value, end of period $12.16 $ 11.19
======= ========
Total Return/(a)/ 8.95% 3.04%
Ratios/Supplemental Data:
Net assets, end of period (000's) $34,592 $14,359
Net expenses to average daily net assets 0.07%* 0.07%*
Net investment income to average daily net
assets/(b)/ 1.84%* (0.07)%*
Portfolio turnover rate 18% 33%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.01
</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)/ 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)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from June 2, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
-------------------------
<S> <C>
Net asset value, beginning of period $ 11.56
--------
Income from investment operations:
Net investment income (b) 0.06
Net realized and unrealized gain 0.57
--------
Total from investment operations 0.63
--------
Less distributions to shareholders:
From net realized gains (0.03)
--------
Total distributions (0.03)
--------
Net asset value, end of period $ 12.16
========
Total Return (a) 5.47%
Ratios/Supplemental Data:
Net assets, end of period (000's) $15,169
Net expenses to average daily net assets 0.00%*
Net investment income to average daily net assets (b) 2.20%*
Portfolio turnover rate 18%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
</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)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 Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- -------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Balanced Allocation Fund (the "Fund"), which commenced
operations on July 29, 1996, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO Global Balanced Index, a benchmark developed by the Manager. The
Fund will pursue its objective by investing primarily in Class III shares
of domestic equity, international equity, and fixed income funds of the
Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
8
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .35% of the amount
invested. In the case of cash redemptions, the fee is .11% of the amount
redeemed. Prior to June 30, 1997, the premium on cash purchases was .31%
and the fee on cash redemptions was .03%. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the six months ended August 31, 1997 the Fund
9
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
received $89,703 in purchase premiums and no redemption fees. There is no
premium for reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $171. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $49,406,554 and $8,253,015, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C>
$ 61,604,435 $2,393,120 $127,963 $2,265,157
</TABLE>
4. Principal shareholders
At August 31, 1997, 74% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
10
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 29, 1996
Six Months Ended (commencement of operations)
Class I: August 31,1997 to February 28, 1997
-------------------------------- -------------------------------
Shares Amount Shares Amount
-------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 548,802 $ 6,466,367 601,548 $ 6,271,381
Shares issued to shareholders in
reinvestment of distributions 2,586 31,446 10,580 114,900
Shares repurchased (2,569) (30,007) -- --
-------------- -------------- ------------- ---------------
Net increase 548,819 $ 6,467,806 612,128 $ 6,386,281
============== ============== ============= ===============
<CAPTION>
Period from December 31, 1996
Six Months Ended (commencement of operations)
Class II: August 31,1997 to February 28, 1997
------------------------------- --------------------------------
Shares Amount Shares Amount
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 1,554,303 $ 17,130,385 1,283,396 $ 13,891,398
Shares issued to shareholders in
reinvestment of distributions 7,391 89,950 -- --
Shares repurchased (310) (3,678) -- --
-------------- -------------- ------------- ---------------
Net increase 1,561,384 $ 17,216,657 1,283,396 $ 13,891,398
============== ============== ============= ===============
<CAPTION>
Period from June 2, 1997
(commencement of operations)
Class III: to August 31, 1997
--------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 1,243,871 $ 14,386,202
Shares issued to shareholders in
reinvestment of distributions 3,270 39,804
Shares repurchased -- --
-------------- ----------------
Net increase 1,247,141 $ 14,426,006
============== ================
</TABLE>
11
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
670,376 GMO Core Fund (Class III Shares) 12,938,263
226,863 GMO Currency Hedged International Core Fund (Class III Shares) 2,847,129
52,761 GMO Emerging Country Debt Fund (Class III Shares) 703,832
267,529 GMO Emerging Markets Fund (Class III Shares) 3,480,549
94,703 GMO Growth Fund (Class III Shares) 434,689
76,185 GMO Inflation Indexed Bond Fund (Class III Shares) 778,613
70,313 GMO International Bond Fund (Class III Shares) 765,711
248,888 GMO International Core Fund (Class III Shares) 6,085,320
37,370 GMO International Small Companies Fund (Class III Shares) 523,180
241,385 GMO REIT Fund (Class III Shares) 3,224,903
218,595 GMO Small Cap Growth Fund (Class III Shares) 2,732,435
147,699 GMO Small Cap Value Fund (Class III Shares) 2,695,503
143,663 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 1,517,079
117,151 GMO Value Fund (Class III Shares) 1,828,732
-----------
TOTAL MUTUAL FUNDS (COST $39,270,154) 40,555,938
-----------
SHORT-TERM INVESTMENT -- 0.0%
Repurchase Agreement -- 0.0%
$ 9,636 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $9,641 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate market
value of $9,856. 9,636
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $9,636) 9,636
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $39,279,790) 40,565,574
Other Assets and Liabilities (net) -- 0.0% 3,053
-----------
TOTAL NET ASSETS -- 100% $40,568,627
===========
</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 -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $39,279,790) (Note 1) $40,565,574
Receivable for expenses waived or borne by Manager (Note 2) 16,765
-----------
Total assets 40,582,339
-----------
Liabilities:
Payable to affiliate for (Note 2):
Shareholder service fee 129
Accrued expenses 13,583
-----------
Total liabilities 13,712
-----------
Net assets $40,568,627
===========
Net assets consist of:
Paid-in-capital $36,011,348
Accumulated undistributed net investment income 235,779
Accumulated undistributed net realized gain 3,035,716
Net unrealized appreciation 1,285,784
===========
$40,568,627
===========
Net assets attributable to:
Class I shares $ 1,226,782
===========
Class III shares $39,341,845
===========
Shares outstanding:
Class I 108,248
===========
Class III 3,469,237
===========
Net asset value per share:
Class I $ 11.33
===========
Class III $ 11.34
===========
</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 -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends from investment company shares $ 235,452
Interest 748
-----------
Total income 236,200
-----------
Expenses:
Registration fees 9,818
Audit fees 8,106
Custodian and transfer agent fees 7,977
Legal fees 775
Trustees fees (Note 2) 171
Miscellaneous 168
Fees waived or borne by Manager (Note 2) (27,015)
-----------
--
Shareholder service fee (Note 2)
Class I 413
-----------
Net expenses 413
-----------
Net investment income 235,787
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 73,548
Realized gain distributions from investment company shares 3,087,507
-----------
Net realized gain 3,161,055
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 908,152
-----------
Net unrealized gain 908,152
-----------
Net realized and unrealized gain 4,069,207
-----------
Net increase in net assets resulting from operations $4,304,994
===========
</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>
Six Months Period from
Ended November 25, 1996
August 31, (commencement of
1997 operations)
(Unaudited) to February 28, 1997
--------------- -------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 235,787 $ 202,369
Net realized gain 3,161,055 672,205
Change in net unrealized appreciation
(depreciation) 908,152 377,632
----------- -----------
Net increase in net assets resulting
from operations 4,304,994 1,252,206
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (202,377)
----------- -----------
Total distributions from net
investment income -- (202,377)
----------- -----------
Net realized gains
Class I (17,980) --
Class III (644,646) (134,918)
----------- -----------
Total distributions from net
realized gains (662,626) (134,918)
----------- -----------
(662,626) (337,295)
----------- -----------
Net share transactions: (Note 5)
Class I 1,163,492 --
Class III 4,976,188 29,871,668
----------- -----------
Increase in net assets resulting from
net share transactions 6,139,680 29,871,668
----------- -----------
Total increase in net assets 9,782,048 30,786,579
Net assets:
Beginning of period 30,786,579 --
----------- -----------
End of period (including accumulated
undistributed net investment income
of $235,779 and distributions in
excess of net investment income
$8, respectively) $40,568,627 $30,786,579
=========== ===========
</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 I share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of
operations) to
August 31, 1997
(Unaudited)
--------------------------
<S> <C>
Net asset value, beginning of period $10.24
-------
Income from investment operations:
Net investment income (b) 0.04
Net realized and unrealized gain 1.24
-------
Total from investment operations 1.28
-------
Less distributions to shareholders:
From net realized gains (0.19)
-------
Total distributions (0.19)
-------
Net asset value, end of period $11.33
=======
Total Return/(a)/ 12.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,227
Net expenses to average daily net assets 0.13%*
Net investment income to average daily net assets/(b)/ 1.30%*
Portfolio turnover rate 14%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
</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 (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Six Months November 25, 1996
Ended (commencement of
August 31, 1997 operations)
(Unaudited) to February 28, 1997
--------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.30 $ 10.00
------- -------
Income from investment operations:
Net investment income (b) 0.07 0.12
Net realized and unrealized gain 1.16 0.38
------- -------
Total from investment operations 1.23 0.50
------- -------
Less distributions to shareholders:
From net investment income -- (0.12)
From net realized gains (0.19) (0.08)
------- -------
Total distributions (0.19) (0.20)
------- -------
Net asset value, end of period $ 11.34 $ 10.30
======= =======
Total Return/(a)/ 11.96% 5.09%
Ratios/Supplemental Data:
Net assets, end of period (000's) $39,342 $30,787
Net expenses to average daily net assets 0.00%* 0.00%*
Net investment income to average daily net
assets/(b)/ 1.29%* 3.21%*
Portfolio turnover rate 14% 10%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.01
</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)/ 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 (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global (U.S.+) Equity Allocation Fund (the "Fund"), which commenced
operations on November 25, 1996, is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO Global (U.S.+) Equity Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
shares of domestic equity, international equity, and fixed income funds of
the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class I and Class
III were the only active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral
7
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
declines or if the seller enters insolvency proceedings, realization of
collateral by the Fund may be delayed or limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
8
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .47% of the amount
invested. In the case of cash redemptions, the fee is .15% of the amount
redeemed. Prior to June 30, 1997, the premium on cash purchases was .42%
and the fee on cash redemptions was .05%. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the six months ended August 31, 1997, the Fund received $35,943 in
purchase premiums and $1,531 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses).
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $171. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $13,740,792 and $4,958,268, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C>
$ 39,279,790 $ 1,741,475 $ 455,691 $ 1,285,784
</TABLE>
9
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1997, 49% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
Class I: to August 31, 1997
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 106,668 $1,145,512
Shares issued to shareholders in
reinvestment of distributions 1,580 17,980
Shares repurchased -- --
--------------- ---------------
Net increase 108,248 $1,163,492
=============== ===============
<CAPTION>
Period from November 25, 1996
Six Months Ended (commencement of operations)
Class III: August 31, 1997 to February 28, 1997
-------------------------------- ---------------------------------
Shares Amount Shares Amount
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 677,223 $7,121,850 3,086,368 $30,859,765
Shares issued to shareholders in
reinvestment of distributions 16,835 191,584 -- --
Shares repurchased (213,689) (2,337,246) (97,500) (988,097)
-------------- --------------- --------------- ---------------
Net increase 480,369 $4,976,188 2,988,868 $29,871,668
=============== =============== =============== ===============
</TABLE>
10
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 95.6%
Advertising -- 0.2%
6,900 Interpublic Group Inc 336,375
-----------
Aerospace -- 0.9%
3,800 Allied Signal Inc 313,738
20,200 Raytheon Co 1,111,000
500 Teleflex Inc 15,844
4,600 Thiokol Corp 366,275
-----------
1,806,857
-----------
Automotive -- 0.4%
1,200 Bandag Inc 63,975
3,400 Borg Warner Automotive Inc 177,225
800 Breed Technologies Inc 17,000
8,650 Genuine Parts Co 267,069
4,900 Lear Corp * 224,481
-----------
749,750
-----------
Banking and Financial Services -- 6.5%
11,500 Ahmanson (HF) & Co 583,625
3,000 Alex Brown Inc 254,063
2,350 Amsouth Bancorp 98,847
7,600 BankBoston Corp 631,750
2,100 Bankers Trust New York Corp 217,875
5,800 Barnett Banks Inc 395,125
5,996 Bear Stearns Inc 237,223
5,200 Beneficial Corp 372,125
17,200 Charles Schwab & Co Inc 729,925
5,900 Chase Manhattan Corp 656,006
4,900 City National Corp 136,894
2,001 Comdisco Inc 54,395
1,000 Credit Acceptance Corp * 14,125
10,000 Dime Bancorp Inc 193,125
7,100 Edwards (AG) Inc 282,225
900 Fleet Financial Group Inc 57,994
6,800 Franklin Resources Inc 526,150
1,900 Golden State Bancorp * 54,863
2,500 Greenpoint Financial Corp 153,906
8,800 Hibernia Corporation, Class A 133,650
700 John Nuveen and Co Inc, Class A 21,306
500 Liberty Financial Cos 24,781
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Banking and Financial Services -- continued
8,300 MGIC Investment Corp 417,594
27,900 Morgan Stanley Dean Witter Discover & Co 1,342,688
3,000 Paine Webber Group Inc 115,313
2,200 Peoples Heritage Finance Group Inc 81,950
9,500 PNC Bank Corp 410,875
600 Popular Inc 25,950
8,600 Providian Financial Corp 320,350
7,300 Rowe (T) Price & Associates Inc 401,500
800 Sunamerica Inc 43,100
53,197 Travelers Group Inc 3,378,010
180 Washington Federal Inc 4,905
8,300 Washington Mutual Inc 496,963
--------------
12,869,176
--------------
Chemicals -- 0.8%
300 Betzdearborn Inc 19,556
5,600 Great Lakes Chemical Corp 260,400
2,300 Lubrizol Corp 100,769
10,900 Morton International Inc 362,425
5,800 Praxair Inc 309,938
2,900 Scherer (RP) Corp * 163,306
9,300 Sherwin Williams Co 255,169
8,900 Wellman Inc 202,475
--------------
1,674,038
--------------
Computer and Office Equipment -- 8.0%
113,500 Compaq Computer Corp 7,434,250
33,700 EMC Corp * 1,729,231
22,700 Gateway 2000 Inc 888,138
32,600 Hewlett Packard Co 1,998,788
5,000 Lexmark International Group Inc * 175,000
37,500 Micron Technology Inc * 1,671,094
25,600 Quantum Corp 897,600
9,300 Silicon Graphics Inc * 255,169
5,400 Stratus Computer Inc * 299,700
10,600 Western Digital Corp 510,125
--------------
15,859,095
--------------
Construction -- 0.3%
11,900 Home Depot Inc 561,531
1,300 McDermott International Inc 41,925
--------------
603,456
--------------
</TABLE>
2 See accompanying notes to financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Consumer Goods -- 5.5%
1,500 Avon Products Inc 96,094
1,400 Block Drug Co Inc, Class A 66,500
18,600 Callaway Golf Co 626,588
3,300 Clorox Co 433,125
18,600 Colgate-Palmolive Co 1,167,150
3,200 Department 56 Inc * 87,400
6,700 Eastman Kodak Co 438,013
5,200 First Brands Corp 129,675
6,900 Fortune Brands Inc 237,188
2,400 Hasbro Inc 64,500
2,200 Hon Industries Inc 128,700
11,400 Jones Apparel Group Inc 572,138
2,100 Kinetic Concepts Inc 38,588
5,300 Kohls Corp * 365,369
4,700 Lancaster Colony Corp 243,519
4,200 Liz Claiborne Inc 187,163
12,300 Miller Herman Inc 636,525
11,400 Newell Co 448,875
8,100 Nike Inc, Class B 432,338
1,000 Nine West Group Inc * 42,250
17,200 Procter and Gamble Co 2,288,675
8,600 Reebok International Ltd 377,863
8,500 Russell Corp 242,250
8,900 Sunbeam Corp 391,600
3,300 Technology Data Corp * 128,494
6,300 Terra Industries Inc 84,263
6,900 Unifi Inc 264,788
7,300 VF Corp 645,138
3,400 Wallace Computer Services 105,400
--------------
10,970,169
--------------
Electronic Equipment -- 5.3%
1,800 3 Com Corp * 89,888
6,400 Adaptec Inc 307,200
7,000 ADC Telecommunications Inc 259,875
14,100 Altera Corp 750,825
31,700 American Power Conversion Corp * 832,125
200 Andrew Corp 4,975
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Electronic Equipment -- continued
2,400 Atmel Corp * 84,900
14,800 Cypress Semiconductor Corp * 262,700
7,100 Dallas Semiconductor Corp 272,019
200 Diebold Inc 9,275
700 Hubbell Inc, Class B 32,113
900 Integrated Device Technology Inc * 12,263
4,100 Lattice Semiconductor Corp * 261,119
10,100 Linear Technology Corp 662,181
3,400 Litton Industries * 169,575
5,900 LSI Logic * 189,906
12,600 Maxim Integrated Products Inc * 870,975
11,000 Microchip Technology Inc 444,813
4,900 Molex Inc 191,713
37,600 Motorola Inc 2,758,900
3,200 Perkin Elmer Corp 236,800
13,100 Read Rite Corp * 375,806
1,700 Sanmina Corp * 134,725
2,700 Tellabs Inc 161,156
6,400 Texas Instruments 727,200
4,400 Vishay Intertechnology Inc 117,425
5,400 Xilinx Inc * 256,500
--------------
10,476,952
--------------
Environmental Control -- 0.1%
15,900 Wheelabrator Technology Inc 249,431
--------------
Food and Beverage -- 5.7%
7,471 Archer Daniels Midland Co 161,555
131,100 Coca Cola Co 7,513,669
36,900 Coca Cola Enterprises Inc 1,014,750
8,900 CPC International Inc 793,213
1,200 Darden Restaurants Inc 12,075
400 Dean Foods Co 17,750
6,700 Flowers Industries Inc 123,950
6,300 IBP Inc 144,506
6,000 Pepsico Inc 216,000
11,500 RJR Nabisco Holdings Corp 400,344
2,400 Sara Lee Corp 96,600
3,700 Smith Food and Drug Center, Class B * 202,575
2,500 Unilever NV ADR 503,125
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Food and Beverage -- continued
1,500 Universal Corp 54,563
7,600 Whitman Corp 186,200
--------------
11,440,875
--------------
Health Care -- 4.8%
3,400 Bard (CR) 117,300
2,700 Beckman Instruments Inc 127,069
3,800 Becton Dickinson & Co 182,163
26,500 BioMet Inc 549,875
9,950 Cardinal Health Inc 659,188
67,600 Columbia HCA Healthcare Corp 2,133,625
1,400 Forest Laboratories Inc * 57,488
10,400 Health Care & Retirement * 378,950
3,600 Hillenbrand Industries Inc 158,175
32,700 Johnson & Johnson 1,853,681
4,100 Laboratory Corporation America Holdings 10,763
7,500 Lincare Holdings Inc * 357,656
9,400 Mallinckrodt Inc 341,925
2,300 Marquette Medical Systems, Class A * 59,513
6,500 McKesson Corp 608,969
8,500 Novacare Corp * 128,031
7,500 Perrigo Co * 107,344
7,800 Sofamor Denek Group Inc * 373,913
6,800 Stryker Corp 271,575
4,695 Tenet Healthcare Corp * 127,939
7,500 United States Surgical Corp 247,031
5,500 Universal Health Services, Class B * 240,969
6,300 Vencor Inc * 252,788
4,100 Wellpoint Health Network * 222,938
--------------
9,568,868
--------------
Insurance -- 3.5%
12,900 AFLAC Corp 710,306
2,800 AMBAC Inc 226,275
3,400 American Bankers Insurance Group 224,400
600 American International Group Inc 56,625
1,800 American National Insurance Co 174,600
17,600 Conseco Inc 756,800
600 Equitable of Iowa Cos 39,075
10,900 Foundation Health Systems * 346,756
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investment -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Insurance -- continued
2,300 Fremont General Corp 91,713
2,100 Horace Mann Educators Corp 114,713
9,800 Loews Corp 998,988
5,000 MBIA Inc 566,250
1 Pacificare Health Systems, Class A * 53
1,396 Pacificare Health Systems, Class B * 95,452
7,900 Progressive Corp 782,100
2,300 Reliastar Financial Corp 171,925
12,800 Saint Paul Cos Inc 939,200
11,800 Torchmark Corp 444,713
3,900 Transatlantic Holding Inc 275,681
--------------
7,015,625
--------------
Machinery -- 2.5%
35,800 Applied Materials Inc * 3,378,625
1,300 Donaldson Co Inc 58,013
8,500 Lam Research Corp * 480,250
300 Nordson Corp 17,325
5,700 Novellus System Inc * 653,363
14,800 Oakley Inc 180,375
1,600 Smith International Inc * 116,400
800 Tecumseh Products Co, Class B 43,200
2,500 US Filter Corp * 90,000
--------------
5,017,551
--------------
Manufacturing -- 3.4%
9,400 American Greetings Corp 326,650
2,600 Corning Inc 137,475
5,500 Crane Co 242,688
40,046 Gillette Co 3,316,309
400 IBM Corp 40,350
9,300 Leggett & Platt Inc 399,900
15,700 Owens Illinois Inc * 546,556
6,200 Trinity Industries Inc 246,450
20,000 Tyco International Ltd * 1,568,750
--------------
6,825,128
--------------
Metals and Mining -- 0.1%
6,600 Timken Co 247,088
--------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas -- 2.8%
6,500 Apache Corp 257,969
8,800 Atlantic Richfield Co 660,000
400 BJ Services Co * 28,900
900 Columbia Natural Gas Systems Inc 59,400
4,800 El Paso Natural Gas Co 270,000
1 Enserch Exploration Inc * 3
100 FINA Inc, Class A 6,600
2,100 National Fuel Natural Gas Co 93,319
2,600 Pennzoil Co 200,688
6,800 Phillips Petroleum Co 323,425
1,400 Pioneer Natural Resources Co * 55,913
10,000 Santa Fe Energy Resources Inc 110,625
7,100 Schlumberger Ltd 540,931
8,200 Sonat Inc 408,463
2,000 Texaco Inc 230,500
11,400 Union Pacific Resources Group 285,000
4,800 Union Texas Petroleum Holdings Inc 111,900
15,400 Unocal Corp 601,563
36,100 USX - Marathon Group 1,175,506
5,000 Williams Co Inc 232,813
-----------
5,653,518
-----------
Paper and Allied Products -- 0.1%
900 Plum Creek Timber Co Limited Partnership 29,981
4,800 Sonoco Products Co 156,300
-----------
186,281
-----------
Pharmaceuticals -- 7.5%
76,204 Abbott Laboratories 4,567,477
1,200 Agouron Pharmaceuticals Inc 52,800
4,400 Allergan Inc 142,450
2,000 Barr Laboratories Inc 78,500
8,725 Bergen Brunswig Corp, Class A 366,450
2,900 Bristol Myers Squibb Co 220,400
3,600 General Nutrition Cos Inc * 99,900
7,100 Immnunex Corp * 310,625
4,230 Mark IV Industries Inc 106,279
20,600 Merck & Co Inc 1,891,338
68,212 Pfizer Inc 3,777,240
24,500 Schering Plough Corp 1,176,000
16,300 Warner Lambert Co 2,071,119
-----------
14,860,578
-----------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Primary Materials -- 0.4%
1,100 EVI Inc 57,819
7,600 Premark International Inc 226,100
8,700 Rubbermaid Inc 217,500
1,800 Tupperware Corp 60,413
2,200 Vulcan Materials Co 193,325
-----------
755,157
-----------
Printing and Publishing -- 0.2%
1,100 Central Newspapers, Class A 74,869
700 Pulitzer Publishing Co 36,794
700 Washington Post Co, Class B 294,525
-----------
406,188
-----------
Real Estate -- 0.0%
900 Lennar Corp 33,638
-----------
Refining -- 0.3%
14,700 Tosco Corp 486,019
3,600 Valero Energy Corp 119,925
-----------
605,944
-----------
Retail Trade -- 7.4%
31,300 Albertsons Inc 1,075,938
24,600 American Stores Co 582,713
19,300 Autozone Inc * 545,225
5,600 Bed, Bath & Beyond Inc * 173,600
1,100 Blair Corp 17,325
800 Circuit City Stores Inc 28,500
187 Consolidated Stores Corp 7,001
35,000 Costco Cos Inc * 1,262,188
700 Dayton Hudson Corp 39,900
15,775 DG Corp 653,677
3,300 Dillards Department Stores Inc 132,000
21,500 Food Products Lion Inc 155,875
11,700 Fruit of the Loom Inc * 312,975
24,200 Gap Inc 1,075,388
2,700 Hannaford Brothers Co 91,800
3,200 Kmart Corp * 44,400
7,900 Limited Inc 179,725
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
800 Macfrugals Bargains Close Outs Inc * 21,800
1,800 Meyer Fred Inc * 93,600
2,000 Pep Boys, Manny, Moe & Jack 53,000
6,400 Rite Aid Corp 320,400
4,500 Ross Stores Inc 132,188
36,363 Safeway Inc * 1,852,215
3,800 Southland Corp * 10,806
800 Stanhome Inc 26,000
3,600 Tandy Corp 238,950
3,200 TJX Cos Inc 88,000
11,900 Toys R Us Inc * 411,294
1,800 Value City Department Stores Inc * 14,400
141,100 Wal Mart Stores Inc 5,009,050
500 Weismarkets Inc 16,875
-----------
14,666,808
-----------
Services -- 2.6%
600 BHC Communications Inc, Class A 73,650
2,800 Catalina Marketing Corp * 129,675
3,300 Cintas Corp 230,175
1,000 Circus Circus Enterprises Inc * 23,938
35,600 Disney Walt Co 2,734,525
3,300 Fleming Cos Inc 62,288
300 Kingworld Productions Inc 11,925
5,500 Robert Half International Inc * 321,063
9,450 Servicemaster Industry Inc 240,384
9,700 Supervalu Inc 380,725
1,100 Total System Services Inc 25,781
25,900 Waste Management Inc 828,800
7,000 Wolverine World Wide 154,875
-----------
5,217,804
-----------
Technology -- 19.2%
3,500 Acxiom Corp 62,125
12,400 Adobe Systems Inc 488,250
18,200 Advanced Micro Devices Inc * 681,363
9,500 America Online Inc * 612,750
7,000 Autodesk Inc 306,250
7,400 Avnet Inc 511,988
3,500 Bay Networks Inc * 123,813
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
11,500 BMC Software Inc 720,188
18,400 Cisco Systems Inc * 1,386,900
6,300 Cognex Corp * 240,975
15,000 Compuware Corp 926,250
57,600 Dell Computer Corp 4,726,800
3,100 Fiserv Inc * 139,500
5,800 Grainger (WW) Inc 515,113
124,700 Intel Corp 11,487,988
2,800 Keane Inc 164,500
7,500 KLA Instruments Corp * 531,563
79,300 Microsoft Corp 10,482,469
26,700 Oracle Corp 1,017,938
2,850 Paychex Inc 97,613
36,100 Seagate Technology Corp 1,378,569
700 Solectron Corp 29,313
16,800 Storage Technology Corp * 855,750
2,400 Sungard Data Systems Inc * 125,100
4,700 Symantec * 113,094
9,600 Teradyne Inc * 534,600
-----------
38,260,762
-----------
Telecommunications -- 2.6%
67,600 AT & T Corp 2,636,400
400 Century Telephone 14,525
1,700 Comsat Corp 36,869
16,900 MCI Communications Corp 481,650
1 SBC Communications 43
26,700 Sprint Corp 1,254,900
27,400 Worldcom Inc * 820,288
-----------
5,244,675
-----------
Tobacco -- 2.8%
127,384 Philip Morris Cos Inc 5,557,127
-----------
Transportation -- 1.5%
14,000 Burlington Northern Santa Fe Railroad Co 1,283,625
14,600 CSX Corp 834,938
10,100 Federal Express Corp 671,019
2,200 Gatx Corp 137,638
-----------
2,927,220
-----------
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/ Description
Shares Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Utilities -- 0.2%
800 Brooklyn Union Natural Gas Co 24,150
6,868 Citizens Utilities, Class B 57,520
1,100 Coastal Corp 63,525
1,918 Houston Industries Inc 38,846
4,800 MCN Corp 147,300
3,300 Natural Gas Clearinghouse 54,038
1,600 Nicor Inc 58,100
1,994 PG & E Corp 46,245
193 Texas Utilities Co 6,674
------------
496,398
------------
TOTAL COMMON STOCKS (COST $146,796,290) 190,582,532
------------
SHORT-TERM INVESTMENTS -- 19.8%
Cash Equivalents -- 16.2%
$9,322,164 BankBoston Eurodollar Time Deposit, 5.7875% due
9/2/97/(a)/ 9,322,164
$675,605 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due
9/2/97/(a)/ 675,605
$3,426,816 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 3,426,816
9,962,992 Merrimac Cash Fund Premium Class/(a)/ 9,962,992
$9,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 9,000,000
------------
32,387,577
------------
U.S. Government -- 0.3%
$700,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 691,389
------------
Repurchase Agreement -- 3.3%
$6,499,364 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$6,503,010 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26
and with an aggregate market value of
$6,648,297. 6,499,364
------------
TOTAL SHORT-TERM INVESTMENTS (COST $39,577,981) 39,578,330
------------
TOTAL INVESTMENTS -- 115.4%
(COST $186,374,271) 230,160,862
Other Assets and Liabilities (net) -- (15.4)% (30,787,144)
------------
TOTAL NET ASSETS -- 100% $199,373,718
============
</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)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
/(a)/ Represents investments of security lending collateral
(Note 1).
/(b)/ Security has been segregated to cover margin requirements on
open financial futures contracts.
12 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $186,374,271) (Note 1) $230,160,862
Receivable for investments sold 4,381,246
Dividends and interest receivable 133,898
Receivable for open swap contracts (Notes 1 and 6) 954,089
Receivable for variation margin on open futures contracts (Notes 1 and 6) 19,864
Receivable for expenses waived or borne by Manager (Note 2) 40,588
------------
Total assets 235,690,547
------------
Liabilities:
Payable for investments purchased 3,344,774
Payable upon return of securities loaned (Note 1) 32,387,577
Payable for Fund shares repurchased 434,023
Payable to affiliate for (Note 2):
Management fee 85,104
Shareholder service fee 25,938
Accrued expenses 39,413
------------
Total liabilities 36,316,829
------------
Net assets $199,373,718
============
Net assets consist of:
Paid-in-capital $135,699,182
Accumulated undistributed net investment income 208,375
Accumulated undistributed net realized gain 18,895,325
Net unrealized appreciation 44,570,836
------------
$199,373,718
============
Net assets attributable to:
Class III shares $199,373,718
============
Shares outstanding:
Class III 43,449,109
============
Net asset value per share:
Class III $ 4.59
============
</TABLE>
See accompanying notes to financial statements. 13
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends $ 977,303
Interest (including securities lending income of $13,884) 352,632
-----------
Total income 1,329,935
-----------
Expenses:
Management fee (Note 2) 511,712
Custodian and transfer agent fees 42,832
Audit fees 23,426
Legal fees 4,950
Trustees fees (Note 2) 983
Registration fees 288
Miscellaneous 615
Fees waived or borne by Manager (Note 2) (247,076)
-----------
337,730
Shareholder service fee (Note 2)
Class III 153,920
-----------
Net expenses 491,650
-----------
Net investment income 838,285
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 18,299,867
Closed futures contracts 1,347,258
Closed swap contracts (2,260,246)
-----------
Net realized gain 17,386,879
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 16,173,086
Open futures contracts 138,001
Open swap contracts 2,603,610
-----------
Net unrealized gain 18,914,697
-----------
Net realized and unrealized gain 36,301,576
-----------
Net increase in net assets resulting from operations $37,139,861
===========
</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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 838,285 $ 3,964,241
Net realized gain 17,386,879 108,934,644
Change in net unrealized appreciation (depreciation) 18,914,697 (50,479,915)
------------ ------------
Net increase in net assets resulting from operations 37,139,861 62,418,970
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (1,298,039) (4,363,604)
------------ ------------
Total distributions from net investment income (1,298,039) (4,363,604)
------------ ------------
Net realized gains
Class III (50,944,575) (77,849,380)
------------ ------------
Total distributions from net realized gains (50,944,575) (77,849,380)
------------ ------------
(52,242,614) (82,212,984)
------------ ------------
Net share transactions: (Note 5)
Class III (29,706,961) (127,388,467)
------------ ------------
Decrease in net assets resulting from net share
transactions (29,706,961) (127,388,467)
------------ ------------
Total decrease in net assets (44,809,714) (147,182,481)
Net assets:
Beginning of period 244,183,432 391,365,913
------------ ------------
End of period (including accumulated undistributed net investment
income of $208,375 and $668,129, respectively) $199,373,718 $244,183,432
============ ============
</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>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82
------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.03 0.07 0.08 0.06 0.06 0.07
Net realized and
unrealized gain 0.90 1.03 1.54 0.38 0.11 0.17
------- -------- ------- ------- ------- -------
Total from
investment operations 0.93 1.10 1.62 0.44 0.17 0.24
------- -------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income (0.04) (0.08) (0.07) (0.06) (0.06) (0.08)
From net realized gains (1.48) (1.49) (0.35) (0.07) (0.52) (1.43)
------- -------- ------- ------- ------- -------
Total distributions (1.52) (1.57) (0.42) (0.13) (0.58) (1.51)
------- -------- ------- ------- ------- -------
Net asset value, end
of period $ 4.59 $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55
======= ======== ======= ======= ======= =======
Total Return /(a)/ 20.20% 21.64% 37.77% 10.86% 4.13% 3.71%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $199,374 $244,183 $391,366 $239,006 $230,698 $168,143
Net expenses to average
daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to
average daily net assets 0.82%* 1.21% 1.54% 1.50% 1.38% 1.15%
Portfolio turnover rate 25% 100% 76% 139% 57% 36%
Average broker commission
rate per equity share /(c)/ $0.0277 $ 0.0281 N/A N/A N/A N/A
Fees and expenses voluntarily
waived or borne by the
Manager consisted of
the following per
share amounts: $ 0.01 $ 0.01 (b) (b) (b) (b)
</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.
* Annualized.
16 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term growth of capital through investment of
substantially all of its assets in common stocks chosen from the Wilshire
5000 Index and primarily in the equity securities of companies chosen from
among the 1,200 companies with the largest equity capitalization whose
securities are listed on a United States national securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S.
17
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $31,324,576, collateralized by
cash in the amount of $32,387,577, which was invested in short-term
instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform, or that
18
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
there may be unfavorable changes in the price of the security or index
underlying these transactions. See Note 6 for a summary of all open swap
agreements as of August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .17% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the six months ended August 31, 1997, the
Fund
19
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
received $345 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding
.48%; thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the year ended February 28, 1997 was $983. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $48,724,067 and $115,423,000, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
$186,374,271 $46,239,035 $2,452,444 $43,786,591
</TABLE>
4. Principal shareholders
At August 31, 1997, 70% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
20
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 28, 1997
------------------------------ --------------------------------
Shares Amount Shares Amount
------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 83,220 $ 428,959 2,041,337 $ 11,235,177
Shares issued to shareholders
in reinvestment of
distributions 12,178,950 52,068,328 15,334,132 78,162,104
Shares repurchased (15,948,801) (82,204,248) (39,536,755) (216,785,748)
------------- -------------- -------------- ---------------
Net decrease (3,686,631) $ (29,706,961) (22,161,286) $ (127,388,467)
============= ============== ============== ===============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ---------------- --------------------- -----------------
<S> <C> <C> <C> <C>
11 S&P 500 September 1997 $4,967,050 $ 169,844
=================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Appreciation
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
$ 11,821,545/ 9/19/97 Agreement with Morgan Stanley Capital $ 370,084
10,497,940 Services, Inc. dated September 19, 1996
to pay (receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread and to receive
(pay) the counterparty's notional
amount multiplied by the return on the
</TABLE>
21
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Appreciation
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
Russell 2000 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread.
$ 10,131,000/ 6/23/98 Agreement with Morgan Stanley Capital 584,005
10,131,000 Services, Inc. dated 6/23/97 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to receive (pay)
the counterparty's notional amount
multiplied by the return on the
Russell 2000 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread.
================
Net unrealized appreciation $ 954,089
================
</TABLE>
22
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
79,168 GMO Emerging Country Debt Fund (Class III Shares) 1,056,099
1,140,572 GMO Emerging Markets Fund (Class III Shares) 14,838,841
92,004 GMO Evolving Countries Fund (Class III Shares) 920,040
61,817 GMO Inflation Indexed Bond Fund (Class III Shares) 631,768
137,149 GMO International Bond Fund (Class III Shares) 1,493,553
2,379,808 GMO International Core Fund (Class III Shares) 58,186,308
209,313 GMO International Small Companies Fund (Class III Shares) 2,930,383
59,956 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 633,131
-----------
TOTAL MUTUAL FUNDS (COST $80,983,197) 80,690,123
-----------
SHORT-TERM INVESTMENT -- 0.7%
Repurchase Agreement -- 0.7%
$ 686,374 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $686,759 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate
market value of $702,102. 686,374
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $686,374) 686,374
-----------
TOTAL INVESTMENTS -- 100.8%
(Cost $81,669,571) 81,376,497
Other Assets and Liabilities (net)-- (0.8)% (671,441)
-----------
TOTAL NET ASSETS-- 100% $80,705,056
===========
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $80,983,197) (Note 1) $81,376,497
Cash 259,787
Receivable for expenses waived or borne by Manager (Note 2) 20,366
-----------
Total assets 81,656,650
-----------
Liabilities:
Payable for investments purchased 935,000
Payable to affiliate for (Note 2):
Shareholder service fee 1,224
Accrued expenses 15,370
-----------
Total liabilities 951,594
-----------
Net assets $80,705,056
===========
Net assets consist of:
Paid-in-capital $78,662,307
Accumulated undistributed net investment income 488,180
Accumulated undistributed net realized gain 1,161,269
Net unrealized appreciation 393,300
===========
$80,705,056
===========
Net assets attributable to:
Class I shares $ 5,274,602
===========
Class II shares $16,131,335
===========
Class III shares $59,299,119
===========
Shares outstanding:
Class I 491,118
===========
Class II 1,502,898
===========
Class III 5,523,149
===========
Net asset value per share:
Class I $ 10.74
===========
Class II $ 10.73
===========
Class III $ 10.74
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends from investment company shares $ 494,241
Interest 551
----------
Total income 494,792
----------
Expenses:
Custodian and transfer agent fees 14,522
Registration fees 13,307
Audit fees 7,925
Legal fees 955
Trustees fees (Note 2) 181
Miscellaneous 168
Fees waived or borne by Manager (Note 2) (37,058)
----------
--
Shareholder service fee (Note 2)
Class I 997
Class II 5,615
----------
Net expenses 6,612
----------
Net investment income 488,180
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (196,563)
Realized gain distributions from investment company shares 1,363,912
----------
Net realized gain 1,167,349
----------
Change in net unrealized appreciation (depreciation) on:
Investments (162,551)
----------
Net unrealized loss (162,551)
----------
Net realized and unrealized gain 1,004,798
----------
Net increase in net assets resulting from operations $1,492,978
==========
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from October 11, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
--------------- ---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 488,180 $ 258,062
Net realized gain 1,167,349 831,547
Change in net unrealized appreciation
(depreciation) (162,551) 555,851
------------ ------------
Net increase in net assets resulting
from operations 1,492,978 1,645,460
------------ ------------
Distributions to shareholders from:
Net investment income
Class I -- --
Class II -- (98,709)
Class III -- (159,298)
------------ ------------
Total distributions from net
investment income -- (258,007)
------------ ------------
Net realized gains
Class I (22,318) --
Class II (175,525) (44,198)
Class III (524,314) (71,327)
------------ ------------
Total distributions from net
realized gains (722,157) (115,525)
------------ ------------
(722,157) (373,532)
------------ ------------
Net share transactions: (Note 5)
Class I 5,337,667 --
Class II 175,525 15,022,907
Class III 28,472,141 29,654,067
------------ ------------
Increase in net assets resulting from
net share transactions 33,985,333 44,676,974
------------ ------------
Total increase in net assets 34,756,154 45,948,902
Net assets:
Beginning of period 45,948,902 --
------------ ------------
End of period (including accumulated
undistributed net investment income
of $488,180 and $0, respectively) $ 80,705,056 $ 45,948,902
============ ============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 1, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
----------------------------
<S> <C>
Net asset value, beginning of period $10.17
------
Income from investment operations:
Net investment income/(b)/ 0.07+
Net realized and unrealized gain 0.62
------
Total from investment operations 0.69
------
Less distributions to shareholders:
From net realized gains (0.12)
------
Total distributions (0.12)
------
Net asset value, end of period $10.74
======
Total Return/(a)/ 6.70%
Ratios/Supplemental Data:
Net assets, end of period (000's) $5,275
Net expenses to average daily net assets 0.13%*
Net investment income to average daily net assets (b) 1.79%*
Portfolio turnover rate 9%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
</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.
+ Computed using average shares outstanding throughout the period.
* 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 II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from December 23, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $10.41 $ 10.10
------- -------
Income from investment operations:
Net investment income/(b)/ 0.08+ --
Net realized and unrealized gain 0.36 0.41
------- -------
Total from investment operations 0.44 0.41
------- -------
Less distributions to shareholders:
From net investment income -- (0.07)
From net realized gains (0.12) (0.03)
------- -------
Total distributions (0.12) (0.10)
------- -------
Net asset value, end of period $ 10.73 $ 10.41
======= =======
Total Return/(a)/ 4.24% 4.07%
Ratios/Supplemental Data:
Net assets, end of period (000's) $16,131 $15,490
Net expenses to average daily net assets 0.07%* 0.07%*
Net investment income to average daily net
assets/(b)/ 1.43%* (0.07)%*
Portfolio turnover rate 9% 0%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 /(c)/
</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)/Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
+ Computed using average shares outstanding throughout the period.
* Annualized.
/(c)/Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from October 11, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.41 $ 10.00
------- -------
Income from investment operations:
Net investment income/(b)/ 0.09+ 0.10
Net realized and unrealized gain 0.36 0.41
------- -------
Total from investment operations 0.45 0.51
------- -------
Less distributions to shareholders:
From net investment income -- (0.07)
From net realized gains (0.12) (0.03)
------- -------
Total distributions (0.12) (0.10)
------- -------
Net asset value, end of period $ 10.74 $ 10.41
======= =======
Total Return/(a)/ 4.24% 5.11%
Ratios/Supplemental Data:
Net assets, end of period (000's) $59,299 $30,459
Net expenses to average daily net assets 0.00%* 0.01%*
Net investment income to average daily net
assets/(b)/ 1.81%* 3.60%*
Portfolio turnover rate 9% --
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.01
</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)/Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Equity Allocation Fund (the "Fund"), which commenced
operations on October 11, 1996, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the Morgan Stanley Capital International Europe, Australian and Far East
Index. The Fund will pursue its objective by investing primarily in Class
III shares of international equity and fixed income funds of the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
8
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .80% of the amount
invested. In the case of cash redemptions, the fee is .11% of the amount
redeemed. Prior to June 30, 1997, the fee on cash redemptions was .10%. All
purchase premiums and redemption fees are paid to and recorded as paid-in
capital by the
9
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Fund. For the six months ended August 31, 1997, the Fund received $209,010
in purchase premiums and $4,300 in redemption fees. There is no premium
for reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 1997 was $181. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended August 31, 1997, aggregated
$40,123,341 and $5,032,000, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
$80,983,197 $1,629,371 $1,236,071 $393,300
</TABLE>
4. Principal shareholders
At August 31, 1997, 43% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
10
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from April 1, 1997
(commencement of operations)
Class I: to August 31, 1997
-----------------------------------
Shares Amount
--------------- ----------------
<S> <C> <C>
Shares sold 489,162 $ 5,315,349
Shares issued to shareholders in
reinvestment of distributions 1,956 22,318
Shares repurchased -- --
--------------- ----------------
Net increase 491,118 $ 5,337,667
=============== ================
<CAPTION>
Six Months Ended
Class II: August 31, 1997
----------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold -- $ --
Shares issued to shareholders in
reinvestment of distributions 15,397 175,525
Shares repurchased -- --
--------------- ---------------
Net increase 15,397 $ 175,525
=============== ===============
<CAPTION>
Period from December 23, 1996
(commencement of operations)
Class II: to February 28, 1997
----------------------------------
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
=============== ===============
</TABLE>
11
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions -- (Continued)
<TABLE>
<CAPTION>
Six Months Ended
Class III: August 31, 1997
--------------------------------------
Shares Amount
----------------- -------------------
<S> <C> <C>
Shares sold 2,969,431 $ 32,243,187
Shares issued to shareholders in
reinvestment of distributions 45,952 524,314
Shares repurchased (417,442) (4,295,360)
----------------- -------------------
Net increase 2,597,941 $ 28,472,141
================= ===================
<CAPTION>
Period from October 11, 1996
(commencement of operations)
Class III: to February 28, 1997
--------------------------------------
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>
12
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS -- 97.4%
Apartments -- 15.3%
32,400 Ambassador Apartments Inc 720,900
33,900 AMLI Residential Properties Trust 771,225
60,700 Apartment Investment & Management Co, Class A 1,968,956
22,200 Associated Estates Realty Capital 503,663
87,700 Avalon Properties Inc 2,461,081
98,300 Bay Apartment Communities Inc 3,655,531
71,000 Berkshire Realty Co 803,188
88,900 BRE Properties Inc 2,394,744
112,804 Camden Property Trust 3,327,718
39,000 Columbus Realty Trust 884,813
300,025 Equity Residential Properties Trust 14,607,442
49,000 Evans Withycombe Residential 1,166,813
59,400 Gables Residential Trust 1,562,963
71,400 Irvine Apartment Communities 2,043,825
101,600 Merry Land & Investment Co 2,209,800
26,500 Mid America Apartment Community 727,094
38,900 Oasis Residential Inc 909,288
44,500 Post Properties Inc 1,660,406
110,200 Security Capital Atlantic 2,486,388
38,400 Security Capital Atlantic (Rights) 599
397,275 Security Capital Industry (Rights) 3,099
314,500 Security Capital Pacific (Rights) 4,906
297,000 Security Capital Pacific Trust 6,478,313
20,800 Smith (Charles E) Residential 634,400
55,900 Summit Properties Inc 1,114,506
8,300 Town & Country Trust 141,100
295,838 United Dominion Realty Trust 4,178,712
50,500 Walden Residential Properties Inc 1,205,688
-----------
58,627,161
-----------
Diversified -- 7.9%
581,600 Catellus Development Corp * 11,195,799
86,600 Colonial Properties Trust 2,500,575
101,500 Cousins Properties Inc 2,708,781
460,000 First Union Real Estate 6,037,500
80,000 Glenborough Realty Trust Inc 2,065,000
124,900 Lexington Corporate Properties 1,850,081
45,600 MGI Properties Inc 1,057,350
50,900 Pacific Gulf Properties Inc 1,164,338
13,100 Pennsylvania Real Estate 338,144
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Diversified -- continued
72,200 Washington Realty Trust 1,218,375
-----------
30,135,943
-----------
Enclosed Malls -- 9.5%
97,000 CBL & Associates Properties 2,346,188
73,100 Crown American Realty Trust 708,156
156,100 General Growth Properties 5,346,425
86,600 JP Realty Inc 2,132,525
130,400 Macerich Co 3,610,450
107,900 Mills Corp 2,859,350
447,100 Simon Debartolo Group Inc 14,167,480
182,600 Taubman Centers Inc 2,328,150
90,100 Urban Shopping Centers Inc 2,787,469
----------
36,286,193
----------
Factory Outlet -- 0.4%
30,400 Chelsea GCA Realty Inc 1,141,900
17,200 Horizon Group Inc 216,075
8,000 Prime Retail Inc 115,500
----------
1,473,475
----------
Hotel/Motel -- 16.5%
97,800 American General Hospitality 2,524,463
43,800 Boykin Lodging Co 1,127,850
124,200 Equity Inns Inc 1,800,900
194,400 Felcor Suite Hotels Inc 7,387,199
188,100 Franchise Finance Corp of America 4,714,256
48,000 Homestead Village 804,000
11,182 Homestead Village Properties Purchase Warrants* 83,862
99,100 Hospitalities Properties Trust 3,319,850
212,000 Innkeepers USA Trust 3,233,000
44,800 Jameson Inns Inc 560,000
839,974 Patriot America Hospitality Inc 20,474,365
102,300 RFS Hotel Investors Inc 1,892,550
276,600 Starwood Lodging Trust 12,775,462
97,000 Sunstone Hotel Investors Inc 1,461,063
72,800 Winston Hotels Inc 973,700
----------
63,132,520
----------
Industrial -- 10.7%
41,800 Bedford Property Investors 856,900
80,900 Centerpoint Properties Corp 2,598,913
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial -- continued
291,600 Duke Realty Investments 6,105,375
48,850 Eastgroup Properties Inc 998,372
124,100 First Industrial Reality Trust 3,831,588
186,300 Liberty Property Trust 4,785,581
35,200 Meridian Industrial Trust Inc 805,200
357,075 Security Capital Industrial Trust 7,543,208
239,600 Spieker Properties Inc 8,910,124
71,700 Trinet Corporate Realty Trust 2,549,831
62,300 Weeks Corp 1,962,450
----------
40,947,542
----------
Manufactured Housing -- 1.6%
63,700 Chateau Communities Inc 1,918,963
81,200 Manufactured Home Communities 1,903,125
63,400 Sun Communities Inc 2,234,850
----------
6,056,938
----------
Office -- 17.2%
128,600 Arden Realty Group Inc 3,713,325
76,000 Boston Properties Inc * 2,265,750
155,400 Brandywine Realty Trust 3,321,675
176,100 Cali Realty Trust 6,559,725
278,700 Carramerica Realty Corp 8,308,743
392,200 Crescent Real Estate Equities 12,403,324
275,500 Equity Office Properties 8,041,155
37,000 Great Lakes Reit Inc 649,813
171,800 Highwood Properties Inc 5,583,500
47,400 Kilroy Realty Corp 1,211,663
71,300 Koger Equity Inc 1,381,438
32,400 Parkway Properties Inc 1,012,500
100,800 Prentiss Properties Trust 2,784,600
111,000 Reckson Associates Realty 2,677,875
100,000 Sl Green Realty Corp 2,381,250
150,000 Trizec Hahn Corporation 3,384,375
----------
65,680,711
----------
Recreation -- 0.3%
36,700 National Golf Properties Inc 1,176,694
----------
Self Storage -- 5.4%
490,800 Public Storage Inc 13,773,074
59,100 Shurgard Storage Centers 1,628,944
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------
<S> <C> <C>
Self Storage -- continued
24,100 Sovran Self Storage 732,038
33,000 Storage Trust Realty 837,375
94,700 Storage USA Inc 3,870,863
------------
20,842,294
------------
Shopping Centers -- 0.1%
30,000 Pan Pacific Retail Properties Inc 601,875
------------
Shopping/Power Center -- 12.5%
32,300 Alexander Haagen Properties 506,706
73,500 Bradley Real Estate Inc 1,378,125
82,100 Burnham Pacific Properties Inc 1,139,138
89,400 Commercial Net Lease Realty 1,408,050
80,400 Developers Diversified Realty Corp 3,125,550
60,300 Essex Property Trust Inc 1,929,600
73,900 Excel Realty Trust Inc 2,189,288
125,700 Federal Realty Investment Trust 3,166,069
5,300 First Washington Realty Trust 125,544
76,700 Glimcher Realty Trust 1,581,938
102,700 IRT Property Co 1,245,238
53,400 JDN Realty Corp 1,738,838
122,900 Kimco Realty Corp 4,140,194
19,800 Kranzco Realty Trust 348,975
10,900 Mark Centers Trust 101,506
116,100 New Plan Realty Trust 2,728,350
40,700 Price Reit Inc 1,544,056
10,800 Ramco-Gershenson Property 214,650
87,400 Realty Income Corp 2,414,425
74,600 Regency Realty Corp 1,981,563
30,500 Saul Centers Inc 533,750
135,200 Vornado Realty Trust 9,396,399
100,800 Weingarten Realty 4,189,500
53,400 Western Investment Real Estate Trust 717,563
------------
47,845,015
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (COST
$353,490,128) 372,806,361
------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 4.9%
Cash Equivalents -- 1.6%
$ 472,135 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/2/97/(a)/ 472,135
$ 124,541 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due
9/2/97/(a)/ 124,541
$ 373,624 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 373,624
3,000,000 Merrimac Cash Fund Premium Class/(a)/ 3,000,000
$ 2,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 2,000,000
------------
5,970,300
------------
U.S. Government -- 0.1%
$ 400,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 395,079
------------
Repurchase Agreement -- 3.2%
$12,258,505 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$12,265,383 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26
and with an aggregate market value of
$12,539,408. 12,258,505
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $18,623,685) 18,623,884
------------
TOTAL INVESTMENTS -- 102.3%
(COST $372,113,813) 391,430,245
Other Assets and Liabilities (net) -- (2.3)% (8,709,902)
------------
TOTAL NET ASSETS-- 100% $382,720,343
============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) Represents investments of security lending collateral (Note 1).
(b) Security has been segregated to cover margin requirements
on open financial futures contracts.
See accompanying notes to the financial statements. 5
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $372,113,813) (Note 1) $ 391,430,245
Dividends and interest receivable 564,879
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 21,643
Receivable for expenses waived or borne by Manager (Note 2) 133,223
Miscellaneous receivable 14,863
--------------
Total assets 392,164,853
--------------
Liabilities:
Payable for investments purchased 192,350
Payable upon return of securities loaned (Note 1) 5,970,300
Payable for Fund shares repurchased 2,977,385
Payable to affiliate for (Note 2):
Management fee 219,641
Shareholder service fee 43,960
Accrued expenses 40,874
--------------
Total liabilities 9,444,510
--------------
Net assets $ 382,720,343
==============
Net assets consist of:
Paid-in-capital $ 338,016,031
Accumulated undistributed net investment income 8,454,789
Accumulated undistributed net realized gain 17,048,824
Net unrealized appreciation 19,200,699
==============
$ 382,720,343
==============
Net assets attributable to:
Class I shares $ 111,722
==============
Class III shares $ 382,608,621
==============
Shares outstanding:
Class I 8,368
==============
Class III 28,640,140
==============
Net asset value per share:
Class I $ 13.35
==============
Class III $ 13.36
==============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Operations--Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends $ 9,159,761
Interest (including securities lending income of $12,004) 452,304
------------
Total income 9,612,065
------------
Expenses:
Management fee (Note 2) 1,265,212
Custodian and transfer agent fees 48,674
Registration fees 40,681
Audit fees 19,492
Legal fees 7,023
Trustees fees (Note 2) 1,721
Miscellaneous 895
Fees waived or borne by Manager (Note 2) (475,753)
------------
907,945
Shareholder service fee (Note 2)
Class I 96
Class II 1,386
Class III 252,055
------------
Net expenses 1,161,482
------------
Net investment income 8,450,583
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 16,155,001
Closed futures contracts 1,278,491
------------
Net realized gain 17,433,492
------------
Change in net unrealized appreciation (depreciation) on:
Investments (2,710,929)
Open futures contracts (421,661)
------------
Net unrealized loss (3,132,590)
------------
Net realized and unrealized gain 14,300,902
------------
Net increase in net assets resulting from operations $22,751,485
============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period from May 31, 1996
Ended (commencement of
August 31, 1997 operations) to
(Unaudited) February 28, 1997
--------------- ------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 8,450,583 $ 4,196,242
Net realized gain 17,433,492 4,239,035
Change in net unrealized
appreciation (depreciation) (3,132,590) 22,333,289
------------ ------------
Net increase in net assets resulting
from operations 22,751,485 30,768,566
------------ ------------
Distributions to shareholders from:
Net investment income
Class I (203) --
Class II (8,729) --
Class III (1,196,725) (2,888,627)
------------ ------------
Total distributions from net
investment income (1,205,657) (2,888,627)
------------ ------------
Net realized gains
Class I (648) --
Class II (26,734) --
Class III (3,909,302) (784,771)
------------ ------------
Total distributions from net
realized gains (3,936,684) (784,771)
------------ ------------
(5,142,341) (3,673,398)
------------ ------------
Net share transactions: (Note 5)
Class I 66,725 41,658
Class II (218,750) --
Class III 104,292,920 233,833,478
------------ ------------
Increase in net assets resulting
from net share transactions 104,140,895 233,875,136
------------ ------------
Total increase in net assets 121,750,039 260,970,304
Net assets:
Beginning of period 260,970,304 --
------------ ------------
End of period (including accumulated
undistributed net investment
income of $8,454,789 and
$1,209,863, respectively) $382,720,343 $260,970,304
============ ============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class I share outstanding throughout each period)
- ----------------------------------------------------------------------------------------------------
Six Months Ended Period from December 31, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $12.62 $ 12.58
------- --------
Income from investment operations:
Net investment income 0.32+ 0.03
Net realized and unrealized gain 0.61 0.01
------- --------
Total from investment operations 0.93 0.04
------- --------
Less distributions to shareholders:
From net investment income (0.05) --
From net realized gains (0.15) --
------- --------
Total distributions (0.20) --
------- --------
Net asset value, end of period $13.35 $ 12.62
======= ========
Total Return/(a)/ 7.34% 0.32%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 112 $ 41
Net expenses to average daily net assets 0.82%* 0.82%*
Net investment income to average daily net
assets 4.88%* 3.17%*
Portfolio turnover rate 37% 21%
Average broker commission rate per equity
share $0.0394 $0.0323
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 (b)
</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)/ Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 9
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
to August 4, 1997
(Unaudited)
----------------------------
<S> <C>
Net asset value, beginning of period $ 12.31
-------
Income from investment operations:
Net investment income 0.16+
Net realized and unrealized gain 1.25
-------
Total from investment operations 1.41
-------
Less distributions to shareholders:
From net investment income (0.05)
From net realized gains (0.15)
-------
Total distributions (0.20)
-------
Net asset value, end of period $13.52/(a)/
======
Total Return/(b)/ 11.46%
Ratios/Supplemental Data:
Net expenses to average daily net assets 0.76%*
Net investment income to average daily net assets 4.72%*
Portfolio turnover rate 37%
Average broker commission rate per equity share $0.0394
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
</TABLE>
+ Computed using average shares outstanding throughout the period.
/(a)/ All Class II shares of the Fund were exchanged for Class III shares on
August 4, 1997. Amount represents ending net asset value per share on
August 4, 1997.
/(b)/ Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
* Annualized.
10 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Period from May 31, 1996
Ended (commencement of operations)
August 31, 1997 to February 28, 1997
(Unaudited)
---------------- -------------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.62 $ 10.00
-------- ---------
Income from investment operations:
Net investment income 0.33+ 0.24
Net realized and unrealized gain 0.61 2.60
-------- ---------
Total from investment operations 0.94 2.84
-------- ---------
Less distributions to shareholders:
From net investment income (0.05) (0.17)
From net realized gains (0.15) (0.05)
-------- ---------
Total distributions (0.20) (0.22)
-------- ---------
Net asset value, end of period $ 13.36 $ 12.62
======== =========
Total Return/(a)/ 7.41% 28.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $382,609 $260,929
Net expenses to average daily net assets 0.69%* 0.69%*
Net investment income to average daily net
assets 5.01%* 4.72%*
Portfolio turnover rate 37% 21%
Average broker commission rate per equity
share $0.0394 $ 0.0323
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.02 $ 0.02
</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.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 11
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO REIT Fund (the "Fund"), which commenced operations on May 31, 1996, is
a series of GMO Trust (the "Trust"). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by Grantham,
Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was
established as a Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a series
into classes.
The Fund seeks maximum total return through investment primarily in real
estate investment trusts ("REITs").
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class I and Class
III are the only active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts
12
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $5,753,275, collateralized by
cash in the amount of $5,970,300, which was invested in short-term
instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semiannually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital.
13
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Differences in the recognition or classification of income for financial
statement and tax purposes which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of
net investment income or accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of its interest in the REIT's earnings.
The excess amount cannot be determined by the Fund at the time of receipt.
If the Fund distributes amounts which are subsequently determined to exceed
REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. Prior to March 25, 1997, the premium on
cash purchases and the fee on redemptions was .75% of the amount invested
or redeemed. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the six months ended August
31, 1997, the Fund received $702,701 in purchase premiums and $217,874 in
redemption fees. There is no premium for reinvested distributions or
in-kind transactions.
Investment risk
There are certain additional risks involved in investing in REITs rather
than a more diversified portfolio of investments. Since the Fund's
investments are concentrated in real-estate related securities, the value
of its shares can be expected to change in light of factors affecting the
real estate industry, including local or regional economic conditions,
changes in zoning laws, changes in real estate value and property taxes,
and changes in interest rates. The value of the Fund's shares may fluctuate
more widely than the value of shares of a portfolio that invests in a
broader range of industries.
14
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .75% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .54% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $1,721. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $224,601,783 and $118,562,192, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ------------------------- ---------------------- ---------------------- ----------------------
<C> <S> <C> <C>
$ 372,113,813 $ 21,417,967 $ 2,101,535 $ 19,316,432
</TABLE>
4. Principal shareholders
At August 31, 1997, 27% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
15
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from December 31, 1996
Six Months Ended (commencement of operations)
Class I: August 31, 1997 to February 28, 1997
--------------------------------- -----------------------------------
Shares Amount Shares Amount
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 5,019 $ 65,874 3,284 $ 41,658
Shares issued to shareholders in
reinvestment of distributions 65 851 -- --
Shares repurchased -- -- -- --
--------------- -------------- --------------- ---------------
Net increase 5,084 $ 66,725 3,284 $ 41,658
=============== ============== =============== ===============
<CAPTION>
Period from April 30, 1997
(commencement of operations)
Class II: to August 4, 1997
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 181,864 $ 2,240,225
Shares issued to shareholders
in reinvestment of distributions 2,703 35,463
Shares repurchased (184,567) (2,494,438)
--------------- ---------------
Net decrease -- $ (218,750)
=============== ===============
<CAPTION>
Period from May 31, 1996
Six Months Ended (commencement of operations)
Class III: August 31, 1997 to February 28, 1997
--------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 10,932,795 $ 143,405,985 20,722,033 $ 234,377,685
Shares issued to shareholders
in reinvestment of distributions 348,938 4,581,563 180,673 2,193,376
Shares repurchased (3,314,206) (43,694,628) (230,093) (2,737,583)
--------------- --------------- --------------- ----------------
Net increase 7,967,527 $ 104,292,920 20,672,613 $ 233,833,478
=============== =============== =============== ================
</TABLE>
16
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------- ------------- ----------------- ------------------ -----------------
<C> <C> <S> <C> <C>
10 S&P 500 September 1997 $4,515,500 $(115,733)
================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
17
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 94.4%
Advertising -- 0.3%
28,400 CKS Group Inc * 947,850
-----------
Aerospace -- 1.2%
5,000 AAR Corp 167,813
14,500 BE Aerospace Inc * 514,750
34,900 Gencorp Inc 933,575
15,500 Greenwich Airline Services, Class A 465,000
2,094 Northrop Grumman Corp 245,129
3,800 OEA Inc 141,313
4,100 Orbital Sciences Corp * 88,919
19,700 Thiokol Corp 1,568,613
13,400 Unc Incorporated * 199,325
-----------
4,324,437
-----------
Automotive -- 2.0%
35,500 Arvin Industries Inc 1,235,844
13,200 Borg Warner Automotive Inc 688,050
33,900 Caliber Systems Inc 1,415,325
2,500 Coachmen Industries Inc 46,250
45,600 Mascotech Industries Inc 954,750
49,700 SPX Corp 2,888,812
-----------
7,229,031
-----------
Banking and Financial Services -- 4.2%
2,400 Acceptance Insurance Cos Inc * 53,400
7,500 Albank Financial Corp 288,750
3,450 Alex Brown Inc 292,172
17,700 Americredit * 473,475
9,400 Astoria Financial Corp 452,375
24,700 BOK Financial Corporation 913,900
23,500 City National Corp 656,531
9,000 Cityscape Financial Corp * 92,813
7,610 CNB Bancshares Inc 312,010
12,750 Comdisco Inc 346,641
3,600 Deposit Guaranty Corp 115,425
18,100 Dime Bancorp Inc 349,556
5,500 Donaldson Lufkin & Jenrette 326,563
18,700 Eaton Vance Corp 535,288
800 Finova Group Inc 67,650
</TABLE>
See accompanying notes to financial statements. 1
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- continued
4,400 First Citizens Bancshares, Class A 393,800
800 First Empire State Corp 292,400
13,600 First Federal Financial Corp * 459,000
9,300 First Finance Corp 299,925
8,800 First Financial Bancorp 400,400
6,900 Fort Wayne National Corp 217,350
12,100 Fund American Enterprises Holdings 1,276,550
3,700 Interra Financial Inc 160,950
5,500 Legg Mason Inc 339,625
12,500 Mercantile Bankshares 351,563
18,600 National Commerce Bancorp 467,325
17,700 Northfork Bancorp 441,394
7,100 Onbancorp Inc 369,200
6,500 Park District National Corp 451,344
28,600 Provident Financial Group 1,354,925
25,450 St. Paul Bancorp Inc 588,531
8,300 Sumitomo Bank Of California 321,625
100 Summit Bancorp 5,938
1,900 TCF Financial Corporation 101,294
11,900 United Asset Management Corp 319,069
10,500 US Trust Corp 551,250
12,900 Value Line Inc 470,850
5,720 Washington Federal Inc 155,870
5,700 Zions Bancorporation 220,875
-----------
15,287,602
-----------
Chemicals -- 1.1%
8,300 Betzdearborn Inc 541,056
22,900 Cytec Industries Inc * 1,117,806
8,100 Dexter Corp 307,800
11,400 Fuller (HB) Co 629,138
3,400 Lilly Industrial Coating Inc, Class A 75,225
16,100 Macdermid Inc 1,247,750
14,500 Mississippi Chemical Corp 314,469
-----------
4,233,244
-----------
Communications -- 0.0%
4,800 Commnet Cellular Inc * 168,000
-----------
Computer and Office Equipment -- 2.6%
26,100 Amdahl Corp * 321,356
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Computer and Office Equipment -- continued
12,700 Analogic Corp 479,425
21,200 Comverse Technology Inc * 973,875
29,700 Concord EFS Inc * 824,175
4,000 Dynatech Corp * 153,000
9,200 General Binding Corp 285,200
32,000 Lexmark International Group Inc * 1,120,000
73,000 Micron Electronics Inc * 1,190,813
8,900 Network Computing Devices * 105,688
18,200 Quantum Corp 638,138
3,800 Rational Software Corp 62,700
23,300 Sequent Computer Inc * 656,769
23,800 Stratus Computer Inc * 1,320,900
95,000 Unisys Corp * 1,074,688
5,300 Western Digital Corp 255,063
14,400 Xircom Inc * 203,400
-----------
9,665,190
-----------
Construction -- 0.9%
31,300 Centex Corp 1,701,938
6,700 Eagle Hardware & Garden Inc * 146,981
25,000 McDermott International Inc 806,250
49,400 Standard Pacific Corp 540,313
-----------
3,195,482
-----------
Consumer Goods -- 5.6%
700 Block Drug Co Inc, Class A 33,250
7,900 CDW Computer Centers Inc * 575,713
10,200 Church & Dwight Co Inc 291,975
70,400 Furniture Brands International Inc * 1,240,800
22,500 Genesco Inc * 279,844
25,200 Hartmarx Corp * 195,300
32,300 Hon Industries Inc 1,889,549
18,700 Jones Apparel Group Inc 938,506
11,000 Kimball International, Class B 495,000
63,700 Miller Herman Inc 3,296,474
11,400 N. E. Business SVC Inc 347,700
125,700 O'Sullivan Industries Holdings Inc * 1,657,669
13,400 Oxford Industries Inc 449,738
8,700 Royal Appliance Manufacturing Co * 75,581
22,200 Russ Berrie and Co 635,475
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- continued
11,800 Scotts Company, Class A * 330,400
18,600 Standard Register Co 635,888
84,400 Technology Data Corp * 3,286,324
5,000 Tiffany & Co 226,250
34,400 Timberland Co * 2,272,549
16,400 Tultex Corp * 94,300
34,900 US Industries Inc * 1,326,200
-----------
20,574,485
-----------
Electronic Equipment -- 9.1%
26,400 Alliance Semiconductor Corp * 349,800
27,900 American Power Conversion Corp * 732,375
15,200 Ampex Corp, Class A * 71,250
25,500 Applied Magnetics Corp * 941,906
24,800 Boston Technology Inc * 730,050
33,400 Cellstar Corp 1,112,638
1 Chyron Corp 5
38,500 Cyrix Corp * 1,080,406
26,800 Dallas Semiconductor Corp 1,026,775
27,400 Digital Microwave Corp * 1,126,825
3,800 DSP Communications Inc 73,150
9,300 Electro Scientific Industries * 451,050
24,100 ESS Technology * 418,738
9,500 Highwaymaster Communications * 86,688
51,700 Hutchinson Technology Inc 1,706,100
17,700 Integrated Process Equipment * 584,100
65,700 Jabil Circuit Inc 3,892,724
16,800 Lattice Semiconductor Corp * 1,069,950
60,700 Magnetek Inc * 1,278,494
13,100 Microchip Technology Inc 529,731
326,100 Oak Technology Inc * 3,546,337
17,600 P-Com Inc * 817,300
25,700 Pairgain Technologies Inc 661,775
94,100 Read Rite Corp * 2,699,493
23,900 Rexel Inc * 497,419
14,700 Sanmina Corp * 1,164,975
5,000 SCI Systems Inc 196,563
27,300 Silicon Valley Group Inc * 921,375
4,400 Symmetricom Inc * 70,950
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Electronic Equipment -- continued
11,000 Technitrol Inc 374,000
30,800 Tekelec 1,118,425
11,900 Unitrode Corp * 928,200
8,300 Valmont Inds Inc 174,300
23,100 Vitesse Semiconductor Corp 1,088,588
33,800 VLSI Technology * 1,115,400
13,900 Xylan Corp * 286,688
35,400 Zenith Electronics Corp * 367,275
-----------
33,291,818
-----------
Food and Beverage -- 5.3%
23,700 Canadnaigua Wine Co, Class B * 959,850
24,400 Coors (Adolph) Co 899,750
48,000 Dean Foods Co 2,129,999
47,000 Dekalb Genetics Corp 1,844,749
12,300 Dimon Inc 295,200
36,700 Flowers Industries Inc 678,950
12,100 Hudson Foods Inc 196,625
52,300 Interstate Bakeries Corp 3,066,087
23,500 Pilgrims Pride Corp 276,125
7,600 Quality Food Centers Inc * 312,550
20,800 Ralcorp Holdings Inc * 416,000
8,300 Sanderson Farms Inc 124,500
4,100 Savannah Foods and Industries Inc 71,750
800 Seaboard Corp 231,600
9,800 Showbiz Pizza Time * 229,075
22,900 Smith Food and Drug Center, Class B * 1,253,775
46,200 Smithfield Foods Inc * 2,546,774
20,400 Tootsie Roll Industries Inc 997,050
17,200 Triarc Companies * 360,125
66,800 Universal Corp 2,429,849
-----------
19,320,383
-----------
Health Care -- 2.7%
25,200 Acuson Corp * 678,825
30,400 Bio Technology General Corp * 387,600
6,700 Lincare Holdings Inc * 319,506
97,200 Novacare Corp * 1,464,075
27,000 Orthodontic Centers of America 462,375
6,300 Pediatrix Medical Group Inc * 262,238
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Health Care -- continued
96,200 Safeskin Corp 3,198,649
3,700 Sofamor Denek Group Inc * 177,369
17,400 Total Renal Care Holdings * 796,050
77,400 Vivus Inc 2,070,449
-----------
9,817,136
-----------
Insurance -- 4.8%
31,000 American Annuity Group Inc 643,250
5,600 American Bankers Insurance Group 369,600
600 Capital Re Corp 30,488
8,200 CMAC Investment Corp 378,225
17,000 Commerce Group Inc 474,938
46,800 Crawford and Co 988,650
8,803 Delphi Financial Group Inc 385,681
6,100 Enhance Financial Services Group Inc 282,125
106,500 Everest Re Holdings Inc 3,853,968
6,700 First American Financial Corp 299,825
14,000 Fremont General Corp 558,250
48,318 Frontier Insurance Group Inc 1,691,130
15,800 Guaranty National Corp 445,363
9,100 HCC Insurance Holdings Inc 240,581
9,100 Life Re Corp 466,944
36,900 Mercury General Corp 3,228,749
7,200 Orion Capital 306,000
24,200 Presidential Life Corp 462,825
112,000 Reliance Group Holdings Inc 1,372,000
10,100 United Wisconsin Services 330,144
14,100 Vesta Insurance Group 695,306
6,400 Zurich Reinsurance Centre Inc 252,400
-----------
17,756,442
-----------
Machinery -- 5.7%
18,600 Aviall Inc * 304,575
22,600 Camco International Inc 1,556,575
110,900 Coltec Industries Inc * 2,481,387
46,700 Cooper Cameron Corp 3,029,662
8,900 Culligan Water Technologies * 410,513
7,800 Donaldson Co Inc 348,075
1,700 ETEC Systems Inc * 113,900
28,500 Federal Mogul Corp 1,018,875
13,700 Graco Inc 433,263
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Machinery -- continued
7,800 Helix Technology Corp 466,050
60,400 Kulicke & Soffa Industries * 2,774,624
2,700 Lindsay Manufacturing Co 105,300
19,500 Mohawk Industries Inc * 504,563
9,700 Novellus System Inc * 1,111,863
10,600 Paxar Corp Common Stock 230,550
31,400 Smith International Inc * 2,284,349
8,500 Tennant Co 292,188
32,300 US Filter Corp * 1,162,800
55,200 Varco International Inc * 2,194,199
-----------
20,823,311
-----------
Manufacturing -- 3.2%
3,300 ABT Building Products Corp * 56,925
11,900 ACX Technologies Inc * 311,631
8,600 Applied Power Inc, Class A 546,100
18,500 Barnes Group Inc 509,906
29,500 Blyth Industries Inc 1,089,656
3,000 Champion Enterprises Inc * 51,750
16,300 Crane Co 719,238
7,800 CSS Industries Inc * 279,825
6,100 Gibson Greetings Inc * 137,250
3,100 Global Industrial Technologies Inc * 58,706
26,900 Griffon Corp * 376,600
46,500 Lafarge Corp 1,511,250
42,625 Manitowoc Co Inc 1,539,828
9,700 Mine Safety Appliances 611,100
65,500 Nortek Inc * 1,645,688
23,800 Robbins & Myers Inc 776,475
9,000 Synetic Inc * 388,125
6,000 Tredegar Industries 412,875
13,800 Watts Industries Inc, Class A 336,375
18,600 Wyman-Gordon Co. * 508,013
-----------
11,867,316
-----------
Metals and Mining -- 1.0%
17,000 Amcol International Corp 289,000
23,700 Asarco Inc 728,775
1,000 Oregon Metallurgical Corp * 22,000
29,500 Timken Co 1,104,406
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Metals and Mining -- continued
4,000 Wesco Financial Corp 1,100,250
20,600 Zeigler Coal Holding Co 526,588
-----------
3,771,019
-----------
Oil and Gas -- 6.7%
8,100 Atwood Oceanics Inc * 734,569
9,400 Berry Petroleum, Class A 172,725
27,600 BJ Services Co * 1,994,099
2,800 Brown Tom Inc * 68,600
7,800 Cabot Oil & Gas Corp, Class A 180,863
21,500 Devon Energy Corp 917,781
5,400 El Paso Natural Gas Co 303,750
122,900 Falcon Drilling Co Inc 3,871,349
57,100 Harken Energy Corp * 353,306
31,800 Helmerich & Payne Inc 2,245,874
8,000 HS Resources Inc * 122,000
25,800 Louis Dreyfus Natural Gas * 493,425
103,000 Marine Drilling Co Inc * 2,471,999
14,100 Mitchell Energy, Class B 352,500
1 Monterey Resources Inc 21
25,900 Nabors Industries Inc * 891,931
23,600 National Fuel Natural Gas Co 1,048,725
14,400 Newfield Exploration Co 369,900
2,750 North Carolina Natural Gas 86,109
10,800 Nuevo Energy Co * 548,775
17,100 Ocean Energy Inc * 1,099,744
8,200 Oneok Inc 265,475
6,200 Oryx Energy Co * 163,913
6,500 Peoples Energy Corp 244,969
16,286 Pioneer Natural Resources Co * 650,411
2,900 Plains Resource Inc * 52,925
7,200 Pogo Producing Co 312,300
12,900 Pooled Funds Energy Services Co * 403,931
23,300 Rowan Cos Inc * 696,088
7,200 RPC Inc 155,700
24,200 Santa Fe Energy Resources Inc 267,713
7,300 Seagull Energy Corp * 178,394
27,000 Snyder Oil Corp 531,563
2,700 Triton Energy Limited * 103,950
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas -- continued
7,700 Union Texas Petroleum Holdings Inc 179,506
15,500 Unit Corp * 208,281
3,800 United Meridian Corp * 148,913
9,000 Vintage Petroleum Inc 386,438
28,800 Weatherford Enterra Inc * 1,326,600
-----------
24,605,115
-----------
Paper and Allied Products -- 1.2%
23,000 Bowater Inc 1,177,313
17,700 Jefferson Smurfit Corp * 344,044
16,700 Mosinee Paper Corp 496,825
14,300 Playtex Products Inc * 140,319
13,800 TJ International Inc 348,450
59,500 US Office Products Co * 1,948,624
2,900 Zurn Industries Inc 86,094
-----------
4,541,669
-----------
Pharmaceuticals -- 1.7%
29,800 Agouron Pharmaceuticals Inc 1,311,200
7,200 Amerisource Health Corp * 360,450
5,400 Dura Pharmaceuticals Inc * 192,375
15,900 General Nutrition Cos Inc * 441,225
14,100 Herbalife International Inc 333,113
100 Jones Medical Industries Inc 2,975
75,700 NBTY Inc * 1,684,325
7,300 Protein Design Labs Inc * 260,063
13,600 Quintiles Transnational Corp * 1,060,800
18,400 Rexall Sundown Inc * 639,400
-----------
6,285,926
-----------
Primary Materials -- 3.5%
12,500 Carlisle Cos Inc 527,344
18,000 Centec Construction Products 515,250
5,600 Elcor Corp 173,250
94,300 EVI Inc 4,956,643
10,400 Kuhlman Corp 295,100
10,400 Lone Star Industries 552,500
8,700 Medusa Corp 408,900
44,800 Premark International Inc 1,332,800
2,300 Sealed Air Corp * 119,313
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Primary Materials -- continued
41,000 Southdown Inc 1,924,437
45,700 USG Corp * 1,959,387
-----------
12,764,924
-----------
Primary Processing -- 1.4%
3,200 Bethlehem Steel Corp * 38,400
7,700 Birmingham Steel Corp 144,375
66,400 Inland Steel Industries Inc 1,398,550
30,600 Lone Star Technologies Inc * 1,248,863
26,000 LTV Corp 338,000
29,700 National Steel Corp, Class B * 558,731
13,000 Oregon Steel Mills Inc 350,188
14,500 Precision Castparts Corp 937,063
2,500 Quanex Corp 90,781
-----------
5,104,951
-----------
Printing and Publishing -- 2.3%
39,600 Central Newspapers, Class A 2,695,274
800 Harland (JH) Co 15,850
10,700 Hollinger International Inc 137,763
88,200 K-III Communications Corp * 1,074,938
38,375 McClatchy Newspapers Inc 1,156,047
8,600 Playboy Enterprises Inc, Class B * 108,575
8,600 Pulitzer Publishing Co 452,038
81,800 Valassis Communications Inc * 2,484,674
8,000 World Color Press Inc * 239,000
-----------
8,364,159
-----------
Real Estate -- 0.8%
15,250 CN Fairfield Communities Inc 545,188
32,200 PEC Isreal Economic Corp * 666,138
35,400 Penn Virginia Corp 973,500
7,500 Security Capital Corp 776,250
-----------
2,961,076
-----------
Retail Trade -- 7.8%
26,000 AnnTaylor Stores Corp * 445,250
9,700 Apogee Enterprises Inc 212,188
2,000 Arbor Drugs Inc 47,750
68,000 Borders Group Inc 1,619,250
43,200 Burlington Coat Factory Warehouse * 993,600
</TABLE>
See accompanying notes to the financial statements.
10
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
30,500 Cash American Investments Inc 327,875
25,700 CKE Restaurants Inc 828,825
4,600 CompUSA Inc 142,313
26,450 Dollar Tree Stores Inc 1,028,244
123,500 Dress Barn Inc * 2,531,749
34,500 Ethan Allen Interiors Inc 2,535,749
45,350 Family Dollar Stores Inc 963,688
10,800 Finish Line Inc 151,200
38,500 Foodmaker Inc * 755,563
9,400 Genovese Drug Stores Inc, Class A 164,500
57,800 Goodys Family Clothing Inc * 1,972,424
23,800 Just For Feet Inc 312,375
48,100 Lands End Inc * 1,265,631
8,000 Macfrugals Bargains Close Outs Inc * 218,000
35,600 Meyer Fred Inc * 1,851,199
13,400 Microage Inc * 364,313
7,200 Neiman Marcus Group Inc * 222,300
11,200 NPC International Inc * 127,400
54,700 Pier 1 Imports Inc 929,900
3,500 Proffitts Inc * 187,906
101,700 Ross Stores Inc 2,987,437
11,300 Ruddick Corp 169,500
27,700 Shopko Stores Inc * 761,750
19,300 Stein Mart Inc * 540,400
42,600 Stride Rite Corp 505,875
90,600 Valhi Inc 792,750
2,000 Wet Seal Inc * 43,500
53,600 Williams-Sonoma Inc * 2,398,599
3,400 Zale Corp * 73,100
--------------
28,472,103
--------------
Services -- 5.9%
107,600 Accustaff Inc * 2,858,124
13,900 Apac Teleservices Inc * 229,350
24,100 Apollo Group Inc * 860,069
20,400 Avid Technology Inc * 673,200
11,300 Bowne and Co Inc 326,994
11,400 CDI Corp * 401,850
15,200 Central Parking Corp 695,400
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Services -- continued
170,700 Corestaff Inc 5,078,324
33,700 Doubletree Corp * 1,685,000
19,300 Extended Stay America Inc * 258,138
22,400 Handleman Co * 133,000
14,500 Hollywood Entertainment Corp * 237,438
8,200 Hollywood Park District Inc * 143,500
55,800 Mcgrath Rentcorp 1,283,400
3,400 Meredith Corp 102,000
133,700 Metromedia International Group Inc * 1,587,688
24,400 Morningstar Group Inc * 728,950
22,200 Norrell Corp 717,338
36,000 Promus Hotel Corp * 1,397,250
21,700 Rykoff Sexton Inc 547,925
3,450 Technology Solutions Co 80,213
20,250 Volt Information Sciences Inc 1,130,203
14,350 Wolverine World Wide 317,494
-----------
21,472,848
-----------
Technology -- 8.2%
10,900 ABR Information Services Inc 292,938
10,200 Affiliated Computer Services 267,750
23,800 Autodesk Inc 1,041,250
21,800 Avanti Corporation * 633,563
10,300 BGS Systems Inc 283,250
54,200 Citrix Systems Inc * 2,737,099
23,800 Cognex Corp * 910,350
14,400 Credence Systems Corp * 677,700
23,500 CSG Systems International Inc * 649,188
32,500 Data General Corp * 1,167,969
2,900 Electronics For Imaging Inc 155,150
6,600 Envoy Corporation * 178,200
4,200 Genrad Inc * 111,300
14,300 HNC Software Inc * 520,163
22,000 Hyperion Software Corp * 633,875
6,300 Inso Corporation * 87,413
26,100 Keane Inc 1,533,375
13,700 KLA Instruments Corp * 970,988
3,100 Mcafee Associates Inc 175,538
17,000 National Instruments Corp * 701,250
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
7,600 Network Appliance Inc * 359,100
12,800 Platinum Software Corp * 139,200
16,100 Psinet Inc * 131,819
52,800 Remedy Corp 2,036,099
60,800 Symantec * 1,463,000
11,700 Systems & Computer Technology Corp * 412,425
223,800 Tandem Computers Inc * 7,609,199
8,500 Uniphase Corp * 580,125
23,000 Vantive Corp 701,500
13,100 Viasoft Inc 709,038
67,300 Visio Corp 2,321,849
-----------
30,191,663
-----------
Telecommunications -- 0.8%
46,300 Mastec Inc 2,161,630
18,000 Premiere Technologies Inc * 559,125
6,100 Telemundo Group Inc * 203,588
-----------
2,924,343
-----------
Textiles -- 0.5%
8,750 Guilford Mills 190,313
20,000 Interface Flooring Systems Inc 560,000
24,000 Westpoint Stevens Inc * 960,000
-----------
1,710,313
-----------
Tobacco -- 0.1%
4,200 Culbro Corp 404,513
-----------
Transportation -- 2.7%
28,100 Airborne Freight Corp 1,383,925
4,200 Alexander & Baldwin Inc 113,400
34,900 CNF Transportation Inc 1,260,763
23,400 Expeditors International Washington Inc 857,025
53,800 Navistar International Corp * 1,334,913
14,800 Offshore Logistics Inc * 270,100
11,300 Swift Transportation Co * 330,525
6,100 US Freightways Corp 183,000
49,400 USAir Group Inc * 1,685,775
76,100 Yellow Corp * 2,387,637
-----------
9,807,063
-----------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- 1.1%
24,000 Aquila Natural Gas Pipeline Corp 250,500
32,500 Calenergy Inc * 1,076,563
77,400 Centerior Energy Corp 870,750
5,000 Energen Corp 180,313
990 Houston Industries Inc 20,038
8,300 Kinder Morgan Energy Partners 551,431
7,500 Public Services Co of New Mexico 136,875
2,900 TNP Enterprises Inc 67,969
500 Tucson Electric Power Co * 7,969
12,600 UGI Corp 329,175
21,200 Western Gas Resources Inc 402,800
-----------
3,894,383
-----------
TOTAL COMMON STOCKS (COST $309,778,295) 345,777,795
-----------
SHORT-TERM INVESTMENTS -- 21.2%
Cash Equivalents -- 12.7%
$15,570,049 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/2/97/(a)/ 15,570,049
$974,809 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due
9/2/97/(a)/ 974,809
$2,924,426 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 2,924,426
15,258,785 Merrimac Cash Fund Premium Class/(a)/ 15,258,785
$12,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 12,000,000
-----------
46,728,069
-----------
U.S. Government -- 0.3%
$1,000,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 987,698
-----------
Repurchase Agreements -- 8.2%
$18,443,595 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$18,453,944 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26
and with an aggregate market value of
$18,866,230. 18,443,595
$11,589,463 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/2/97, with a
maturity value of $11,595,889 and an
effective yield of 4.99%, collateralized by a
U.S. Government Agency Obligation with a rate
of 6.072%, with a maturity date of 3/1/35 and
a market value of $11,821,292. 11,589,463
-----------
30,033,050
-----------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- --------------------------------------------------------------------------------
<S> <C>
TOTAL SHORT-TERM INVESTMENTS
(COST $77,748,327) 77,748,825
------------
TOTAL INVESTMENTS -- 115.6%
(COST $387,526,622) 423,526,620
Other Assets and Liabilities (net) -- (15.6)% (57,276,924)
------------
TOTAL NET ASSETS -- 100% $366,249,696
============
Notes to the Schedule of Investments:
* Non-income producing security.
/(a)/ Represents investments of security lending collateral
(Note 1).
/(b)/ Security has been segregated to cover margin requirements
on open financial futures contracts.
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $387,526,622) (Note 1) $ 423,526,620
Receivable for investments sold 10,488,967
Dividends and interest receivable 191,195
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 98,731
Receivable for expenses waived or borne by Manager (Note 2) 94,040
Miscellaneous receivable 15,374
-----------
Total assets 434,414,927
------------
Liabilities:
Payable for investments purchased 18,141,921
Payable upon return of securities loaned (Note 1) 46,728,069
Payable for Fund shares repurchased 3,082,179
Payable to affiliate for (Note 2):
Management fee 138,292
Shareholder service fee 41,371
Accrued expenses 33,399
------------
Total liabilities 68,165,231
------------
Net assets $366,249,696
============
Net assets consist of:
Paid-in-capital $315,535,749
Accumulated undistributed net investment income 458,604
Accumulated undistributed net realized gain 14,007,266
Net unrealized appreciation 36,248,077
============
$366,249,696
============
Net assets attributable to:
Class III shares $366,249,696
============
Shares outstanding:
Class III 29,305,824
============
Net asset value per share:
Class III $ 12.50
============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends $ 654,635
Interest (including securities lending income of $70,669) 604,399
------------
Total income 1,259,034
------------
Expenses:
Management fee (Note 2) 546,060
Registration fees 38,202
Custodian and transfer agent fees 25,978
Audit fees 21,953
Legal fees 3,771
Trustees fees (Note 2) 902
Miscellaneous 434
Fees waived or borne by Manager (Note 2) (278,389)
------------
358,911
Shareholder service fee (Note 2)
Class III 163,702
------------
Net expenses 522,613
------------
Net investment income 736,421
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 13,096,265
Closed futures contracts 892,587
------------
Net realized gain 13,988,852
------------
Change in net unrealized appreciation (depreciation) on:
Investments 39,118,653
Open futures contracts 531,434
------------
Net unrealized gain 39,650,087
------------
Net realized and unrealized gain 53,638,939
------------
Net increase in net assets resulting from operations $54,375,360
============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 31, 1996
Six Months Ended (commencement of
August 31, 1997 operations) to
(Unaudited) February 28, 1997
---------------- ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 736,421 $ 173,151
Net realized gain 13,988,852 18,414
Change in net unrealized appreciation (depreciation) 39,650,087 (3,402,010)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 54,375,360 (3,210,445)
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (450,968) --
------------ ------------
Total distributions from net investment income (450,968) --
------------ ------------
Net share transactions: (Note 5)
Class III 152,427,203 163,108,546
------------ ------------
Increase in net assets resulting from net share
transactions 152,427,203 163,108,546
------------ ------------
Total increase in net assets 206,351,595 159,898,101
Net assets:
Beginning of period 159,898,101 --
------------ ------------
End of period (including accumulated undistributed net
investment income of $458,604 and $173,151,
respectively) $366,249,696 $159,898,101
============ ============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from December 31, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.82 $ 10.00
-------- --------
Income from investment operations:
Net investment income 0.03 0.01
Net realized and unrealized gain (loss) 2.68 (0.19)
-------- --------
Total from investment operations 2.71 (0.18)
-------- --------
Less distributions to shareholders:
From net investment income (0.03) --
-------- --------
Total distributions (0.03) --
-------- --------
Net asset value, end of period $ 12.50 $ 9.82
======== ========
Total Return/(a)/ 27.63% (1.80)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $366,250 $159,898
Net expenses to average daily net assets 0.48%* 0.48%*
Net investment income to average daily net assets 0.67%* 0.70%*
Portfolio turnover rate 81% 13%
Average broker commission rate per equity share $ 0.0264 $ 0.0344
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.01 $ 0.01
</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.
* Annualized.
See accompanying notes to the financial statements. 19
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to the Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Small Cap Growth Fund (the "Fund"), which commenced operations on
December 31, 1996, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange.
20
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to the Financial Statements (Unaudited)-(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary
market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts held as of August 31,
1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $44,946,561, collateralized by
cash in the amount of $46,728,069, which was invested in short-term
instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in
21
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to the Financial Statements (Unaudited)-(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
shares of the Fund, at net asset value, unless the shareholder elects to
receive cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. All purchase premiums and redemption
fees are paid to and recorded as paid-in capital by the Fund. For the six
months ended August 31, 1997, the Fund received $754,834 in purchase
premiums and $47,596 in redemption fees. There is no premium for reinvested
distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions,
22
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to the Financial Statements (Unaudited)-(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
certain other transaction costs (including transfer taxes), shareholder
service fees and extraordinary expenses) exceed .33% of average daily net
assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $902. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $316,731,770 and $167,553,743, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ ------------------- ------------------ ---------------------
<S> <C> <C> <C>
$ 388,172,008 $ 39,453,019 $ 4,098,407 $ 35,354,612
</TABLE>
4. Principal shareholder
At August 31, 1997, 22% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
December 31, 1996
Six Months Ended (commencement of operations)
Class III: August 31, 1997 to February 28, 1997
---------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 13,854,939 $ 162,453,671 16,278,745 $ 163,108,546
Shares issued to shareholders
in reinvestment of
distributions 22,568 223,251 -- --
Shares repurchased (850,428) (10,249,719) -- --
=============== =============== ============== ===============
Net increase 13,027,079 $ 152,427,203 16,278,745 $ 163,108,546
=============== =============== ============== ===============
</TABLE>
23
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to the Financial Statements (Unaudited)-(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
- ------------ --------------- -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
70 Russell 2000 September 1997 $ 14,843,500 $ 248,079
===================
</TABLE>
At August 31, 1997, the Fund had sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
7. Federal Tax Information
For the tax year ended August 31, 1997, all of the Fund's distributions are
from investment company taxable income.
24
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 93.6%
Advertising -- 0.1%
1,700 Grey Advertising Inc 527,000
--------------
Aerospace -- 1.3%
6,100 Curtiss Wright Corp 445,300
25,600 Gencorp Inc 684,800
95,800 Kaman Corp, Class A 1,604,650
12,198 Northrop Grumman Corp 1,427,928
18,900 Teleflex Inc 598,894
60,000 Thiokol Corp 4,777,499
--------------
9,539,071
--------------
Automotive -- 1.7%
17,900 Bandag Inc 954,294
34,300 Borg Warner Automotive Inc 1,787,888
25,600 Breed Technologies Inc 544,000
37,500 Caliber Systems Inc 1,565,625
36,700 Cooper Tire & Rubber Co 922,088
7,000 Lear Corp * 320,688
13,800 Mascotech Industries Inc 288,938
60,400 Modine Manufacturing Co 1,849,750
17,900 Paccar Inc 848,013
48,800 Smith (AO) Corp, Class B 1,720,200
6,300 SPX Corp 366,188
24,500 Superior Industries International Inc 667,625
36,800 Wabash National Corp 1,081,000
--------------
12,916,297
--------------
Banking and Financial Services -- 11.4%
22,800 Advanta Corp, Class A 755,250
13,000 Albank Financial Corp 500,500
40,750 Alex Brown Inc 3,451,015
34,000 Astoria Financial Corp 1,636,250
29,000 Baldwin and Lyons Inc, Class B 561,875
3,500 BOK Financial Corporation 129,500
11,500 CCB Financial Corp 930,063
61,100 Central Fidelity Banks Inc 2,390,537
3,100 Charter One Financial Inc 168,563
19,100 Citizens Banking Corp Michigan 754,450
129,750 Comdisco Inc 3,527,577
65,800 Commerce Bancshares Inc 3,544,974
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- continued
46,950 Compass Bancshares Inc 1,672,594
13,400 Corus Bancshares Inc 475,700
22,100 Deposit Guaranty Corp 708,581
45,400 Dime Bancorp Inc 876,788
24,535 Downey Financial Corp 542,837
28,800 Eaton Vance Corp 824,400
74,500 Edwards (AG) Inc 2,961,374
28,500 Financial Security Assurance Holdings Ltd 1,184,531
3,800 Finova Group Inc 321,338
13,600 First Citizens Bancshares, Class A 1,217,200
13,900 First Commerce Corp 741,913
3,800 First Empire State Corp 1,388,900
12,400 First Federal Financial Corp * 418,500
25,775 First Finance Corp 831,244
45,000 First Hawaiian Inc 1,659,375
8,125 First Midwest Bancorp Inc 284,375
9,150 First Security Corp 258,488
35,300 First Virginia Banks Inc 2,404,812
7,700 Firstbank of Illinois Co 333,025
16,000 Firstbank Puerto Rico 451,000
18,680 Fulton Financial Corp 513,700
7,200 Greenpoint Financial Corp 443,250
20,900 Interra Financial Inc 909,150
13,300 Jefferies Group Inc 904,400
6,600 JSB Financial 299,475
5,400 Legg Mason Inc 333,450
34,200 Leucadia National Corp 1,090,125
35,400 Liberty Financial Cos 1,754,513
10,100 Long Island Bancorp Inc 402,738
83,600 Mercantile Bankshares 2,351,277
21,850 Morgan Keegan Inc 558,541
9,300 National Bancorp of Alaska Inc 818,400
46,800 North American Mortgage Co 1,210,950
12,075 Old Kent Financial Corp 739,594
22,400 Onbancorp Inc 1,164,800
14,400 One Valley Bancorp Inc 618,300
47,900 Pacific Century Financial Corp 2,362,068
27,550 Peoples Bank Bridgeport 773,122
36,500 Piper Jaffray Inc 825,813
14,900 PMI Group Inc 861,406
71,600 Popular Inc 3,096,699
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- continued
13,400 Provident Financial Group 634,825
64,703 Quick And Reilly Group 2,216,078
50,750 Raymond James Financial Corp 1,471,750
9,000 RCSB Financial Inc 439,875
23,900 Riggs National Corp 501,900
34,700 Rowe (T) Price & Associates Inc 1,908,500
82,700 Ryland Group Inc 1,380,056
15,000 SEI Investments Co 435,000
45,200 Signet Banking Corp 2,341,924
67,680 Sovereign Bancorp Inc 1,049,040
25,562 St. Paul Bancorp Inc 591,121
15,500 Student Loan Group 635,500
7,945 Summit Bancorp 471,734
1 Toronto Dominion Bank Ontario 10
26,100 Trustmark Corp 751,189
19,700 UMB Financial Corp 886,500
23,200 Union Planters Corp 1,189,000
15,200 Unionbancal Corp 1,175,150
12,700 United Asset Management Corp 340,519
33,500 United Cos Financial Corp 954,750
6,800 US Trust Corp 357,000
11,000 Value Line Inc 401,500
45,165 Washington Federal Inc 1,230,746
8,400 Washington Mutual Inc 502,950
61,800 Wilmington Trust Corp 3,113,174
--------------
84,919,091
--------------
Chemicals -- 1.0%
25,500 Albemarle Corp 626,344
18,100 Cabot Corporation 495,488
8,700 Crompton & Knowles Corp 219,675
15,500 Cytec Industries Inc * 756,594
9,900 Ferro Corp 372,488
8,300 Fuller (HB) Co 458,056
16,600 Geon Co 329,925
20,700 Hanna (MA) Co 535,613
42,900 Kaiser Aluminum Corp * 603,281
27,500 Mississippi Chemical Corp 596,406
14,200 Olin Corp 631,900
1 Potash Corp of Saskatchewan 74
33,100 Stepan Co 779,919
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Chemicals -- continued
64,000 Wellman Inc 1,456,000
--------------
7,861,763
--------------
Communications -- 0.0%
13,800 DSC Communications Corp * 401,925
--------------
Computer and Office Equipment -- 2.8%
77,600 Amdahl Corp * 955,450
19,500 Banctec Inc * 482,625
9,900 Everex Systems Inc/(a)/ * --
53,600 Exabyte Corp * 629,800
45,900 Intergraph Corp * 456,131
98,700 Lexmark International Group Inc * 3,454,499
153,400 Quantum Corp 5,378,587
61,700 Sequent Computer Inc * 1,739,169
30,500 Sterling Software Inc 1,046,531
53,600 Stratus Computer Inc * 2,974,799
87,200 Unisys Corp * 986,450
41,800 Western Digital Corp 2,011,625
19,100 Zebra Technologies Corp * 561,063
--------------
20,676,729
--------------
Construction -- 1.9%
34,200 Bridge & Toll Road Brothers Inc * 735,300
41,300 Centex Corp 2,245,688
11,400 Eagle Hardware & Garden Inc * 250,088
17,700 Foster Wheeler Corp 808,669
29,900 Granite Construction Inc 627,900
44,700 Horton (DR) Inc 704,025
116,300 Kaufman & Broad Home Corp 2,325,999
49,800 McDermott International Inc 1,606,050
64,100 MEMC Electronic Materials * 1,858,900
33,600 Pulte Corp 1,230,600
137,300 Standard Pacific Corp 1,501,719
19,800 Texas Industries Inc 659,588
--------------
14,554,526
--------------
Consumer Goods -- 3.8%
13,900 Alberto Culver Co, Class B 405,706
17,700 Bassett Furniture Industries Inc 486,750
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- continued
16,200 Block Drug Co Inc, Class A 769,500
81,200 Burlington Industries Inc * 979,475
10,100 Callaway Golf Co 340,244
29,700 Coleman Co Inc * 469,631
46,400 Compucom Systems Inc * 466,900
22,500 Department 56 Inc * 614,531
48,600 Fastenal Co 2,800,574
21,500 First Brands Corp 536,156
53,100 Furniture Brands International Inc * 935,888
22,800 Jones Apparel Group Inc 1,144,275
91,300 Justin Industries 1,335,263
21,600 Kimball International, Class B 972,000
139,000 Kinetic Concepts Inc 2,554,124
25,700 La-z-boy Chair Co 909,138
31,310 Lancaster Colony Corp 1,622,249
1 Mattel Co 3
77,000 Moore Corp Ltd 1,525,563
7,800 National Service Industries 345,150
20,600 Nine West Group Inc * 870,350
31,300 Oneida LTD 991,819
38,400 Osh Kosh B Gosh, Class A 974,400
10,100 Patterson Dental Company * 357,288
6,100 Pittston Brinks Group 216,550
33,600 Russell Corp 957,600
24,000 Safety Kleen 484,500
5,100 Sunbeam Corp 224,400
16,800 Technology Data Corp * 654,150
117,900 Terra Industries Inc 1,576,913
5,800 Timberland Co * 383,163
18,000 Unifi Inc 690,750
14,900 US Industries Inc * 566,200
--------------
28,161,203
--------------
Electronic Equipment -- 4.6%
5,700 Altera Corp 303,525
107,000 American Power Conversion Corp * 2,808,749
8,900 Burr - Brown Corp 315,950
5,400 CTS Corp 437,400
71,600 Cypress Semiconductor Corp * 1,270,900
47,300 Dallas Semiconductor Corp 1,812,181
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Equipment -- continued
22,000 Federal Signal Corp 572,000
7,800 Franklin Electric Inc 479,700
16,700 Harman International Industries 747,325
13,900 Hutchinson Technology Inc 458,700
86,800 Integrated Device Technology Inc * 1,182,650
32,500 Jabil Circuit Inc 1,925,625
13,500 Kemet Corp * 393,188
39,100 Komag Inc * 686,694
9,900 Lattice Semiconductor Corp * 630,506
17,800 Magnetek Inc * 374,913
60,000 Marshall Industries * 2,381,249
6,400 Maxim Integrated Products Inc * 442,400
26,900 Methode Electronics, Class A 638,875
74,200 Oak Technology Inc * 806,925
25,500 Octel Communications Corp * 774,563
76,600 Pioneer Standard Electronics Inc 1,149,000
8,000 Pittway Corp, Class A 482,500
49,500 Read Rite Corp * 1,420,031
69,400 SCI Systems Inc 2,728,287
24,700 Sensormatic Electronics Corp 322,644
71,400 Silicon Valley Group Inc * 2,409,749
48,600 Stewart & Stevenson Services Corp 1,184,625
19,900 Tech Corp * 660,431
9,501 Thomas & Betts Corp 532,054
47,705 Vishay Intertechnology Inc 1,273,127
27,300 VLSI Technology * 900,900
26,400 Watkins Johnson 907,500
53,500 Zilog Inc * 1,310,750
--------------
34,725,616
--------------
Food and Beverage -- 3.2%
46,300 Bob Evans Farms Inc 821,825
63,500 Chiquita Brands International Inc 904,875
43,500 Coors (Adolph) Co 1,604,063
328,600 Darden Restaurants Inc 3,306,537
25,900 Dean Foods Co 1,149,313
5,900 Farmer Brothers Co 873,200
15,900 Flowers Industries Inc 294,150
45,700 Great Atlantic & Pacific Tea Co 1,145,356
17,500 Hormel (Geo A) and Co 520,625
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage -- continued
41,400 Hudson Foods Inc 672,750
40,900 International Multifoods Corp 1,099,188
46,900 Interstate Bakeries Corp 2,749,512
35,700 Luby's Cafeterias Inc 702,844
60,000 Michael Foods Inc 1,297,500
27,600 Pilgrims Pride Corp 324,300
12,600 Quality Food Centers Inc * 518,175
84,600 Ryans Family Steak House * 782,550
1,600 Seaboard Corp 463,200
13,565 Smith Food and Drug Center, Class B * 742,684
25,600 Smithfield Foods Inc * 1,411,200
13,400 Triarc Companies * 280,563
48,525 Universal Foods Corp 1,883,377
--------------
23,547,787
--------------
Health Care -- 5.1%
52,400 Apria Healthcare Group * 917,000
15,500 Arrow International Inc. 459,188
46,400 Ballard Medical Products 1,073,000
58,200 Bard (CR) 2,007,900
35,900 Beckman Instruments Inc 1,689,544
115,200 Beverly Enterprises Inc * 1,879,200
61,100 Bindley Western Industries Inc 1,538,956
77,500 BioMet Inc 1,608,125
11,300 Dentsply International Inc 635,625
7,900 Forest Laboratories Inc * 324,394
12,200 Genesis Health Ventures Inc * 425,475
32,600 Haemonetics Corp * 594,950
16,400 Health Care & Retirement * 597,575
70,700 Horizon CMS Healthcare Corp * 1,453,769
73,500 Integrated Health Services Inc 2,425,499
402,400 Laboratory Corporation America Holdings 1,056,300
37,400 Lincare Holdings Inc * 1,783,513
27,000 Living Centers of America Inc * 1,036,125
22,800 Marquette Medical Systems, Class A * 589,950
152,500 Mid Atlantic Medical Services Inc * 2,354,218
180,800 Novacare Corp * 2,723,299
157,500 Perrigo Co * 2,254,219
16,600 Quorum Health Group Inc * 565,438
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Health Care -- continued
46,100 Rightchoice Managed Care, Class A * 501,338
23,700 Sierra Health Services Inc * 780,619
36,200 Sofamor Denek Group Inc * 1,735,338
54,600 Spacelabs Medical Inc * 1,208,025
45,500 Sunrise Medical Inc * 673,969
18,600 Sybron International Corp * 742,838
8,500 United States Surgical Corp 279,969
19,300 Universal Health Services, Class B * 845,581
18,400 Varian Associates Inc 1,049,950
800 Vencor Inc * 32,100
--------------
37,842,989
--------------
Insurance -- 10.3%
5,757 Alleghany Corp 1,381,680
37,700 Allied Group Inc 1,668,225
1 Allmerica Financial Corp 15
9,600 AMBAC Inc 775,800
28,600 American Bankers Insurance Group 1,887,600
18,200 American Financial Group Inc 787,150
19,749 American Heritage Life Investments 697,387
16,800 American National Insurance Co 1,629,600
77,300 APL Ltd 2,473,599
25,500 Argonaut Group Inc 828,750
30,000 Berkley (WR) Corp 1,659,375
19,100 Capital Re Corp 970,519
50,200 Citizens Corp 1,418,150
12,300 CMAC Investment Corp 567,338
50,100 Commerce Group Inc 1,399,669
95,802 Conseco Inc 4,119,485
27,090 Delphi Financial Group Inc 1,186,881
21,200 Enhance Financial Services Group Inc 980,500
44,400 Equitable of Iowa Cos 2,891,549
34,400 Everest Re Holdings Inc 1,244,850
20,500 First American Financial Corp 917,375
61,510 Foundation Health Systems * 1,956,787
48,715 Fremont General Corp 1,942,511
14,700 Gallagher (Arthur J) and Co 525,525
24,500 Guaranty National Corp 690,594
22,500 Harleysville Group Inc 953,438
26,000 Horace Mann Educators Corp 1,420,250
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Insurance -- continued
85,700 Integon Corp 2,169,281
38,200 John Alden Financial Corp 1,091,088
9,900 Kansas City Life Insurance Co 806,850
26,400 Liberty Corp 1,145,100
28,700 Life Re Corp 1,472,669
37,500 Mercury General Corp 3,281,249
23,700 NAC Re Corp 1,116,863
45,300 Ohio Casualty Corp 2,106,450
27,950 Old Republic International Corp 1,004,453
49,500 Orion Capital 2,103,750
26,800 Penncorp Financial Group Inc 859,275
50,600 Presidential Life Corp 967,725
35,600 Protective Life Corp 1,771,100
88,667 Provident Cos Inc 5,774,463
5,900 Reinsurance Group of America 353,631
74,300 Reliance Group Holdings Inc 910,175
48,339 Reliastar Financial Corp 3,613,339
19,875 RLI Corp 752,766
27,800 Selective Insurance Group 1,369,150
36,300 TIG Holdings Inc 1,134,375
35,300 Transatlantic Holding Inc 2,495,268
13,950 Trenwick Group Inc 507,431
16,900 Twentieth Century Industries 391,869
9,600 UICI * 288,000
14,500 USF & G Corp 318,094
32,700 Washington National Corp 964,650
32,200 Western National Corp 897,575
10,200 Zurich Reinsurance Centre Inc 402,263
--------------
77,043,504
--------------
Machinery -- 3.8%
70,400 Agco Corporation 2,288,000
36,800 Cincinnati Milacron Inc 947,600
19,000 Coltec Industries Inc * 425,125
32,100 Cummins Engine Inc 2,469,693
66,200 Detroit Diesel Corp. * 1,435,713
53,400 Donaldson Co Inc 2,382,974
20,800 Federal Mogul Corp 743,600
11,500 Harnischfeger Industries Inc 461,438
15,700 Kennametal Inc 734,956
31,400 Kulicke & Soffa Industries * 1,442,438
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery -- continued
65,500 Lam Research Corp * 3,700,749
36,000 Mohawk Industries Inc * 931,500
26,800 Nordson Corp 1,547,700
31,800 Novellus System Inc * 3,645,074
104,800 Oakley Inc 1,277,250
21,300 Starrett (LS) Co, Class A 745,500
38,600 Tecumseh Products Co, Class B 2,084,400
9,500 Toro Co 352,688
17,800 Ultratech Stepper Inc * 511,750
--------------
28,128,148
--------------
Manufacturing -- 3.4%
70,500 ACX Technologies Inc * 1,846,219
21,000 Aeroquip-Vickers Inc 1,173,375
7,700 Alliant Techsystems Inc * 497,131
87,700 Amcast Industrial Corp 2,126,725
25,200 Applied Power Inc, Class A 1,600,200
34,300 Ball Corp 1,127,613
26,200 Barnes Group Inc 722,138
64,650 Clayton Homes Inc 1,086,928
47,500 Crane Co 2,095,938
10,900 CSS Industries Inc * 391,038
23,000 Gibson Greetings Inc * 517,500
28,300 Global Industrial Technologies Inc * 535,931
13,100 Greif Brothers Corp 393,000
44,500 Griffon Corp * 623,000
15,900 Harsco Corp 716,494
22,400 International Game Technology 448,000
59,600 Lafarge Corp 1,937,000
13,400 Lydall Inc * 318,250
9,500 Mine Safety Appliances 598,500
10,700 Owens Illinois Inc * 372,494
15,100 Sequa Corp, Class A * 773,875
17,200 Standex International Corp 542,875
9,950 Tredegar Industries 684,684
72,200 Trinity Industries Inc 2,869,949
33,200 Watts Industries Inc, Class A 809,250
11,100 West Co Inc 345,488
--------------
25,153,595
--------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Metals and Mining -- 1.2%
13,600 Allegheny Teledyne Inc 419,900
30,100 Arch Coal Inc 833,394
86,500 Asarco Inc 2,659,874
16,700 Cleveland Cliffs Inc 696,181
29,500 Commercial Metals Co 907,125
15,700 Nacco Inds Inc, Class A 1,354,125
60,400 Timken Co 2,261,225
--------------
9,131,824
--------------
Oil and Gas -- 1.3%
8,200 El Paso Natural Gas Co 461,250
57,511 Enserch Exploration Inc * 517,597
57,100 Equitable Resources Inc 1,745,119
8,100 FINA Inc, Class A 534,600
19,700 KCS Energy Inc 525,744
22,900 Mitchell Energy, Class B 572,500
1 Monterey Resources Inc 21
47,400 Oneok Inc 1,534,575
24,700 Oryx Energy Co * 653,006
16,600 Peoples Energy Corp 625,613
35,400 Santa Fe Energy Resources Inc 391,613
32,400 Seagull Energy Corp * 791,775
45,800 Union Texas Petroleum Holdings Inc 1,067,713
--------------
9,421,126
--------------
Paper and Allied Products -- 3.0%
43,200 Boise Cascade Corp 1,709,100
76,100 Bowater Inc 3,895,368
66,800 Chesapeake Corp 2,296,250
58,600 Jefferson Smurfit Corp * 1,139,038
22,300 Longview Fibre Co 466,906
48,600 Media General Inc, Class A 1,786,050
19,500 Pentair Inc 694,688
41,400 Potlatch Corp 1,932,863
63,600 Rayonier Inc 3,104,474
53,900 Rock-Tenn Co, Class A 1,145,375
22,300 Shorewood Packaging Corp * 482,238
144,500 Stone Container Corp 2,492,624
16,100 TJ International Inc 406,525
22,700 Zurn Industries Inc 673,906
--------------
22,225,405
--------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals -- 1.0%
11,300 Amerisource Health Corp * 565,706
54,675 Bergen Brunswig Corp, Class A 2,296,350
74,000 ICN Pharmaceuticals Inc 2,673,249
64,575 Mark IV Industries Inc 1,622,447
--------------
7,157,752
--------------
Primary Materials -- 1.2%
20,100 Ameron Inc 1,174,594
22,200 Carpenter Technology Corp 994,838
16,700 Florida Rock Inds 824,563
20,000 Martin Marietta Materials Inc 698,750
15,600 Medusa Corp 733,200
78,100 Premark International Inc 2,323,475
13,800 Southdown Inc 647,738
32,900 USG Corp * 1,410,588
--------------
8,807,746
--------------
Primary Processing -- 2.4%
31,700 AK Steel Holding Corp 1,434,425
98,200 Alumax Inc * 4,069,162
182,100 Bethlehem Steel Corp * 2,185,200
39,500 Birmingham Steel Corp 740,625
44,900 Chaparral Steel Corp 679,113
56,000 Inland Steel Industries Inc 1,179,500
125,400 LTV Corp 1,630,200
44,500 Lukens Inc 831,594
6,700 Maxxam Inc * 368,500
6,700 Mueller Industries Inc * 293,544
81,400 National Steel Corp, Class B * 1,531,338
11,100 NCH Corp 754,800
25,000 Oregon Steel Mills Inc 673,438
19,700 Quanex Corp 715,356
38,600 Rouge Industries Inc, Class A 593,475
--------------
17,680,270
--------------
Printing and Publishing -- 0.2%
20,900 American Business Products Inc 483,313
56,600 Hollinger International Inc 728,725
8,799 Pulitzer Publishing Co 462,497
--------------
1,674,535
--------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate -- 0.4%
47,300 Lennar Corp 1,767,838
4,400 Security Capital Corp 455,400
57,900 Webb (D) Corp 1,013,250
--------------
3,236,488
--------------
Refining -- 0.6%
19,500 Holly Corp 510,656
23,400 Lyondell Petro Chemical Co 567,450
9,300 Tosco Corp 307,481
56,892 Ultramar Diamond Shamrock Corp 1,856,102
34,700 Valero Energy Corp 1,155,944
--------------
4,397,633
--------------
Retail Trade -- 6.9%
20,800 AnnTaylor Stores Corp * 356,200
13,400 Barnes & Noble Inc * 622,263
67,300 Bed, Bath & Beyond Inc * 2,086,300
50,900 Best Buy Co Inc * 865,300
28,100 Borders Group Inc 669,131
36,800 Brinker International Inc * 616,400
32,900 Brown Group Inc 549,019
15,800 Brunos Inc * 138,250
69,600 Burlington Coat Factory Warehouse * 1,600,800
24,800 Casey's General Stores Inc 564,200
54,700 Cash American Investments Inc 588,025
88,200 Charming Shoppes Inc * 531,952
25,500 Claire's Stores Inc 535,500
47,600 CompUSA Inc 1,472,625
79,100 Cone Mills Corp * 622,913
55,100 CPI Corp 1,308,625
62,100 Dress Barn Inc * 1,273,050
100,550 Family Dollar Stores Inc 2,136,688
124,700 Fingerhut Cos Inc 2,525,174
28,200 Foodmaker Inc * 553,425
14,300 Goodys Family Clothing Inc * 487,988
37,100 Hannaford Brothers Co 1,261,400
41,500 Heilig Meyers Co 622,500
132,900 Homebase Inc 1,046,588
61,600 Ingles Markets Inc 823,900
51,500 Longs Drug Stores Corp 1,303,594
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
18,000 Macfrugals Bargains Close Outs Inc * 490,500
30,100 Mercantile Stores 1,879,369
40,400 Meyer Fred Inc * 2,100,800
84,200 Michaels Stores Inc * 2,057,638
38,300 Micro Warehouse Inc * 1,000,588
19,800 Microage Inc * 538,313
36,800 Neiman Marcus Group Inc * 1,136,200
26,700 NPC International Inc * 303,713
74,300 Officemax Inc * 1,100,569
25,200 Outback Steakhouse Inc * 607,950
47,500 Phillips Van Heusen 682,813
15,950 Pier 1 Imports Inc 271,150
12,600 Proffitts Inc * 676,463
35,200 Richfood Holdings Inc 792,000
58,300 Ross Stores Inc 1,712,563
26,000 Ruby Tuesday Inc * 702,000
46,900 Ruddick Corp 703,500
377,500 Service Merchandise Co * 1,462,813
91,000 Shopko Stores Inc * 2,502,499
324,800 Southland Corp * 923,634
80,400 Spiegel Inc, Class A * 512,550
46,000 Stanhome Inc 1,495,000
1,900 TJX Cos Inc 52,250
118,900 Value City Department Stores Inc * 951,200
22,800 Weismarkets Inc 769,500
10,800 Woolworth (FW) Co * 241,650
27,800 Zale Corp * 597,700
--------------
51,426,735
--------------
Services -- 5.5%
14,300 Amerco * 384,313
38,200 Anixter International Inc * 618,363
54,925 Arctic Cat Inc 597,309
8,004 Ascent Entertainment Group * 88,044
103,000 Aztar Corp * 721,000
82,050 Banta Corp 2,215,350
16,300 Belo (AH) Corp 698,863
19,500 Berlitz International Inc * 511,875
31,300 Bowne and Co Inc 905,744
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Services -- continued
105,100 Buffetts Inc * 1,149,531
8,900 Carmike Cinemas Inc, Class A * 280,350
12,700 Catalina Marketing Corp * 588,169
9,100 Chemed Corp 342,388
30,338 Chris Craft Industries Inc 1,488,452
198,300 Dames and Moore Inc 2,602,687
23,100 Devon Group Inc * 877,800
28,600 Electro Rental Corp * 772,200
71,600 Fleming Cos Inc 1,351,450
23,000 Franklin Covey Co * 572,125
101,700 Grand Casinos Inc * 1,569,994
90,200 Handleman Co * 535,563
46,800 Healthcare Compare Corp * 2,609,099
14,000 Hollywood Entertainment Corp * 229,250
13,400 Interim Services Inc * 661,625
26,500 International Dairy Queen Inc, Class A * 652,563
32,200 Interpool Inc 511,175
27,500 Jacobs Engineering Group * 880,000
64,900 Kellwood Co 2,344,512
35,300 Kelly Services 1,182,550
38,100 Kingworld Productions Inc 1,514,475
12,300 Marcus Corp 305,194
130,700 Nash Finch Co 2,793,712
9,700 Norrell Corp 313,431
41,500 Ogden Corp 962,281
62,700 Olsten Corp 1,175,625
1 Philip Services * 11
35,700 Rollins Truck Leasing Corp 577,894
18,700 Rykoff Sexton Inc 472,175
17,900 Sbarro Inc 478,825
66,500 Spelling Entertainment Group Inc * 519,531
9,500 Stone & Webster Inc 450,063
71,100 Sun Healthcare Group Inc * 1,528,650
31,900 Supervalu Inc 1,252,075
21,500 United Video Satellite * 599,313
24,648 United Water Resources Inc 440,583
--------------
41,326,182
--------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology -- 4.0%
113,000 Advanced Micro Devices Inc * 4,230,437
41,100 Autodesk Inc 1,798,125
16,600 Broderbund Software Inc * 489,700
36,800 Cirrus Logic Corp * 632,500
60,800 Cognex Corp * 2,325,599
10,100 Cohu Inc 565,600
29,500 Data General Corp * 1,060,156
7,700 Dionex Corp * 359,975
36,400 EG & G Inc 773,500
35,500 Electroglas Inc * 1,136,000
23,500 Esterline Corp. * 872,438
13,200 Fisher Scientific International Inc 650,100
6,000 Fluke Corp 297,000
19,000 G TECH Holdings Corp * 571,188
16,300 KLA Instruments Corp * 1,155,263
23,800 MTS Systems Inc 761,600
9,900 National Computer System Inc 324,225
14,400 Solectron Corp 603,000
23,300 Storage Technology Corp * 1,186,844
160,800 Tandem Computers Inc * 5,467,199
18,800 Tektronix Inc 1,044,575
65,100 Teradyne Inc * 3,625,255
--------------
29,930,279
--------------
Telecommunications -- 0.3%
24,400 Century Telephone 886,025
53,200 Comsat Corp 1,153,775
--------------
2,039,800
--------------
Textiles -- 0.7%
4,200 Crystal Brands Inc./(a)/ * --
44,250 Guilford Mills 962,438
44,300 Interface Flooring Systems Inc 1,240,400
68,300 Shaw Industries 764,106
36,600 Springs Industries Inc, Class A 1,720,200
21,200 Westpoint Stevens Inc * 848,000
--------------
5,535,144
--------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation -- 3.2%
52,700 Airborne Freight Corp 2,595,474
37,950 Airline Express International Corp 1,152,731
15,800 Alaska Airline Group Inc * 433,513
39,600 American West Holdings Corp, Class B * 477,675
24,200 Asa Holdings Inc 719,950
123,600 CNF Transportation Inc 4,465,049
41,800 Comair Holdings Inc 1,123,375
30,500 Fleetwood Enterprises Inc 949,313
37,100 Gatx Corp 2,321,069
1 Halter Marine Group Inc * 32
23,300 Heartland Express Inc 576,675
45,200 Hunt (JB) Transportation Services Inc 751,450
25,600 Illinois Central Corp 859,200
64,600 Navistar International Corp * 1,602,888
13,500 US Freightways Corp 405,000
109,600 USAir Group Inc * 3,740,099
44,400 Viad Corp 807,525
11,000 Werner Enterprises Inc 240,625
33,500 Yellow Corp * 1,051,063
--------------
24,272,706
--------------
Utilities -- 7.3%
13,400 AES Corp 495,800
62,600 American Water Works Co 1,298,950
138,400 Atlantic Energy Inc 2,396,049
89,200 Boston Edison Co 2,519,899
28,200 Brooklyn Union Natural Gas Co 851,288
286,900 Centerior Energy Corp 3,227,624
21,500 Central Hudson Gas & Electric 717,563
15,600 Central Louisiana Electric Inc 409,500
61,900 Central Maine Power Co 785,356
8,400 Cilcorp Inc 337,575
76,500 Commonwealth Energy Systems 1,883,813
79,100 Delmarva Power and Light Co 1,418,856
16,100 Eastern Enterprises 574,569
35,900 Eastern Utilities Associates 686,588
59,300 El Paso Electric Company * 370,625
9,800 Energen Corp 353,413
24,400 Hawaiian Electric Industry Inc 882,975
13,883 Houston Industries Inc 281,134
47,200 Illinova Corp 1,085,600
24,500 LES Industries Inc 750,313
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
28,300 Mapco Inc 849,000
101,882 Midamerican Energy Holding Co 1,738,362
13,300 Minnesota Power & Light Co 457,188
108,800 Montana Power Co 2,509,199
25,600 Natural Gas Clearinghouse 419,200
41,600 Nevada Power Co 878,800
111,800 New York State Electric and Gas Corp 2,725,124
289,900 Niagara Mohawk Power Corp * 2,590,980
187,600 Northeast Utilities 1,887,725
30,400 Nui Corporation 699,200
16,600 Orange and Rockland Utilities 563,363
19,224 PG & E Corp 445,752
122,600 Public Services Co of New Mexico 2,237,450
55,900 Puget Sound Power and Light Co 1,418,463
113,400 Rochester Gas and Electric Corp 2,671,987
28,300 Sierra Pacific Resources 884,375
30,800 Southwest Natural Gas Corp 610,225
16,843 Texas Utilities Co 587,382
44,700 TNP Enterprises Inc 1,047,656
22,340 Tucson Electric Power Co * 356,044
31,500 United Illuminating Co 1,100,531
59,900 Utilicorp United Inc 1,782,025
27,800 Washington Gas Light Co 707,163
26,300 Washington Water Power 512,850
81,100 Western Gas Resources Inc 1,540,900
38,600 Western Resources Inc 1,293,100
24,000 Wisconsin Power & Light Holding Co 664,500
-------------
54,506,034
-------------
TOTAL COMMON STOCKS (COST $586,102,341) 698,768,903
-------------
RIGHTS AND WARRANTS -- 0.0%
Printing and Publishing -- 0.0%
550 American Satellite Network Warrants expire 06/30/99 --
(Cost $0)*
-------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-------------
SHORT-TERM INVESTMENTS -- 15.5%
Cash Equivalents -- 8.1%
$14,385,115 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 14,385,115
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Equivalents -- continued
$ 1,251,691 First Union National Bank of North Carolina Eurodollar
Time Deposit, 5.5625% due 9/2/97/(b)/ 1,251,691
$ 3,758,074 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due
9/2/97/(b)/ 3,758,074
31,656,404 Merrimac Cash Fund Premium Class/(b)/ 31,656,404
$ 9,000,000 Prudential Securities Group Inc Master Note, 5.8875% due
9/2/97/(b)/ 9,000,000
--------------
60,051,284
--------------
U.S. Government -- 0.1%
$ 1,000,000 U.S. Treasury Bill, 5.22% due 11/28/97/(c)/ 987,698
--------------
Repurchase Agreements -- 7.3%
$37,627,397 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $37,648,510 and an
effective yield of 5.05%, collateralized by U.S. Treasury
Obligations with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26 and with
an aggregate market value of $38,489,629. 37,627,397
$17,143,405 Prudential Securities, Inc. Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of $17,152,910
and an effective yield of 4.99%, collateralized by U.S.
Government and Agency Obligations with rates ranging from
6.072% to 6.914%, with maturity dates ranging from
10/1/32 to 8/1/35 and with an aggregate market value of
$17,486,330. 17,143,405
--------------
54,770,802
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $115,809,286) 115,809,784
--------------
TOTAL INVESTMENTS -- 109.1%
(COST $701,911,627) 814,578,687
Other Assets and Liabilities (net)-- (9.1)% (68,038,820)
--------------
TOTAL NET ASSETS-- 100% $ 746,539,867
==============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
/(a)/ Bankrupt security - valued by management (Note 1).
/(b)/ Represents investments of security lending collateral
(Note 1).
/(c)/ Security has been segregated to cover margin requirements
on open financial futures contracts.
See accompanying notes to the financial statements. 19
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $701,911,627) (Note 1) $814,578,687
Receivable for investments sold 8,842,176
Dividends and interest receivable 804,325
Receivable for variation margin on open futures contracts (Notes 1 and 6) 218,627
Receivable for expenses waived or borne by Manager (Note 2) 179,372
Miscellaneous receivable 37,341
------------
Total assets 824,660,528
------------
Liabilities:
Payable for investments purchased 10,176,513
Payable upon return of securities loaned (Note 1) 60,051,284
Payable for Fund shares repurchased 7,475,612
Payable to affiliate for (Note 2):
Management fee 291,011
Shareholder service fee 87,006
Accrued expenses 39,235
------------
Total liabilities 78,120,661
------------
Net assets $746,539,867
============
Net assets consist of:
Paid-in-capital $587,972,207
Accumulated undistributed net investment income 1,967,188
Accumulated undistributed net realized gain 43,387,803
Net unrealized appreciation 113,212,669
------------
$746,539,867
============
Net assets attributable to:
Class I shares $ 1,725,622
============
Class III shares $744,814,245
============
Shares outstanding:
Class I 94,566
============
Class III 40,813,011
============
Net asset value per share:
Class I $ 18.25
============
Class III $ 18.25
============
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends $ 3,825,406
Interest (including securities lending income of $41,679) 4,765,073
-------------
Total income 8,590,479
-------------
Expenses:
Management fee (Note 2) 1,758,768
Custodian and transfer agent fees 71,355
Registration fees 70,289
Audit fees 25,324
Legal fees 15,240
Trustees fees (Note 2) 3,683
Miscellaneous 2,132
Fees waived or borne by Manager (Note 2) (786,004)
-------------
1,160,787
Shareholder service fee (Note 2)
Class I 2,098
Class III 526,033
-------------
Net expenses 1,688,918
-------------
Net investment income 6,901,561
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 16,805,156
Closed futures contracts 25,520,750
-------------
Net realized gain 42,325,906
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 82,967,788
Open futures contracts 2,545,139
-------------
Net unrealized gain 85,512,927
-------------
Net realized and unrealized gain 127,838,833
-------------
Net increase in net assets resulting from operations $ 134,740,394
=============
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1997 February 28,
(Unaudited) 1997
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,901,561 $ 8,393,192
Net realized gain 42,325,906 48,217,450
Change in net unrealized appreciation (depreciation) 85,512,927 7,279,028
------------- -------------
Net increase in net assets resulting from operations 134,740,394 63,889,670
------------- -------------
Distributions to shareholders from:
Net investment income
Class I (14,575) --
Class III (7,251,227) (6,723,900)
------------- -------------
Total distributions from net investment income (7,265,802) (6,723,900)
------------- -------------
Net realized gains
Class I (53,330) --
Class III (25,584,900) (9,617,877)
------------- -------------
Total distributions from net realized gains (25,638,230) (9,617,877)
------------- -------------
(32,904,032) (16,341,777)
------------- -------------
Net share transactions: (Note 5)
Class I 120,769 1,343,250
Class III (12,181,277) 376,339,439
------------- -------------
Increase (decrease) in net assets resulting from net
share transactions (12,060,508) 377,682,689
------------- -------------
Total increase in net assets 89,775,854 425,230,582
Net assets:
Beginning of period 656,764,013 231,533,431
------------- -------------
End of period (including accumulated undistributed net
investment income of $1,967,188 and $2,331,429, $ 746,539,867 $ 656,764,013
respectively) ============= =============
</TABLE>
22 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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 2, 1997
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.89 $ 15.34
------- -------
Income from investment operations:
Net investment income 0.16 0.05
Net realized and unrealized gain 2.98 0.50
------- -------
Total from investment operations 3.14 0.55
------- -------
Less distributions to shareholders:
From net investment income (0.17) --
From net realized gains (0.61) --
------- -------
Total distributions (0.78) --
------- -------
Net asset value, end of period $ 18.25 $ 15.89
======= =======
Total Return/(a)/ 20.25% 3.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,726 $ 1,391
Net expenses to average daily net assets 0.61%* 0.61%*
Net investment income to average daily net assets 1.86%* 1.87%*
Portfolio turnover rate 23% 58%
Average broker commission rate per equity share $0.0370 $0.0271
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.02 /(b)/
</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)/ Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
See accompanying notes to the financial statements. 23
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ---------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.16 0.28 0.23 0.20 0.21 0.22
Net realized and unrealized gain 2.98 2.32 3.20 0.34 2.14 1.59
-------- -------- -------- -------- -------- --------
Total from investment operations 3.14 2.60 3.43 0.54 2.35 1.81
-------- -------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.17) (0.27) (0.23) (0.20) (0.22) (0.21)
From net realized gains (0.61) (0.33) (2.92) (1.04) (0.50) (0.04)
-------- -------- -------- -------- -------- --------
Total distributions (0.78) (0.60) (3.15) (1.24) (0.72) (0.25)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 18.25 $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68
======== ======== ======== ======== ======== ========
Total Return /(a)/ 20.22% 19.12% 27.18% 4.48% 18.97% 16.46%
Ratios/Supplemental Data:
Net assets, end of period (000's) $744,814 $655,373 $231,533 $235,781 $151,286 $102,232
Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to average
daily net assets 1.96%* 2.15% 1.67% 1.55% 1.66% 2.02%
Portfolio turnover rate 23% 58% 135% 54% 30% 3%
Average broker commission rate per
equity share /(b)/ $ 0.0370 $ 0.0271 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or borne
by the Manager consisted of
the following per share amounts: $ 0.02 $ 0.03 $ 0.02 $ 0.01 $ 0.02 $ 0.02
</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.
* Annualized.
24
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Small Cap Value Fund (the "Fund"), formerly named the GMO Core II
Secondaries Fund, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31,1997, Class I and Class III were the only
active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange.
25
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary
market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts held as of August 31,
1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $57,827,314, collateralized by
cash in the amount of $60,051,284, which was invested in short-term
instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform, or that there may be
unfavorable changes in
26
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
the price of the security or index underlying these transactions. There
were no open swap agreements as of August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. Prior to June 1, 1996, the premium on
cash purchases and fee on redemptions was .75% of the amount invested or
redeemed. All purchase premiums and redemption fees are paid to and
recorded as paid-in capital by the Fund. For the six months ended August
31, 1997, the Fund received $523,094 in
27
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
purchase premiums and $495,204 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $3,683. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $264,525,965 and $121,448,476, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
---------------------- --------------------- -------------------- ------------------
<S> <C> <C> <C>
$ 701,911,627 $ 119,450,718 $ 6,783,658 $ 112,667,060
</TABLE>
4. Principal shareholder
At August 31, 1997, 11% of the outstanding shares of the Fund were held by
one shareholder.
28
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended
Class I: August 31, 1997
------------------------------------
Shares Amount
---------------- ----------------
<S> <C> <C>
Shares sold 2,943 $ 52,864
Shares issued to shareholders in
reinvestment of distributions 4,058 67,905
Shares repurchased - -
---------------- ----------------
Net increase 7,001 $120,769
================ ================
<CAPTION>
Period from January 2, 1997
(commencement of operations)
Class I: to February 28, 1997
------------------------------------
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
================ ================
<CAPTION>
Six Months Ended
Class III: August 31, 1997
------------------------------------
Shares Amount
---------------- ----------------
<S> <C> <C>
Shares sold 6,363,495 $106,308,601
Shares issued to shareholders
in reinvestment of distributions 1,742,775 29,285,444
Shares repurchased (8,528,031) (147,775,322)
---------------- ----------------
Net increase (decrease) (421,761) $ (12,181,277)
================ ================
<CAPTION>
Class III: Year Ended
February 28, 1997
------------------------------------
Shares Amount
---------------- ----------------
<S> <C> <C>
Shares sold 36,443,463 $557,963,243
Shares issued to shareholders
in reinvestment of distributions 846,111 12,460,382
Shares repurchased (12,721,369) (194,084,186)
---------------- ----------------
Net increase (decrease) 24,568,205 $376,339,439
================ ================
</TABLE>
29
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
--------------- --------------- --------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
152 S&P 500 September 1997 $32,231,600 $545,609
============
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
30
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 87.3%
Advertising -- 0.0%
300 Interpublic Group Inc 14,625
----------
Aerospace -- 0.9%
8,500 Raytheon Co 467,500
1,400 Textron Inc 87,238
3,900 TRW Inc 203,288
----------
758,026
----------
Automotive -- 1.5%
100 Bandag Inc 5,331
900 Chrysler Corp 31,613
500 Eaton Corp 45,031
13,800 Ford Motor Co 593,400
6,300 General Motors Corp 395,325
2,600 Genuine Parts Co 80,275
2,000 Goodyear Tire & Rubber Co 123,250
----------
1,274,225
----------
Banking and Financial Services -- 11.5%
6,500 Ahmanson (HF) & Co 329,875
3,150 Amsouth Bancorp 132,497
4,500 Bank of New York Inc 200,813
8,300 BankBoston Corp 689,937
3,700 Bankers Trust New York Corp 383,875
9,500 Barnett Banks Inc 647,187
5,635 Bear Stearns Inc 222,949
1,900 Beneficial Corp 135,969
600 Charles Schwab & Co Inc 25,463
11,164 Chase Manhattan Corp 1,241,296
1,500 Citicorp 191,438
100 Comdisco Inc 2,719
2,400 Countrywide Credit Industry Inc 80,850
1,300 Donaldson Lufkin & Jenrette 77,188
4,300 Edwards (AG) Inc 170,925
3,900 Fleet Financial Group Inc 251,306
2,100 Franklin Resources Inc 162,488
100 Golden West Financial Corp 8,231
3,300 Greenpoint Financial Corp 203,156
100 Household International Inc 11,094
1,900 J.P. Morgan & Co Inc 203,775
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<C> <S> <C>
Banking and Financial Services -- continued
4,800 Lehman Brothers Holding Inc 210,600
9,200 Merrill Lynch 565,800
300 MGIC Investment Corp 15,094
12,545 Morgan Stanley Dean Witter Discover & Co 603,728
4,700 Paine Webber Group Inc 180,656
13,900 PNC Bank Corp 601,175
3,700 Providian Financial Corp 137,825
100 Republic New York Corp 10,706
6,600 Salomon Inc 395,175
500 SLM Holding Corp 67,750
2,000 Summit Bancorp 118,750
2,850 Synovus Financial Corp 74,634
12,533 Travelers Group Inc 795,845
8,800 Washington Mutual Inc 526,900
----------
9,677,669
----------
Chemicals -- 0.7%
2,200 Eastman Chemical Co 131,588
3,300 Great Lakes Chemical Corp 153,450
1,500 Lubrizol Corp 65,719
5,100 Union Carbide Corp 261,694
----------
612,451
----------
Computer and Office Equipment -- 3.5%
28,250 Compaq Computer Corp 1,850,374
6,600 EMC Corp * 338,663
1,100 Gateway 2000 Inc 43,038
11,300 Micron Technology Inc * 503,556
800 Pitney Bowes Inc 61,100
200 Sterling Software Inc 6,863
3,000 Western Digital Corp 144,375
----------
2,947,969
----------
Construction -- 0.1%
1,100 Georgia-Pacific Corp 100,375
----------
Consumer Goods -- 3.6%
4,500 Callaway Golf Co 151,594
1,800 Clorox Co 236,250
900 Colgate-Palmolive Co 56,475
6,300 Eastman Kodak Co 411,863
10,200 Fortune Brands Inc 350,625
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Consumer Goods -- continued
1,050 Hasbro Inc 28,219
1,600 Jones Apparel Group Inc 80,300
2,000 Liz Claiborne Inc 89,125
2,100 Moore Corp Ltd 41,606
3,900 Newell Co 153,563
300 Nike Inc, Class B 16,013
6,400 Procter and Gamble Co 851,599
3,900 Reebok International Ltd 171,356
2,400 Sunbeam Corp 105,600
2,700 VF Corp 238,613
----------
2,982,801
----------
Electronic Equipment -- 0.8%
300 Arrow Electronics Inc * 18,431
1,200 Cooper Industries Inc 63,975
400 Harris Corp Inc 34,850
1,000 Litton Industries * 49,875
4,500 Motorola Inc 330,188
1,400 Texas Instruments 159,075
----------
656,394
----------
Environmental Control -- 0.1%
4,500 Wheelabrator Technology Inc 70,594
----------
Food and Beverage -- 6.6%
17,100 Anheuser Busch Cos Inc 728,887
23,571 Archer Daniels Midland Co 509,733
2,600 Campbell Soup Co 120,575
15,900 Coca Cola Co 911,268
9,300 Coca Cola Enterprises Inc 255,750
8,600 CPC International Inc 766,474
1,100 Dean Foods Co 48,813
8,700 Heinz (HJ) Co 362,138
4,700 IBP Inc 107,806
14,900 Sara Lee Corp 599,725
6,700 Seagrams Co Ltd 234,081
3,500 Unilever NV ADR 704,374
400 Universal Foods Corp 15,525
4,100 Whitman Corp 100,450
500 Wrigley (William Jr) Co 36,250
----------
5,501,849
----------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Health Care -- 1.6%
400 Becton Dickinson & Co 19,175
2,700 Columbia HCA Healthcare Corp 85,219
1,100 Hillenbrand Industries Inc 48,331
5,200 Johnson & Johnson 294,775
3,800 Mallinckrodt Inc 138,225
1,200 McKesson Corp 112,425
7,300 Pharmacia & Upjohn Inc 248,656
9,300 Tenet Healthcare Corp * 253,425
2,600 United States Surgical Corp 85,638
800 Wellpoint Health Network * 43,500
--------------
1,329,369
--------------
Insurance -- 3.4%
4,200 AFLAC Corp 231,263
1,700 AMBAC Inc 137,381
500 CNA Financial Corp * 56,719
12,700 Conseco Inc 546,100
3,900 Lincoln National Corp 261,056
1,800 MBIA Inc 203,850
2,100 Old Republic International Corp 75,469
2,400 Progressive Corp 237,600
1,100 Reliastar Financial Corp 82,225
4,600 Safeco Corp 225,975
4,500 Saint Paul Cos Inc 330,188
4,200 Torchmark Corp 158,288
2,400 Transamerica Corp 236,550
900 Transatlantic Holding Inc 63,619
--------------
2,846,283
--------------
Machinery -- 1.3%
9,300 Applied Materials Inc * 877,687
1,800 Cummins Engine Inc 138,488
1,100 FMC Corp * 91,369
--------------
1,107,544
--------------
Manufacturing -- 5.5%
5,700 Corning Inc 301,388
24,400 General Electric Co 1,524,999
1,000 Gillette Co 82,813
15,100 IBM Corp 1,523,212
3,900 International Game Technology 78,000
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ---------------------------------------------------------------------------------
<C> <S> <C>
Manufacturing -- continued
1,900 Leggett & Platt Inc 81,700
4,200 Minnesota Mining And Manufacturing Co 377,475
2,500 Owens Illinois Inc * 87,031
2,600 Temple Inland Inc 167,700
4,600 Tyco International Ltd * 360,813
900 United Technologies Corp 70,256
----------
4,655,387
----------
Metals and Mining -- 0.1%
1,500 Phelps Dodge Corp 120,656
----------
Oil and Gas -- 7.3%
4,600 Apache Corp 182,563
10,000 Atlantic Richfield Co 749,999
200 Burlington Resources Inc 10,125
4,100 Chevron Corp 317,494
1,400 Columbia Natural Gas Systems Inc 92,400
2,600 El Paso Natural Gas Co 146,250
100 Ensco International Inc 6,350
21,400 Exxon Corp 1,309,412
1,200 Mobil Corp 87,300
3,300 Occidental Petroleum Corp 77,344
1,500 Oryx Energy Co * 39,656
1,500 Pennzoil Co 115,781
8,900 Phillips Petroleum Co 423,306
7,100 Schlumberger Ltd 540,931
4,500 Sonat Inc 224,156
5,700 Texaco Inc 656,924
7,900 Union Pacific Resources Group 197,500
11,300 Unocal Corp 441,406
15,400 USX - Marathon Group 501,463
----------
6,120,360
----------
Paper and Allied Products -- 1.3%
2,400 Champion International Corp 142,050
1,700 Fort James Corp 71,400
7,000 International Paper Co 369,250
2,000 Mead Corp 141,875
1,800 Sonoco Products Co 58,613
4,300 Westvaco Corp 145,663
1,600 Willamette Industries Inc 127,600
----------
1,056,451
----------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value
Shares Description ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Pharmaceuticals -- 7.3%
27,400 Abbott Laboratories 1,642,287
2,100 Allergan Inc 67,988
2,000 American Home Products Corp 144,000
26,200 Bristol Myers Squibb Co 1,991,199
1,600 Lilly (Eli) & Co 167,400
9,700 Merck & Co Inc 890,580
2,000 Pfizer Inc 110,750
7,900 Schering Plough Corp 379,200
5,800 Warner Lambert Co 736,962
----------
6,130,366
----------
Primary Materials -- 0.1%
1,100 Rubbermaid Inc 27,500
800 Vulcan Materials Co 70,300
----------
97,800
----------
Primary Processing -- 0.2%
1,600 Du Pont (EI) De Nemours & Co 99,700
2,900 USX-US Steel Group Inc 101,863
----------
201,563
----------
Refining -- 0.8%
500 Murphy Oil Corp 26,844
9,600 Royal Dutch Petroleum 487,200
4,200 Tosco Corp 138,863
----------
652,907
----------
Retail Trade -- 4.4%
10,700 Albertsons Inc 367,813
12,800 American Stores Co 303,200
13,000 Costco Cos Inc * 468,813
8,800 Dayton Hudson Corp 501,600
1,300 Dillards Department Stores Inc 52,000
3,800 Fruit of the Loom Inc * 101,650
39,400 Kmart Corp * 546,675
6,400 Limited Inc 145,600
700 Penney (JC) Co Inc 42,000
3,400 Rite Aid Corp 170,213
5,398 Safeway Inc * 274,935
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
2,200 TJX Cos Inc 60,500
1,500 Toys R Us Inc * 51,844
16,400 Wal Mart Stores Inc 582,200
-------------
3,669,043
-------------
Services -- 0.3%
400 BHC Communications Inc, Class A 49,100
1,500 Disney Walt Co 115,219
300 Fleming Cos Inc 5,663
2,700 Supervalu Inc 105,975
-------------
275,957
-------------
Technology -- 10.2%
7,900 Advanced Micro Devices Inc * 295,756
2,100 Avnet Inc 145,294
1,000 Cisco Systems Inc * 75,375
13,600 Dell Computer Corp 1,116,049
1,100 Grainger (WW) Inc 97,694
32,500 Intel Corp 2,994,062
18,500 Microsoft Corp 2,445,468
2,400 Oracle Corp 91,500
6,000 Seagate Technology Corp 229,125
5,900 Storage Technology Corp * 300,531
3,100 Teradyne Inc * 172,631
8,000 Xerox Corp 604,000
-------------
8,567,485
-------------
Telecommunications -- 4.9%
34,000 AT & T Corp 1,325,999
6,894 Bell Atlantic Corp 498,924
400 Bellsouth Corp 17,600
1,800 Cincinnati Bell Inc 48,488
6,000 GTE Corp 267,375
21,400 MCI Communications Corp 609,899
4,800 SBC Communications 261,000
19,500 Sprint Corp 916,499
3,500 US West Inc 125,344
-------------
4,071,128
-------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Transportation -- 1.8%
9,700 Burlington Northern Santa Fe Railroad Co 889,368
3,300 CSX Corp 188,719
3,900 Federal Express Corp 259,106
1,800 Ryder System Inc 64,238
1,300 UAL Corp * 99,044
----------
1,500,475
----------
Utilities -- 7.5%
10,000 AES Corp* 370,000
4,800 Allegheny Power System Inc 139,500
7,000 American Electric Power Inc 305,813
10,600 Baltimore Gas and Electric Co 286,200
3,500 Carolina Power and Light Co 118,125
1,300 Central & South West Corp 26,894
9,800 Cinergy Corp 324,013
2,828 Citizens Utilities, Class B 23,685
4,000 CMS Energy Corp 143,750
2,900 Coastal Corp 167,475
7,000 Dominion Resources Inc 252,000
4,500 DPL Inc 106,594
3,800 DQE Inc 120,650
6,800 Duke Power Co 329,375
17,800 Edison International 429,425
17,600 Entergy Corp 436,700
4,900 Florida Progress Corp 157,719
22,300 Houston Industries Inc 451,575
4,700 Illinova Corp 108,100
2,000 LG&E Energy Corp 45,250
5,500 Long Island Lighting Co 135,781
1,700 New Century Energies Inc * 68,638
2,100 Nipsco Industries Inc 85,706
1,700 Northern States Power Co 81,813
10,500 Pacificorp 217,875
2,200 PG & E Corp 51,013
3,400 Potomac Electric Power Co 77,138
1,000 PP & L Resources Inc 21,938
2,200 Scana Corp 53,075
35,300 Southern Co 743,505
3,500 Teco Energy Inc 84,219
7,200 Texas Utilities Co 251,100
3,100 Wisconsin Energy Corp 79,244
----------
6,293,888
----------
TOTAL COMMON STOCKS (COST $60,139,758) 73,293,640
==========
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- -------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 16.2%
Cash Equivalents -- 5.6%
$1,573,771 BankBoston Eurodollar Time Deposit, 5.7875% due
9/2/97/(a)/ 1,573,771
$ 97,423 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 97,423
$292,270 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 292,270
706,878 Merrimac Cash Fund Premium Class/(a)/ 706,878
$2,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 2,000,000
-----------
4,670,342
-----------
Repurchase Agreements -- 10.0%
$4,198,363 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/2/97, with a
maturity value of $4,200,691 and an effective
yield of 4.99%, collateralized by a U.S.
Government Agency Obligation with a rate of
6.811%, with a maturity date of 3/1/35 and with
a market value of $4,282,345. 4,198,363
$4,198,363 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$4,200,719 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations with
rates ranging from 5.00% to 6.75%, with maturity
dates ranging from 2/15/99 to 8/15/26 and with
an aggregate market value of $4,294,569. 4,198,363
-----------
8,396,726
-----------
U.S. Government -- 0.6%
$510,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 503,726
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $13,570,540) 13,570,794
-----------
TOTAL INVESTMENTS -- 103.5%
(COST $73,710,298) 86,864,434
Other Assets and Liabilities (net) -- (3.5)% (2,904,391)
-----------
TOTAL NET ASSETS-- 100% $83,960,043
===========
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
/(a)/ Represents investments of security lending collateral
(Note 1).
/(b)/ Security has been segregated to cover margin requirements
on open financial futures contracts.
See accompanying notes to the financial statements. 9
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $73,710,298) (Note 1) $86,864,434
Cash 3,801,810
Receivable for investments sold 841,080
Dividends and interest receivable 143,229
Receivable for open swap contracts (Notes 1 and 6) 115,168
Receivable for variation margin on open futures contracts (Notes
1 and 6) 34,650
Receivable for expenses waived or borne by Manager (Note 2) 23,016
-----------
Total assets 91,823,387
-----------
Liabilities:
Payable for investments purchased 3,113,357
Payable upon return of securities loaned (Note 1) 4,670,342
Payable to affiliate for (Note 2):
Management fee 32,056
Shareholder service fee 9,601
Accrued expenses 37,988
-----------
Total liabilities 7,863,344
-----------
Net assets $83,960,043
===========
Net assets consist of:
Paid-in-capital $67,211,464
Accumulated undistributed net investment income 236,490
Accumulated undistributed net realized gain 3,266,805
Net unrealized appreciation 13,245,284
===========
$83,960,043
===========
Net assets attributable to:
Class III shares $83,960,043
===========
Shares outstanding:
Class III 6,503,780
===========
Net asset value per share:
Class III $ 12.91
===========
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $77) $ 645,145
Interest (including securities lending income of $1,185) 176,076
-----------
Total income 821,221
-----------
Expenses:
Management fee (Note 2) 179,569
Audit fees 23,368
Custodian and transfer agent fees 22,135
Registration fees 5,134
Legal fees 1,550
Trustees fees (Note 2) 358
Miscellaneous 92
Fees waived or borne by Manager (Note 2) (113,690)
-----------
118,516
Shareholder service fee (Note 2)
Class III 53,854
-----------
Net expenses 172,370
-----------
Net investment income 648,851
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,805,970
Closed futures contracts 560,808
Closed swap contracts (105,975)
-----------
Net realized gain 3,260,803
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 7,469,435
Open futures contracts (11,464)
Open swap contracts 199,867
-----------
Net unrealized gain 7,657,838
-----------
Net realized and unrealized gain 10,918,641
-----------
Net increase in net assets resulting from operations $11,567,492
===========
</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>
Six Months Ended Year Ended
August 31, 1997 February 28,
(Unaudited) 1997
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 648,851 $ 1,068,038
Net realized gain 3,260,803 17,195,664
Change in net unrealized appreciation (depreciation) 7,657,838 (6,109,720)
------------- -------------
Net increase in net assets resulting from operations 11,567,492 12,153,982
------------- -------------
Distributions to shareholders from:
Net investment income
Class III (577,419) (1,070,308)
------------- -------------
Total distributions from net investment income (577,419) (1,070,308)
------------- -------------
Net realized gains
Class III (10,998,257) (10,440,389)
------------- -------------
Total distributions from net realized gains (10,998,257) (10,440,389)
------------- -------------
(11,575,676) (11,510,697)
------------- -------------
Net share transactions: (Note 5)
Class III 17,707,792 8,132,135
------------- -------------
Increase in net assets resulting from net share transactions 17,707,792 8,132,135
------------- -------------
Total increase in net assets 17,699,608 8,775,420
Net assets:
Beginning of period 66,260,435 57,485,015
------------- -------------
End of period (including accumulated undistributed net investment
income of $236,490 and $165,058, respectively) $ 83,960,043 $ 66,260,435
============= =============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29,
August 31, 1997 ----------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50
--------- -------- ------- -------- -------- --------
Income from investment operations:
Net investment income 0.12 0.24 0.28 0.23 0.34 0.31
Net realized and unrealized gain 2.03 2.41 3.71 0.50 1.18 0.84
--------- -------- ------- -------- -------- --------
Total from investment
operations 2.15 2.65 3.99 0.73 1.52 1.15
--------- -------- ------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.11) (0.24) (0.25) (0.28) (0.35) (0.30)
From net realized gains (2.11) (2.36) (1.46) (0.87) (1.45) --
--------- -------- ------- -------- -------- --------
Total distributions (2.22) (2.60) (1.71) (1.15) (1.80) (0.30)
--------- -------- ------- -------- -------- --------
Net asset value, end of period $ 12.91 $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35
========= ======== ======= ======== ======== ========
Total Return/(a)/ 17.39% 22.76% 38.64% 7.36% 14.12% 11.20%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 83,960 $ 66,260 $57,485 $ 47,969 $ 55,845 $ 85,232
Net expenses to average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49%
Net investment income to average
daily net assets 1.81%* 1.83% 2.25% 2.52% 2.42% 2.88%
Portfolio turnover rate 28% 131% 81% 112% 38% 56%
Average broker commission rate per
equity share (b) $ 0.0253 $ 0.0259 N/A N/A N/A N/A
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.02 $ 0.04 $ 0.03 $ 0.03 $ 0.03 $ 0.02
</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.
* Annualized.
See accompanying notes to the financial statements. 13
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's 500
Stock Index through investment of substantially all of its assets in common
stocks chosen from the Wilshire 5000 Index and primarily in common stocks
chosen from the among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange which are not tobacco producing issuers.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Short-term
investments with a remaining maturity of sixty days or less are valued at
amortized cost which approximates market value. Other assets and securities
for which no quotations are readily available are valued at fair value as
determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its
14
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the initial
margin requirements of the broker or exchange. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund loaned
securities having a market value of $4,489,740, collateralized by cash in
the amount of $4,670,342, which was invested in short-term instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the equity
markets. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The Fund enters
into equity swap agreements which involve a commitment by one party in the
agreement to pay interest in exchange for a market linked return based on a
notional amount. To the extent that the total return of the security or
index underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. Equity swaps are marked to market
daily based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss in the Statement of Operations. Payments
received or made at the end of the measurement period are recorded as
realized gain or loss in the Statement of Operations. Entering into these
agreements involves, to varying degrees, elements of credit and market risk
in excess of the amounts recognized on the Statement of Assets and
Liabilities. Such risks involve the possibility that there is no liquid
market for these
15
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 6 for a
summary of all open swap agreements as of August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and is adjusted for the accretion of discounts. In determining the net
gain or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated pro-rata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount invested.
Prior to June 1, 1996, the premium on cash purchases was .17% of the amount
invested. All purchase premiums are paid to and recorded as paid-in capital
by the Fund. For the six months ended August 31, 1997, the Fund
16
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)--(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
received $9,034 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at the
annual rate of .28% for Class I shares, .22% for Class II shares, and .15%
for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .48%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1997 was $358. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997, aggregated
$18,749,031 and $18,355,671, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ -------------------- -------------------- -------------------
<S> <C> <C> <C>
$ 73,710,298 $ 13,786,390 $ 632,254 $ 13,154,136
</TABLE>
4. Principal shareholders
At August 31, 1997, 87% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
17
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) - (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 28, 1996
---------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 484,857 $ 6,453,116 1,730,490 $ 22,801,781
Shares issued to shareholders
in reinvestment of distributions 934,872 11,575,676 933,753 11,510,698
Shares repurchased (22,153) (321,000) (2,002,361) (26,180,344)
----------- ----------- ----------- ----------
Net increase 1,397,576 $ 17,707,792 661,882 $ 8,132,135
=========== =========== =========== ==========
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Net
Number of Expiration Unrealized
Contracts Type Date Contract Value Depreciation
------------- ------------ -------------- ----------------- --------------
<S> <C> <C> <C> <C>
21 S&P 500 September 1997 $ 9,482,550 $ 24,020
==============
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
18
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)--(Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
----------------- ---------- ----------------------------------------------- ----------------
<C> <C> <S> <C>
$ 1,886,617/ 9/11/97 Agreement with Morgan Stanley Capital Services, $ 110,492
1,819,266 Inc. dated September 9, 1996 to pay (receive)
the notional amount multiplied by the return on
the Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread and to receive (pay) the
change in market value of a basket of
selected securities (including dividends)
less the counterparty's notional amount
multiplied by 6 month LIBOR adjusted by a
specified spread.
$ 2,359,489/ 5/6/98 Agreement with NatWest Markets dated 5/6/97 to (271,643)
2,359,489 receive (pay) the counterparty's notional
amount multiplied by the return on the Standard
& Poor's 500 Index (including dividends) less
the notional amount multiplied by LIBOR adjusted
by a specified spread and to pay (receive) the
change in market value of a basket of selected
securities (including dividends) less the
notional amount multiplied by LIBOR adjusted by a
specified spread.
3,425,851/ 5/13/98 Agreement with Morgan Stanley Capital Services, 276,319
3,163,935 Inc. dated 5/13/97 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by LIBOR adjusted by a
specified spread and to receive (pay) the change
in market value of a basket of selected securities
(including dividends) less the counterparty's
notional amount multiplied by LIBOR adjusted by a
specified spread.
--------------
Net unrealized appreciation $ 115,168
==============
</TABLE>
19
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 89.5%
Argentina -- 0.4%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.50%, due 3/31/23 736,875
-------------
Brazil -- 0.8%
USD 1,702,221 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 1,387,311
-------------
Bulgaria -- 0.1%
USD 2,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2,
due 7/28/24 220,120
-------------
Denmark -- 0.6%
DKK 6,700,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 1,027,687
-------------
Mexico -- 1.3%
FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,407,551
USD 1,000,000 Mexico Par Bond Series B, 6.25%, due 12/31/19 800,000
-------------
2,207,551
-------------
New Zealand -- 4.3%
NZD 12,000,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 7,329,609
-------------
Supra National -- 2.1%
ITL 5,000,000,000 European Investment Bank, 12.20%, due 2/18/03 3,545,455
-------------
Sweden -- 4.8%
SEK 65,800,000 Kingdom of Sweden, 6.00%, due 2/09/05 8,188,333
-------------
United States -- 74.6%
Asset Backed Securities -- 61.2%
USD 918,049 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due
3/25/27 917,475
USD 3,379,369 Americredit Automobile Receivables Trust Series
96-B Class A, 6.50%, due 1/12/02 3,392,569
USD 15,500,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.65%, due 4/25/03 15,500,000
USD 10,000,000 Brazos Student Loan Finance Corp. Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%,
5.94%, due 12/01/02 9,985,938
USD 10,000,000 First Chicago Master Trust II 95-0,
Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due
2/15/04 10,037,500
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 20,000,000 First Chicago Master Trust II 96-S Class A,
Variable Rate, 1 mo. LIBOR + .13%, 5.78%, due
8/15/04 20,005,999
USD 5,000,000 First USA Credit Card Master Trust 97-4 Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due
2/17/10 4,999,219
USD 3,025,184 Keycorp Student Loan Trust 94-B Class A,
Variable Rate, 1 mo. LIBOR + .29%, 5.92%, due
8/27/18 3,036,528
USD 10,000,000 MBNA Master Credit Card Trust 94-C Class A,
Variable Rate, 1 mo. LIBOR + .25%, 5.88%, due
3/15/04 10,051,563
USD 10,000,000 Navistar Financial Dealer Note Master Trust 90-A
Class A3, Variable Rate, 1 mo. LIBOR + .90%,
6.54%, due 1/25/03 10,093,750
USD 5,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due
7/15/09 5,148,500
USD 8,311,004 Signet Student Loan Trust Series 96-A Class A-1,
Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due
1/25/05 8,311,004
USD 3,000,000 Starvest CBO-1 Class A,
Variable Rate, 6 mo. LIBOR + .19%, 6.00%, due
7/30/11, 144A 2,982,972
-------------
104,463,017
-------------
U.S. Government -- 13.4%
USD 19,000,000 U.S. Treasury Bond, 6.25%, due 8/15/23/(a)/ 17,978,749
USD 5,000,000 U.S. Treasury Inflation Indexed Note, 3.375%, due
1/15/07 4,976,053
-------------
22,954,802
-------------
Total United States 127,417,819
-------------
Venezuela -- 0.5%
USD 1,000,000 Republic of Venezuela Par Bond, 6.75%, due 3/31/20 819,375
-------------
TOTAL DEBT OBLIGATIONS (COST $152,016,156) 152,880,135
-------------
<CAPTION>
Shares
- ---------------------------
<S> <C> <C>
PREFERRED STOCKS -- 2.3%
United States -- 2.3%
4,000 Bear Stearns Managed Income Securities Plus Fund 3,959,880
-------------
TOTAL PREFERRED STOCKS (COST $3,949,109) 3,959,880
-------------
</TABLE>
See accompanying notes to the financial statements. 2
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 1.1%
Cross Currency Options -- 0.9%
ECU 46,100,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 518,657
ECU 19,800,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 480,131
ECU 20,200,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out
1.9225, Strike 1.91 536,166
-------------
1,534,954
-------------
Options on Bonds -- 0.0%
SEK 20,000,000 Sweden Government Bond, Expires 10/24/97, Strike
95.484 52,783
-------------
Options on Currency -- 0.2%
USD 10,700,000 British Pound, Expires 11/06/97, Strike 1.6325 236,470
-------------
TOTAL CALL OPTIONS PURCHASED
(COST $1,732,995) 1,824,207
-------------
PUT OPTIONS PURCHASED -- 0.0%
Cross Currency Options -- 0.0%
USD 600,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97,
Strike 400 7,200
USD 234,896 TRL Put/USD, DEM Basket Call, Expires 12/15/97,
Strike 425 1,050
-------------
8,250
-------------
TOTAL PUT OPTIONS PURCHASED
(COST $11,130) 8,250
-------------
<CAPTION>
Shares
- ---------------------------
<S> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
2,740,000 United Mexican States Warrants, Expires 6/30/03 * --
-------------
Venezuela -- 0.0%
1,000,000 Republic of Venezuela Recovery Warrants, Expires
04/15/20 * --
-------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 10.2%
Repurchase Agreements -- 10.2%
USD 8,698,570 Prudential Securities, Inc. Repurchase Agreement,
dated 8/29/97, due 9/2/97, with a maturity value
of $8,703,393 and an effective yield of 4.99%,
collateralized by U.S. Government Agency
Obligations with rates ranging from 6.072% to
6.811%, with maturity dates ranging from 10/1/32
to 3/1/35 and with an aggregate market value of
$8,872,571. 8,698,570
USD 8,698,570 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$8,703,450 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations with
rates ranging from 5.00% to 6.75%, with maturity
dates ranging from 2/15/99 to 8/15/26 and with an
aggregate market value of $8,897,897. 8,698,570
-------------
17,397,140
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $17,397,140) 17,397,140
-------------
TOTAL INVESTMENTS -- 103.1%
(COST $175,106,530) 176,069,612
Other Assets and Liabilities (net) -- (3.1)% (5,286,200)
-------------
TOTAL NET ASSETS -- 100% $ 170,783,412
=============
</TABLE>
Notes to the Schedule of Investments:
PIK -- Payment In Kind
Knock Out -- Option will expire if underlying
security reaches Knock Out price.
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments -- continued
Variable and Step up rates -- The rates shown on
variable and step up rate notes are the current
interest rates at August 31, 1997, which are
subject to change based on the terms of the
security.
<TABLE>
Currency Abbreviations
<S> <C>
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krona
ECU - European Currency Unit THB - Thailand Baht
ESP - Spanish Peseta TRL - Turkish Lira
FRF - French Franc USD - United States Dollar
</TABLE>
/(a)/All or a portion of this security is held as collateral
for open futures contracts.
* Non-income producing security.
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $175,106,530) (Note 1) $176,069,612
Cash 21,880,488
Foreign currency, at value (cost $9,635) (Note 1) 11,917
Interest receivable 1,096,545
Receivable for open forward foreign currency contracts (Notes 1 and 6) 1,767,959
Receivable for expenses waived or borne by Manager (Note 2) 37,775
Receivable for Fund shares sold 74,346
Miscellaneous receivable 112
------------
Total assets 200,938,754
------------
Liabilities:
Payable for investments purchased 25,141,159
Written options outstanding, at value (premiums $46,637) (Notes 1 and 6) 175,364
Payable for open forward foreign currency contracts (Notes 1 and 6) 1,073,784
Payable for Fund shares repurchased 3,263,012
Payable to affiliate for (Note 2):
Management fee 42,472
Shareholder service fee 15,927
Accrued expenses 82,603
Payable for open swap contracts (Notes 1 and 6) 85,779
Payable for variation margin on open futures contracts (Notes 1 and 6) 275,242
------------
Total liabilities 30,155,342
------------
Net assets $170,783,412
============
Net assets consist of:
Paid-in-capital $166,479,984
Accumulated undistributed net investment income 1,951,168
Accumulated undistributed net realized gain 1,218,146
Net unrealized appreciation 1,134,114
------------
$170,783,412
============
Net assets attributable to:
Class III shares $170,783,412
============
Shares outstanding:
Class III 16,169,307
============
Net asset value per share:
Class III $ 10.56
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Operations --
Period from April 30, 1997 (commencement of operations) to
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest $1,941,960
Dividends 132,700
----------
Total income 2,074,660
----------
Expenses:
Management fee (Note 2) 123,193
Custodian and transfer agent fees 68,117
Audit fees 25,575
Registration fees 1,291
Legal fees 1,203
Trustees fees (Note 2) 205
Miscellaneous 395
Fees waived or borne by Manager (Note 2) (142,685)
----------
77,294
Shareholder service fee (Note 2)
Class III 46,198
----------
Net expenses 123,492
----------
Net investment income 1,951,168
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 86,222
Closed futures contracts 785,797
Closed swap contracts 94,982
Foreign currency, forward contracts and foreign currency related
transactions 251,145
----------
Net realized gain 1,218,146
----------
Change in net unrealized appreciation (depreciation) on:
Investments 963,082
Open futures contracts (338,818)
Open swap contracts (85,779)
Written options (128,727)
Foreign currency, forward contracts and foreign currency related
transactions 724,356
----------
Net unrealized gain 1,134,114
----------
Net realized and unrealized gain 2,352,260
----------
Net increase in net assets resulting from operations $4,303,428
==========
</TABLE>
7 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
----------------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,951,168
Net realized gain 1,218,146
Change in net unrealized appreciation (depreciation) 1,134,114
------------
Net increase in net assets resulting from operations 4,303,428
------------
Net share transactions: (Note 5)
Class III 166,479,984
------------
Increase in net assets resulting from net share
transactions 166,479,984
------------
Total increase in net assets 170,783,412
Net assets:
Beginning of period --
------------
End of period (including accumulated undistributed net
investment income of $1,951,168) $170,783,412
============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
---------------------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Income from investment operations:
Net investment income 0.21+
Net realized and unrealized gain 0.35
--------
Total from investment operations 0.56
--------
Net asset value, end of period $ 10.56
========
Total Return/(a)/ 5.60%
Ratios/Supplemental Data:
Net assets, end of period (000's) $170,787
Net expenses to average daily net assets 0.40%*
Net investment income to average daily net assets 6.34%*
Portfolio turnover rate 7%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amount: $ 0.02
</TABLE>
+ Computed using average shares outstanding throughout the period.
* Annualized.
/(a)/ Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Bond/Global Alpha A Fund (the "Fund"), which commenced operations
on April 30, 1997, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund seeks a high total return primarily through investing in
investment-grade bonds.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies
10
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
are translated at prevailing exchange rates when accrued or incurred. The
Fund does not isolate realized and unrealized gains and losses attributable
to changes in exchange rates from gains and losses that arise from changes
in the market value of investments. Such fluctuations are included with net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains and
losses on disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1997.
11
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. See Note 6 for a summary of the open written option
contracts as of August 31, 1997.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest rates. See Note 6 for a summary of open swap
agreements as of August 31, 1997.
12
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund had no securities on
loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
13
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. All purchase premiums are paid to and recorded as paid-in capital
by the Fund. For the period ended August 31, 1997, the Fund received
$255,362 in purchase premiums. There is no premium for cash redemptions,
reinvested distributions or in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .25% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 1997 was $205. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
14
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the period ended August 31, 1997, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------- ------------------
<S> <C> <C>
U.S. Government securities $ 25,823,752 $ 3,652,500
Investments (non-U.S. Government securities) 136,782,744 2,409,360
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$175,106,530 $1,426,699 $463,617 $963,082
</TABLE>
4. Principal shareholders
At August 31, 1997, 59% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
Class III: to August 31, 1997
---------------------------------
Shares Amount
------------- ----------------
<S> <C> <C>
Shares sold 16,530,426 $ 170,266,298
Shares issued to shareholders
in reinvestment of distributions -- --
Shares repurchased (361,119) (3,786,314)
------------- ---------------
Net increase 16,169,307 $ 166,479,984
============= ===============
</TABLE>
15
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
- -------------- ------------------ ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Buys
9/26/97 CAD 20,400,000 $ 14,716,844 $ (9,489)
9/02/97 DEM 3,178,913 1,766,345 2,605
9/05/97 DEM 80,900,000 44,960,780 (202,115)
10/17/97 GBP 7,200,000 11,652,547 (116,971)
10/09/97 JPY 630,000,000 5,268,504 (213,730)
-----------------
$ (539,700)
=================
Sales
11/28/97 AUD 4,600,000 $ 3,386,170 $ 55,550
9/26/97 CAD 25,400,000 18,323,914 28,337
9/05/97 DEM 57,801,273 32,123,489 226,375
10/17/97 GBP 13,100,000 21,201,161 1,409
10/09/97 JPY 1,120,000,000 9,366,230 228,516
9/23/97 NZD 11,600,000 7,403,604 129,196
3/23/98 THB 60,000,000 1,639,195 440,528
6/22/98 THB 30,000,000 811,030 211,116
-----------------
$ 1,321,027
=================
</TABLE>
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>
10/10/97 BEF 2,613,775,780 DEM 126,600,000 $ 17,243
11/13/97 CHF 7,732,460 DEM 9,400,000 (10,037)
9/02/97 DEM 901,638 DKK 3,433,887 87
9/02/97 DEM 2,277,275 SEK 9,917,535 (1,953)
9/19/97 DEM 3,200,000 NLG 3,603,382 385
9/22/97 DEM 42,200,000 ITL 41,843,334,750 265,976
</TABLE>
16
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Forward cross currency contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
- -------------- --------------------------- --------------------------------- -----------------
<S> <C> <C> <C> <C> <C>
10/23/97 DEM 12,000,000 ESP 1,017,075,900 $ 1,904
10/27/97 DEM 250,202,940 ECU 127,200,000 (293,783)
11/07/97 DEM 2,600,000 FRF 8,762,598 140
11/13/97 DEM 3,200,000 CHF 2,624,864 (1,658)
11/21/97 DEM 9,900,000 SEK 43,288,830 275
11/14/97 DKK 85,408,760 DEM 22,400,000 (8,346)
10/27/97 ECU 32,100,000 DEM 63,286,805 155,554
10/23/97 ESP 652,594,900 DEM 7,700,000 (1,032)
11/07/97 FRF 146,400,698 DEM 43,400,000 (24,325)
9/22/97 ITL 32,081,825,500 DEM 32,400,000 (179,048)
9/19/97 NLG 14,517,402 DEM 12,900,000 2,763
11/21/97 SEK 92,345,882 DEM 21,100,000 (11,297)
-----------------
$ (87,152)
=================
</TABLE>
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- -------------------------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
Buys
26 Australian Government Bond 3 yr September 1997 $ 2,299,494 $ 47,282
48 Australian Government Bond 10 September 1997 5,011,257 150,809
yr
45 Canadian Government Bond September 1997 3,904,134 99,084
24 German Government Bond December 1997 3,376,112 (6,179)
27 Japanese Government Bond September 1997 28,660,726 (260)
117 U.K. Gilt September 1997 11,075,203 (16,850)
31 U.K. Gilt December 1997 2,870,276 2,405
338 U.S. Treasury Note 5 yr. December 1997 35,975,875 26,636
187 U.S. Treasury Note 10 yr. September 1997 20,388,844 81,160
129 U.S. Treasury Note 10 yr. December 1997 14,020,688 2,689
133 U.S. Treasury Bond 30 yr. September 1997 15,045,625 162,777
49 U.S. Treasury Bond 30 yr. December 1997 5,524,750 15,258
-----------------
$ 564,811
=================
</TABLE>
17
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- -------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Sales
47 MATIF FRF Bond September 1997 $ 5,017,001 $ 22,683
5 Italian Government Bond 10 yr. December 1997 613,548 (664)
27 Japanese Government Bond December 1997 28,492,845 (4,692)
27 Japanese Government Bond September 1997 29,774,812 (873,780)
6 Japanese Government Bond December 1997 6,406,436 (11,831)
91 Spanish Government Bond 10 yr. September 1997 7,075,637 (52,095)
101 Swiss Government Bond September 1997 8,343,347 10,337
63 Swiss Government Bond December 1997 5,003,538 6,413
-----------------
$ (903,629)
=================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
<TABLE>
<CAPTION>
Written call option transactions
Principal Amount
of Contracts
(000's omitted) Premiums
----------------- ------------
<S> <C> <C>
Outstanding, beginning
of period $ -- $ --
Options written 2,727 46,637
----------------- ------------
Outstanding, end
of period $ 2,727 $ 46,637
================= ============
</TABLE>
Summary of written options outstanding
<TABLE>
<CAPTION>
Principal Amount
of Contracts Expiration
(000's omitted) Exercise Price Date Value
----------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Thai Baht Call $ 2,727 33 THB 10/16/97 $ 175,364
===============
</TABLE>
18
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Net Unrealized
Expiration Appreciation
Notional Amount Date Description (Depreciation)
- ---------------------- ------------- --------------------------------------------------- ---------------
<S> <C> <C> <C>
TRL 80,250,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $ (93,935)
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
TRL 33,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 8,156
receive the notional amount multiplied by the
change in market value (including accrued
interest) of Turkey Index Linked Bond and to pay
the notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
--------------
Net unrealized depreciation $ (85,779)
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
19
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 93.6%
Cayman Islands -- 0.8%
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 3,073,821
-------------
Denmark -- 1.7%
DKK 41,800,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 6,411,537
-------------
France -- 2.4%
ECU 4,000,000 Government of France, 8.25%, due 4/25/22 5,205,902
ECU 3,000,000 Societe Nationale des Chemins de Fer, 9.38%, due
3/12/01 3,709,451
-------------
8,915,353
-------------
Japan -- 1.5%
GBP 3,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 5,354,373
-------------
New Zealand -- 1.8%
NZD 10,700,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 6,535,568
-------------
Sweden -- 5.4%
SEK 159,600,000 Kingdom of Sweden, 6.00%, due 2/09/05 19,861,062
-------------
United Kingdom -- 2.2%
GBP 4,160,000 Guaranteed Export Financial Corp, 12.88%, due 9/29/02 8,261,319
-------------
United States -- 77.8%
Asset Backed Securities -- 42.4%
USD 10,000,000 Anfield Road I Ltd.,
Variable Rate, 6 mo. LIBOR + .25%, 6.09%, due
11/06/06 10,007,700
USD 9,795,184 Banc One Student Loan Trust 94-A Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due
10/25/16 9,834,365
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.65%, due 4/25/03 5,000,000
USD 5,000,000 Bombardier Receivables Master Trust I 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.80%, due
4/15/04 5,003,125
USD 5,000,000 Brazos Student Loan Finance Corp. Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%,
5.94%, due 12/01/02 4,992,969
USD 15,000,000 Chevy Chase Master Credit Card Trust 95-C Class A,
Variable Rate, LIBOR + .26%, 5.91%, due 12/15/02 15,030,000
USD 7,500,000 Chevy Chase Master Credit Card Trust Series 96-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.80%, due
2/15/05 7,501,172
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 10,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, LIBOR + .17%, 5.85%, due 10/15/06 10,000,000
USD 5,000,000 European Sovereign Investments,
Variable Rate, 6 mo. LIBOR + .40%, 6.24%, due
1/20/99 5,020,000
USD 4,000,000 First Chicago Master Trust II 95-0,
Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due
2/15/04 4,015,000
USD 5,000,000 First Deposit Master Trust Series 96-1A,
Variable Rate, 1 mo. LIBOR +.17%, 5.82%, due
8/15/07 5,012,500
USD 14,000,000 First Union Master Credit Card Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.82%, due
9/15/03 14,017,500
USD 10,000,000 Keycorp Student Loan Trust 95-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 6.44%, due
10/27/21 10,000,000
USD 6,618,872 Keystone Auto Grantor Trust Series 1996-A Class A,
6.60%, due 12/15/02, 144A 6,698,298
USD 3,000,000 MBNA Master Credit Card Trust 96-J Class A,
Variable Rate. 1 mo. LIBOR + .15%, 5.80%, due
2/15/06 3,003,000
USD 8,000,000 PARMA Food Corp BV,
Variable Rate, 3 mo. LIBOR + .25%, 6.03%, due
12/20/00 8,024,000
USD 5,000,000 Premier Auto Trust 95-1 Certificates, 8.10%, due
12/04/98 5,112,500
USD 3,220,936 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 6.08%, due
6/25/26 3,219,930
USD 10,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due 9/15/09,
144A 10,049,900
USD 12,466,506 Signet Student Loan Trust Series 96-A Class A-1,
Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due
1/25/05 12,466,506
USD 2,620,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due
10/25/23 2,620,000
--------------
156,628,465
--------------
Structured Notes -- 6.2%
USD 2,900,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR), 4.34%, due
3/03/98 2,871,000
USD 20,000,000 Student Loan Marketing Association Series 95-1 Class
A2, Variable Rate, 3 mo. U.S. Treasury Bill + .75%,
6.06%, due 5/25/04 20,120,000
--------------
22,991,000
--------------
U.S. Government -- 18.0%
USD 5,000,000 U.S. Treasury Inflation Indexed Note, 3.375%, due
1/15/07 4,976,053
USD 29,000,000 U.S. Treasury Note, 6.88%, due 8/31/99/(a)/ 29,489,375
USD 31,600,000 U.S. Treasury Note, 6.38%, due 8/15/02 31,807,359
--------------
66,272,787
--------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- 11.2%
USD 16,666,667 Agency for International Development Floater
(Support of India), 5.56%, due 2/01/99 16,661,458
USD 5,000,000 Agency for International Development Floater
(Support of C.A.B.E.I.), Variable Rate, 6 mo.
U.S. Treasury Bill + .40%, 5.85%, due 10/01/12 4,987,500
USD 20,000,000 Federal National Mortgage Association, 6.49%, due
1/19/06 19,460,000
-------------
41,108,958
-------------
Total United States 287,001,210
-------------
TOTAL DEBT OBLIGATIONS (COST $346,387,193) 345,414,243
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
- -----------------------
<S> <C> <C>
CALL OPTION PURCHASED -- 0.2%
Cross Currency Option -- 0.2%
ECU 68,700,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 772,922
-------------
TOTAL CALL OPTION PURCHASED
(COST $804,841) 772,922
-------------
SHORT-TERM INVESTMENTS -- 9.3%
Repurchase Agreements -- 9.3%
USD 16,192,894 Prudential Securities, Inc. Repurchase Agreement,
dated 8/29/97, due 9/2/97, with a maturity value of
$16,201,867 and an effective yield of 4.99%,
collateralized by a U.S. Government Agency
Obligation with a rate of 6.072%, with a maturity
date of 10/01/32 and a market value of $16,516,807. 16,192,894
USD 18,159,611 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$18,169,801 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations with rates
ranging from 5.00% to 6.75%, with maturity
dates ranging from 2/15/99 to 8/15/26 and with an
aggregate market value of $18,575,739. 18,159,611
-------------
34,352,505
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $34,352,505) 34,352,505
-------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 103.1%
(COST $381,544,539) 380,539,670
Other Assets and Liabilities (net)-- (3.1)% (11,389,905)
--------------
TOTAL NET ASSETS-- 100% $ 369,149,765
==============
</TABLE>
Notes to the Schedule of Investments:
144A -- Securities exempt from registration under Rule
144A of the Securities Act of 1933. These securities
may be resold in transactions exempt from
registration, normally to qualified
institutional buyers.
Variable rates -- The rates shown on variable rate
notes are the current interest rates at August 31,
1997, which are subject to change based on the terms
of the security.
Currency Abbreviations
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
DEM - German Mark
DKK - Danish Krone
ECU - European Currency Unit
ESP - Spanish Peseta
FRF - French Franc
GBP - British Pound
ITL - Italian Lira
JPY - Japanese Yen
NLG - Netherlands Guilder
NZD - New Zealand Dollar
SEK - Swedish Krona
USD - United States Dollar
/(a)/ All or a portion of this security is held as
collateral for open futures contracts.
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $381,544,539) (Note 1) $380,539,670
Foreign currency, at value (cost $5,037) (Note 1) 5,956
Receivable for Fund shares sold 6,429,488
Interest receivable 4,492,522
Receivable for open forward foreign currency contracts (Notes 1 and 6) 1,275,245
Receivable for expenses waived or borne by Manager (Note 2) 80,552
Miscellaneous receivable 9,659
------------
Total assets 392,833,092
------------
Liabilities:
Payable for investments purchased 20,744,916
Payable for open forward foreign currency contracts (Notes 1 and 6) 2,206,278
Payable to affiliate for (Note 2):
Management fee 106,816
Shareholder service fee 40,056
Accrued expenses 27,966
Payable for variation margin on open futures contracts (Notes 1 and 6) 557,295
------------
Total liabilities 23,683,327
------------
Net assets $369,149,765
============
Net assets consist of:
Paid-in-capital $372,662,834
Accumulated undistributed net investment income 1,663,865
Accumulated undistributed net realized loss (982,038)
Net unrealized depreciation (4,194,896)
============
$369,149,765
============
Net assets attributable to:
Class III shares $369,149,765
============
Shares outstanding:
Class III 37,287,495
============
Net asset value per share:
Class III $ 9.90
============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Operations --
Period from July 29, 1997 (commencement of operations) to
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Investment Income:
<S> <C>
Interest $ 1,760,575
Expenses:
Management fee (Note 2) 110,526
Custodian and transfer agent fees 19,350
Audit fees 7,050
Registration fees 690
Legal fees 600
Trustees fees (Note 2) 120
Miscellaneous 270
Fees waived or borne by Manager (Note 2) (83,343)
-----------
55,263
Shareholder service fee (Note 2)
Class III 41,447
-----------
Net expenses 96,710
-----------
Net investment income 1,663,865
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (2,755)
Closed futures contracts (1,184,772)
Foreign currency, forward contracts and foreign currency related
transactions 205,489
-----------
Net realized loss (982,038)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (1,004,869)
Open futures contracts (2,254,951)
Foreign currency, forward contracts and foreign currency related
transactions (935,076)
-----------
Net unrealized loss (4,194,896)
-----------
Net realized and unrealized loss (5,176,934)
-----------
Net decrease in net assets resulting from operations $(3,513,069)
===========
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 29, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
--------------------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,663,865
Net realized loss (982,038)
Change in net unrealized appreciation (depreciation) (4,194,896)
------------
Net decrease in net assets resulting from operations (3,513,069)
------------
Net share transactions: (Note 5)
Class III 372,662,834
------------
Increase in net assets resulting from net share
transactions 372,662,834
------------
Total increase in net assets 369,149,765
Net assets:
Beginning of period --
------------
End of period (including accumulated undistributed net
investment income of $1,663,865) $369,149,765
============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 29, 1997
(commencement of operations)
to August 31, 1997
(Unaudited)
-------------------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Income from investment operations:
Net investment income 0.04
Net realized and unrealized loss (0.14)
--------
Total from investment operations (0.10)
--------
Net asset value, end of period $ 9.90
========
Total Return/(a)/ (1.00)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $369,150
Net expenses to average daily net assets 0.35%*
Net investment income to average daily net assets 6.02%*
Portfolio turnover rate 0%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amount: /(b)/
</TABLE>
/(a)/ Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
/(b)/ Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Annualized.
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Bond/Global Alpha B Fund (the "Fund"), which commenced operations
on July 29, 1997, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund seeks a high total return primarily through investing in
investment-grade bonds.
The Fund offers three classes of shares: Class I, Class II, and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class III was the
only active class of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies
9
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
are translated at prevailing exchange rates when accrued or incurred. The
Fund does not isolate realized and unrealized gains and losses attributable
to changes in exchange rates from gains and losses that arise from changes
in the market value of investments. Such fluctuations are included with net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains and
losses on disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of August 31, 1997.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1997.
10
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Options
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. The Fund as a writer of an option has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. There is the risk the
Fund may not be able to enter into a closing transaction because of an
illiquid market. At August 31, 1997, the Fund had no outstanding written
options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At August 31, 1997, the Fund had no securities on
loan.
11
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. All purchase premiums are paid to and recorded as paid-in capital
by the Fund. For the period ended August 31, 1997, the Fund received
$191,158 in purchase premiums. There is no premium for cash redemptions,
reinvested distributions or in-kind transactions.
12
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. The Fund has adopted a Shareholder Services Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Services Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .28%
for Class I shares, .22% for Class II shares, and .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .20% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 1997 was $120. No remuneration
is paid to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
For the period ended August 31, 1997, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
------------------- ------------------
<S> <C> <C>
U.S. Government securities $ 131,056,709 -
Investments (non-U.S. Government securities) 216,054,393 -
</TABLE>
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$381,544,539 $126,358 $1,131,227 $1,004,869
</TABLE>
13
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1997, 100% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 29, 1997
(commencement of operations)
Class III: to August 31, 1997
------------------------------
Shares Amount
------------- ---------------
<S> <C> <C>
Shares sold 37,287,495 $ 372,662,834
Shares issued to shareholders - -
in reinvestment of
distributions
Shares repurchased - -
============= ===============
Net increase 37,287,495 $ 372,662,834
============= ===============
</TABLE>
14
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency Value (Depreciation)
- -------------- ------------------ ----------------- -------------- ------------------
<S> <C> <C> <C> <C>
Buys
9/26/97 CAD 71,800,000 $ 52,013,944 $ (62,630)
9/02/97 DEM 5,869,992 3,261,628 4,810
9/05/97 DEM 93,300,000 51,852,173 436,375
11/13/97 DEM 1,100,000 614,180 24,730
9/02/97 DKK 7,310,857 1,066,809 6,114
10/23/97 ESP 873,852,000 5,750,618 111,505
10/17/97 GBP 10,100,000 16,345,934 94,367
9/22/97 ITL 19,569,000,000 11,105,367 77,333
10/09/97 JPY 830,000,000 6,941,045 (202,783)
9/23/97 NZD 2,400,000 1,531,780 (7,580)
------------------
$ 482,241
==================
Sales
11/28/97 AUD 8,600,000 6,330,665 $ 103,855
9/26/97 CAD 71,600,000 51,653,237 (45)
11/13/97 CHF 893,750 607,798 (18,347)
9/02/97 DEM 1,919,616 1,066,624 (5,929)
9/05/97 DEM 95,500,000 53,074,839 (1,169,601)
9/22/97 DEM 20,000,000 11,127,976 (99,943)
10/23/97 DEM 10,300,000 5,743,313 (104,210)
10/17/97 GBP 29,700,000 38,066,755 20,352
10/09/97 JPY 1,510,000,000 12,627,685 261,632
9/23/97 NZD 12,700,000 8,105,670 62,829
------------------
$ (949,407)
==================
</TABLE>
15
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Forward cross currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
- -------------- --------------------------- --------------------------- -------------------
<S> <C> <C> <C> <C> <C>
10/10/97 BEF 2,961,652,750 DEM 143,300,000 $ (63,835)
11/13/97 CHF 12,439,414 DEM 15,100,000 (28,447)
9/02/97 DEM 27,950,376 SEK 122,216,697 6,248
9/22/97 DEM 54,600,000 ITL 53,549,528,000 9,871
10/10/97 DEM 2,000,000 BEF 41,304,800 76
10/23/97 DEM 9,300,000 ESP 788,407,500 (27,382)
10/27/97 DEM 344,876,220 ECU 175,400,000 (329,070)
11/07/97 DEM 22,300,000 FRF 75,215,651 11,062
11/13/97 DEM 6,000,000 CHF 4,921,620 (3,109)
11/14/97 DEM 1,400,000 DKK 5,338,760 626
11/14/97 DKK 189,874,490 DEM 49,800,000 (17,458)
10/27/97 ECU 75,400,000 DEM 148,075,190 41,995
10/23/97 ESP 1,051,024,000 DEM 12,400,000 (2,267)
11/07/97 FRF 212,138,427 DEM 62,900,000 (28,399)
9/22/97 ITL 41,372,071,000 DEM 42,200,000 1,465
9/19/97 NLG 25,571,523 DEM 22,700,000 (7,588)
11/21/97 SEK 210,965,728 DEM 48,200,000 (27,655)
------------------
$ (463,867)
==================
</TABLE>
16
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- -------------------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Buys
51 Australian Government Bond 10 yr September 1997 $ 5,309,378 $ 16,421
50 MATIF ECU Bond September 1997 5,208,329 (51,426)
9 German Government Bond December 1997 1,266,042 (2,317)
43 Japanese Government Bond September 1997 45,652,101 6,827
37 U.K. Gilt September 1997 3,409,489 (16,170)
11 U.K. Gilt December 1997 1,017,515 (1,250)
873 U.S. Treasury Note 5 yr. December 1997 92,919,938 47,732
539 U.S. Treasury Note 10 yr. September 1997 58,767,844 (778,855)
322 U.S. Treasury Note 10 yr. December 1997 34,997,375 (19,165)
366 U.S. Treasury Bond 30 yr. September 1997 41,403,750 (1,009,081)
98 U.S. Treasury Bond 30 yr. December 1997 11,049,500 19,796
-----------------
$ (1,787,488)
=================
Sales
29 Canadian Government Bond September 1997 $ 2,500,899 $ 1,627
44 MATIF FRF Bond September 1997 4,606,629 31,679
44 Italian Government Bond 10 yr. December 1997 5,399,236 (5,800)
43 Japanese Government Bond December 1997 45,377,494 (7,472)
43 Japanese Government Bond September 1997 46,398,969 (608,674)
6 Japanese Government Bond December 1997 6,412,621 (10,472)
126 Spanish Government Bond September 1997 9,505,643 63,607
106 Swiss Government Bond September 1997 8,381,524 46,037
66 Swiss Government Bond December 1997 5,226,921 22,005
-----------------
$ (467,463)
=================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
17
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
MUTUAL FUNDS-- 98.1%
<S> <C> <C>
5,008,467 GMO Core Fund (Class III Shares) 96,663,412
1,640,147 GMO REIT Fund (Class III Shares) 21,912,363
1,183,830 GMO Small Cap Growth Fund (Class III Shares) 14,797,878
801,055 GMO Small Cap Value Fund (Class III Shares) 14,619,247
-------------
TOTAL MUTUAL FUNDS (COST $149,059,175) 147,992,900
-------------
COMMON STOCKS -- 0.4%
Food and Beverage -- 0.0%
1,560 Archer Daniels Midland Co 33,731
-------------
Oil and Gas -- 0.1%
2,100 Pennzoil Co 162,094
-------------
Technology -- 0.0%
1,150 Oracle Corp 43,844
-------------
Telecommunications -- 0.3%
5,453 Bell Atlantic Corp 394,646
-------------
Utilities -- 0.0%
122 Houston Industries Inc 2,474
-------------
TOTAL COMMON STOCKS (COST $549,169) 636,789
-------------
REAL ESTATE INVESTMENT TRUSTS -- 0.0%
Apartments -- 0.0%
8,000 Security Capital Atlantic (Rights) 125
24,100 Security Capital Industry (Rights) 188
20,500 Security Capital Pacific (Rights) 320
-------------
633
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $0) 633
-------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 1.4%
Repurchase Agreement -- 1.4%
$2,068,621 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $2,069,782 and an
effective yield of 5.05%, collateralized by U.S. Treasury
Obligations with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26 and with an
aggregate market value of $2,116,013. 2,068,621
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,068,621) 2,068,621
-------------
TOTAL INVESTMENTS -- 99.9%
(COST $151,676,965) 150,698,943
Other Assets and Liabilities (net) -- 0.1% 88,942
-------------
TOTAL NET ASSETS -- 100% $ 150,787,885
=============
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $151,676,965) (Note 1) $ 150,698,943
Receivable for investments sold 4,919,491
Dividends and interest receivable 213,741
Receivable for expenses waived or borne by Manager (Note 2) 44,294
-------------
Total assets 155,876,469
-------------
Liabilities:
Payable for Fund shares repurchased 4,976,389
Payable to affiliate for (Note 2):
Management fee 61,649
Shareholder service fee 13,377
Accrued expenses 36,737
Miscellaneous payable 432
-------------
Total liabilities 5,088,584
-------------
Net assets $ 150,787,885
=============
Net assets consist of:
Paid-in-capital $ 109,158,067
Accumulated undistributed net investment income 637,870
Accumulated undistributed net realized gain 41,969,970
Net unrealized depreciation (978,022)
=============
$ 150,787,885
=============
Net assets attributable to:
Class I shares $ 1,633,106
=============
Class III shares $ 149,154,779
=============
Shares outstanding:
Class I 145,192
=============
Class III 13,249,765
=============
Net asset value per share:
Class I $ 11.25
=============
Class III $ 11.26
=============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $178) $ 2,263,230
Interest (including securities lending income of $3,961) 958,483
------------
Total income 3,221,713
------------
Expenses:
Management fee (Note 2) 497,516
Custodian and transfer agent fees 39,702
Audit fees 23,174
Legal fees 5,308
Trustees fees (Note 2) 1,174
Registration fees 309
Miscellaneous 670
Fees waived or borne by Manager (Note 2) (245,550)
------------
322,303
Shareholder service fee (Note 2)
Class I 1,977
Class III 145,605
------------
Net expenses 469,885
------------
Net investment income 2,751,828
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 40,132,107
Closed futures contracts 2,520,325
Closed swap contracts (967,257)
------------
Net realized gain 41,685,175
------------
Change in net unrealized appreciation (depreciation) on:
Investments (17,249,537)
Open futures contracts (142,015)
Open swap contracts 718,111
------------
Net unrealized loss (16,673,441)
------------
Net realized and unrealized gain 25,011,734
------------
Net increase in net assets resulting from operations $ 27,763,562
============
</TABLE>
4 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>
Six Months Ended Year Ended
August 31, 1997 February 28,
(Unaudited) 1997
---------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,751,828 $ 4,631,135
Net realized gain 41,685,175 65,670,531
Change in net unrealized appreciation (depreciation) (16,673,441) (21,085,079)
------------- -------------
Net increase in net assets resulting from operations 27,763,562 49,216,587
------------- -------------
Distributions to shareholders from:
Net investment income
Class I (22,756) (8,397)
Class III (3,509,367) (3,967,362)
------------- -------------
Total distributions from net investment income (3,532,123) (3,975,759)
------------- -------------
Net realized gains
Class I (335,768) (85,607)
Class III (45,882,564) (51,735,148)
------------- -------------
Total distributions from net realized gains (46,218,332) (51,820,755)
------------- -------------
(49,750,455) (55,796,514)
------------- -------------
Net share transactions: (Note 5)
Class I 442,948 1,245,516
Class III (55,735,695) 22,083,220
------------- -------------
Increase (decrease) in net assets resulting from net
share transactions (55,292,747) 23,328,736
------------- -------------
Total increase (decrease) in net assets (77,279,640) 16,748,809
Net assets:
Beginning of period 228,067,525 211,318,716
------------- -------------
End of period (including accumulated undistributed net
investment income of $637,870 and $1,418,165,
respectively) $ 150,787,885 $ 228,067,525
============= =============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from September 3, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ------------------------------
<S> <C> <C>
Net asset value, beginning of period $13.03 $ 11.78
------- --------
Income from investment operations:
Net investment income 0.18 0.12
Net realized and unrealized gain 1.50 2.10
------- --------
Total from investment operations 1.68 2.22
------- --------
Less distributions to shareholders:
From net investment income (0.22) (0.09)
From net realized gains (3.24) (0.88)
------- --------
Total distributions (3.46) (0.97)
------- --------
Net asset value, end of period $11.25 $ 13.03
======= ========
Total Return/(a)/ 14.06% 19.25%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,633 $ 1,357
Net expenses to average daily net assets 0.58%* 0.61%*
Net investment income to average daily net
assets 2.53%* 1.97%*
Portfolio turnover rate 117% 104%
Average broker commission rate per equity
share $0.0497 $0.0270
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.02 $ 0.01
</TABLE>
/(a)/ Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28/29,
August 31, 1997 ------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993 *
----------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38 $ 10.00
------- ------- ------- ------- -------- --------
Income from investment operations:
Net investment income 0.19 0.26 0.29 0.28 0.29 0.05
Net realized and unrealized
gain 1.51 2.20 3.90 0.49 1.21 0.33
------- ------- ------- ------- -------- --------
Total from investment
operations 1.70 2.46 4.19 0.77 1.50 0.38
------- ------- ------- ------- -------- --------
Less distributions to shareholders:
From net investment income (0.23) (0.22) (0.29) (0.27) (0.30) --
From net realized gains (3.24) (2.84) (1.33) (0.70) (0.32) --
------- ------- ------- ------- -------- --------
Total distributions (3.47) (3.06) (1.62) (0.97) (0.62) --
------- ------- ------- ------- -------- --------
Net asset value, end
of period $ 11.26 $ 13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38
======= ======= ======= ======= ======== ========
Total Return/(a)/ 14.20% 20.88% 38.90% 7.56% 14.64% 3.80%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $149,155 $226,711 $211,319 $207,291 $167,028 $169,208
Net expenses to average
daily net assets 0.46%** 0.48% 0.48% 0.48% 0.48% 0.48%**
Net investment income to
average daily net assets 2.71%** 1.99% 2.27% 2.61% 2.56% 3.20%**
Portfolio turnover rate 117% 104% 84% 101% 53% 9%
Average broker commission
rate per equity share/(b)/ $0.0497 $0.0270 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.01
</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. 7
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Sector Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment in common stocks either directly or
through investments in other Funds of the Trust. Subsequently all of its
assets will be invested in or exposed to equity securities chosen from the
Wilshire 5000 Index and primarily in common stocks chosen from among the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange, and/or shares of
other domestic equity funds of the Trust. On August 20, 1997, the Fund
began to invest a substantial portion of its assets in other Funds of the
Trust.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bore the same total operating expenses (after the voluntary expense waiver)
as those shares. On August 20, 1997 the Fund revised its voluntary expense
waiver to include certain expenses incurred indirectly by the Fund through
investment in underlying funds (See Note 2). At August 31, 1997, Class I
and Class III were the only active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
8
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. At August 31, 1997, there were
no outstanding futures contracts.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund had
no securities on loan.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of
9
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
the offsetting interest rate obligation, the Fund will receive a payment
from or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform, or that there may be
unfavorable changes in the price of the security or index underlying these
transactions. At August 31, 1997, there were no open swap agreements
outstanding.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of the REIT's earnings. The excess amount
cannot be determined by the Fund at the time of receipt. If the Fund
distributes amounts which are subsequently determined to exceed REIT
earnings, such amounts would constitute a return of capital to the Fund
shareholders for federal income tax purposes.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
10
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated prorata
among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations. In addition, the Fund will
also incur fees and expenses indirectly as a shareholder in the underlying
funds. Because the underlying funds have varied expense and fee levels and
the Fund may own different proportions of underlying funds at different
times, the amount of fees and expenses indirectly incurred by the Fund will
vary. (See Note 2).
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .27% of the amount
invested. Prior to June 30, 1997, the premium on cash purchases was .14% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the six months ended August 31, 1997, the
Fund received $21 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .49% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares. The Fund will always invest in the class of
shares of each underlying Fund being offered that bears the lowest
shareholder service fee. Like the management fee (as described below), the
shareholder service fee of each class of the Fund's shares will be waived
(but not below zero) to the extent of the indirect shareholder service fees
paid in connection with the Fund's investment in shares of underlying
Funds.
GMO has agreed to waive a portion of its fee (but not below zero) and bear
other expenses until further notice to the extent that the Fund's annual
expenses (including the management fee but excluding brokerage commissions,
certain other transaction costs (including transfer taxes), shareholder
service fees and extraordinary expenses ("fund expenses")) plus the amount
of fees and expenses, excluding shareholder service fee and fund expenses
(as defined above) incurred indirectly by the Fund through investment in
underlying Funds exceed .33% of average daily net assets. Because GMO will
not waive the management fees below zero, and because the amount of fees
and expenses incurred indirectly by the Fund will vary, the operating
expenses (excluding shareholder service fees and fund expenses) incurred
indirectly by the Fund through investment in underlying Funds may exceed
0.33% of the Fund's average daily net assets.
11
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $1,174. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $191,532,436 and $238,149,024, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
$ 151,676,965 $ 487,541 $ 1,465,563 $ 978,022
</TABLE>
4. Principal shareholders
At August 31, 1997, 94% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from September 3, 1996
Six Months Ended (commencement of operations)
Class I: August 31, 1997 to February 28, 1997
----------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 9,164 $ 101,224 97,467 $ 1,163,513
Shares issued to shareholders in
reinvestment of distributions 33,070 358,524 7,610 94,003
Shares repurchased (1,191) (16,800) (928) (12,000)
=============== ================= ============= ===============
Net increase 41,043 $ 442,948 104,149 $ 1,245,516
=============== ================= ============= ===============
</TABLE>
12
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 28, 1997
--------------------------------- -------------------------------
Shares Amount Shares Amount
-------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 7,570,612 $ 96,850,986
Shares issued to shareholders in
reinvestment of distributions 4,347,968 47,071,578 3,069,555 37,653,043
Shares repurchased (8,493,144) (102,807,273) (8,749,092) (112,420,809)
============== =============== ============ ===============
Net increase (decrease) (4,145,176) $(55,735,695) 1,891,075 $ 22,083,220
============== =============== ============ ===============
</TABLE>
13
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 91.1%
Aerospace -- 0.4%
2,100 Lockheed Martin Corp 217,744
800 Northrop Grumman Corp 93,650
19,000 Raytheon Co 1,045,000
2,400 Textron Inc 149,550
1,600 TRW Inc 83,400
-----------
1,589,344
-----------
Automotive -- 3.6%
1,100 Bandag Inc 58,644
39,800 Chrysler Corp 1,397,975
900 Eaton Corp 81,056
6,800 Electronic Data Systems Corp 257,125
88,700 Ford Motor Co 3,814,100
98,600 General Motors Corp 6,187,150
2,600 Genuine Parts Co 80,275
2,400 Goodyear Tire & Rubber Co 147,900
900 Harley Davidson Inc 48,713
1,200 Lear Corp * 54,975
75,000 Mascotech Industries Inc 1,570,313
1,700 Paccar Inc 80,538
-----------
13,778,764
-----------
Banking and Financial Services -- 12.9%
2,800 Advanta Corp, Class A 92,750
1,900 Ahmanson (HF) & Co 96,425
22,200 American Express Co 1,726,050
9,384 American General Corp 452,191
4,150 Amsouth Bancorp 174,559
20,100 Banc One Corp 1,077,863
2,000 Bank of New York Inc 89,250
65,400 BankAmerica Corp 4,304,138
1,100 BankBoston Corp 91,438
3,800 Bankers Trust New York Corp 394,250
2,000 Barnett Banks Inc 136,250
1,600 BB&T Corporation 82,800
9,855 Bear Stearns Inc 389,902
2,200 Beneficial Corp 157,438
127,500 Block (HR) Inc 5,004,375
1,400 Capital One Financial Corp 53,900
1,700 Central Fidelity Banks Inc 66,513
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Banking and Financial Services -- continued
49,100 Chase Manhattan Corp 5,459,306
60,899 Citicorp 7,772,235
2,300 Comdisco Inc 62,531
1,900 Comerica Inc 134,544
3,400 Commerce Bancshares Inc 183,175
3,250 Compass Bancshares Inc 115,781
3,000 Corestates Financial Corp 184,500
4,400 Countrywide Credit Industry Inc 148,225
3,300 Donaldson Lufkin & Jenrette 195,938
8,400 Edwards (AG) Inc 333,900
12,200 Federal Home Loan Mortgage Corp 397,263
36,000 Federal National Mortgage Associates 1,584,000
3,100 First Bank of America Corp 159,650
23,800 First Chicago NBD Corp 1,707,650
200 First Empire State Corp 73,100
1,900 First Hawaiian Inc 70,063
1,900 First Security Corp 53,675
16,000 First Union Corp (NE) 769,000
2,300 First Virginia Banks Inc 156,688
2,400 Firstar Corp 80,850
3,200 Fleet Financial Group Inc 206,200
3,900 Franklin Resources Inc 301,763
2,400 Golden West Financial Corp 197,550
2,900 Green Tree Financial Corp 127,419
4,300 Greenpoint Financial Corp 264,719
1,200 Household International Inc 133,125
3,900 Key Corp 236,438
7,000 Lehman Brothers Holding Inc 307,125
4,300 Liberty Financial Cos 213,119
7,350 MBNA Corp 282,516
5,300 Mercantile Bankshares 149,063
8,100 Merrill Lynch 498,150
3,700 MGIC Investment Corp 186,156
2,800 Morgan Jersey Co Inc 300,300
29,685 Morgan Stanley Dean Witter Discover & Co 1,428,591
4,600 National City Corp 259,900
25,800 Nationsbank Corp 1,531,875
1,500 Northern Trust 79,688
9,000 Norwest Corp 516,938
1,180 Old Kent Financial Corp 72,275
7,800 Pacific Century Financial Corp 384,638
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Banking and Financial Services -- continued
4,600 Paine Webber Group Inc 176,813
1,000 PMI Group Inc 57,813
30,100 PNC Bank Corp 1,301,825
8,900 Popular Inc 384,925
13,300 Providian Financial Corp 495,425
3,500 Regions Financial Corp 119,875
2,700 Republic New York Corp 289,069
1,500 Rowe (T) Price & Associates Inc 82,500
6,900 Salomon Inc 413,138
1,800 Signet Banking Corp 93,263
1,600 SLM Holding Corp 216,800
2,900 Southtrust Corp 129,775
800 State Street Corp 39,900
2,000 Suntrust Banks Inc 125,000
35,463 Travelers Group Inc 2,251,901
1,300 Union Planters Corp 66,625
2,800 Unionbancal Corp 216,475
2,000 Wachovia Corp 124,500
3,630 Washington Federal Inc 98,918
6,770 Washington Mutual Inc 405,354
1,900 Wells Fargo & Co 483,075
1,500 Wilmington Trust Corp 75,563
--------------
49,358,246
--------------
Chemicals -- 0.5%
15,000 Albemarle Corp 368,438
2,400 Eastman Chemical Co 143,550
3,900 Great Lakes Chemical Corp 181,350
20,000 Millenium Chemicals Inc 420,000
2,000 Morton International Inc 66,500
5,900 PPG Industries Inc 371,700
1,900 Sherwin Williams Co 52,131
3,100 Union Carbide Corp 159,069
10,000 Wellman Inc 227,500
--------------
1,990,238
--------------
Computer and Office Equipment -- 1.3%
7,700 Apple Computer Inc 167,475
18,250 Compaq Computer Corp 1,195,318
7,900 Gateway 2000 Inc 309,088
4,800 Hewlett Packard Co 294,300
125,000 Intergraph Corp * 1,242,188
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Computer and Office Equipment -- continued
2,600 Lexmark International Group Inc * 91,000
6,700 Micron Technology Inc * 298,569
15,000 Office Depot 276,563
2,000 Pitney Bowes Inc 152,750
5,100 Quantum Corp 178,819
25,000 Silicon Graphics Inc * 685,938
2,800 Sterling Software Inc 96,075
--------------
4,988,083
--------------
Construction -- 0.2%
1,600 Georgia-Pacific Corp 146,000
30,000 Hanson PLC ADR 720,000
--------------
866,000
--------------
Consumer Goods -- 3.6%
2,400 Black and Decker Corp 91,950
3,700 Callaway Golf Co 124,644
5,400 CVS Corp 304,425
79,200 Eastman Kodak Co 5,177,700
1,700 Fastenal Co 97,963
1 Footstar Inc 25
3,500 Fortune Brands Inc 120,313
28,250 Hasbro Inc 759,219
1,200 Jones Apparel Group Inc 60,225
1,900 Lancaster Colony Corp 98,444
1,800 Liz Claiborne Inc 80,213
8,500 Mattel Co 284,219
85,000 Maytag Corp 2,332,188
20,700 Moore Corp Ltd 410,119
1,800 Newell Co 70,875
2,500 Nike Inc, Class B 133,438
4,700 Procter and Gamble Co 625,394
2,100 Reebok International Ltd 92,269
2,600 Russell Corp 74,100
112,500 Safety Kleen 2,271,094
6,300 Terra Industries Inc 84,263
1,700 Unifi Inc 65,238
2,400 VF Corp 212,100
1,800 Whirlpool Corp 103,050
--------------
13,673,468
--------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investment -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Electronic Equipment -- 0.7%
4,200 American Power Conversion Corp * 110,250
2,300 Amp Inc 115,000
1,500 Arrow Electronics Inc * 92,156
1,400 Cooper Industries Inc 74,638
3,500 Emerson Electric 191,406
1,200 Harris Corp Inc 104,550
15,000 International Rectifier Corp * 342,188
2,300 ITT Corp 144,469
2,500 Linear Technology Corp 163,906
2,000 Litton Industries * 99,750
1,300 LSI Logic * 41,844
1,800 Maxim Integrated Products Inc * 124,425
6,200 Motorola Inc 454,925
12,600 National Semiconductor Corp 431,550
1,200 Texas Instruments 136,350
3,995 Vishay Intertechnology Inc 106,617
900 Xilinx Inc * 42,750
--------------
2,776,774
--------------
Environmental Control -- 1.0%
231,900 Wheelabrator Technology Inc 3,637,931
--------------
Food and Beverage -- 3.5%
84,300 Anheuser Busch Cos Inc 3,593,288
34,292 Archer Daniels Midland Co 741,563
4,200 Coca Cola Enterprises Inc 115,500
1,500 ConAgra Inc 96,469
10,000 Coors (Adolph) Co 368,750
2,300 CPC International Inc 204,988
56,300 Darden Restaurants Inc 566,519
1,100 Dean Foods Co 48,813
2,400 Heinz (HJ) Co 99,900
2,800 Hormel (Geo A) and Co 83,300
3,600 IBP Inc 82,575
2,500 Nabisco Holdings Corp, Class A 103,750
25,400 Pepsico Inc 914,400
1,000 Quaker Oats Company 47,000
98,800 RJR Nabisco Holdings Corp 3,439,475
8,400 Sara Lee Corp 338,100
9,100 Seagrams Co Ltd 317,931
8,400 Tyson Food Inc, Class A 178,500
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investment -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Food and Beverage -- continued
10,000 Unilever NV ADR 2,012,500
2,700 Whitman Corp 66,150
1,000 Wrigley (William Jr) Co 72,500
--------------
13,491,971
--------------
Health Care -- 1.6%
3,100 Bard (CR) 106,950
1,400 Bausch & Lomb Inc. 57,488
2,200 Becton Dickinson & Co 105,463
79,900 Beverly Enterprises Inc * 1,303,369
4,500 BioMet Inc 93,375
14,500 Columbia HCA Healthcare Corp 457,656
700 Guidant Corp 61,469
1,700 Hillenbrand Industries Inc 74,694
37,400 Johnson & Johnson 2,120,113
1,700 Mallinckrodt Inc 61,838
1,000 McKesson Corp 93,688
3,800 Medtronic Inc 343,425
11,800 Pharmacia & Upjohn Inc 401,938
6,875 Quest Diagnostics Inc * 128,477
10,300 Tenet Healthcare Corp * 280,675
4,500 United Healthcare Corp 218,813
2,900 Wellpoint Health Network * 157,688
--------------
6,067,119
--------------
Insurance -- 4.9%
3,300 Aetna Life and Casualty Co 314,944
3,000 AFLAC Corp 165,188
18,082 Allstate Corp 1,321,116
3,900 AMBAC Inc 315,169
2,200 American Financial Group Inc 95,150
5,800 American National Insurance Co 562,600
2,300 Chubb Corp 153,813
2,800 Cigna Corp 513,450
800 Cincinnati Financial Corp 65,000
3,600 CNA Financial Corp * 408,375
10,764 Conseco Inc 462,852
4,200 Equitable Companies Inc 182,700
3,000 Equitable of Iowa Cos 195,375
1,800 Everest Re Holdings Inc 65,138
9,030 Foundation Health Systems * 287,267
</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)
August 31, 1997 (Unadited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Insurance -- continued
900 General Re Corp 174,488
4,400 Hartford Financial Services Group 350,900
5,100 Lincoln National Corp 341,381
14,800 Loews Corp 1,508,675
1,800 Marsh & McLennan Cos Inc 122,850
2,000 MBIA Inc 226,500
1,100 Mercury General Corp 96,250
25,000 Nationwide Financial Service, Class A 693,750
5,400 Ohio Casualty Corp 251,100
11,400 Old Republic International Corp 409,688
1,404 Pacificare Health Systems, Class B * 95,999
1,400 Progressive Corp 138,600
2,017 Provident Cos Inc 131,357
175,000 Reliance Group Holdings Inc 2,143,750
7,600 Reliastar Financial Corp 568,100
7,000 Safeco Corp 343,875
6,100 Saint Paul Cos Inc 447,588
150,000 TIG Holdings Inc 4,687,500
10,600 Torchmark Corp 399,488
2,800 Transamerica Corp 275,975
2,100 Transatlantic Holding Inc 148,444
2,700 USF & G Corp 59,231
-----------
18,723,626
-----------
Machinery -- 1.2%
2,900 Agco Corporation 94,250
5,200 Applied Materials Inc * 490,750
2,600 Brunswick Corp 79,300
3,800 Case Corp 254,838
3,900 Caterpillar Inc 226,444
100,000 Cincinnati Milacron Inc 2,575,000
1,300 Cummins Engine Inc 100,019
6,800 FMC Corp * 564,825
4,800 Tecumseh Products Co, Class B 259,200
1,300 York International Corp 58,338
-----------
4,702,964
-----------
Manufacturing -- 7.4%
35,600 American Greetings Corp 1,237,100
40,100 Clayton Homes Inc 674,181
32,500 Corning Inc 1,718,438
</TABLE>
See accompanying notes to financial statements. 7
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Manufacturing -- continued
1,800 Crane Co 79,425
30,000 General Electric Co 1,875,000
65,600 IBM Corp 6,617,400
3,200 International Game Technology 64,000
27,700 Lafarge Corp 900,250
3,400 Minnesota Mining And Manufacturing Co 305,575
75,000 Owens Corning 3,042,188
2,200 Rockwell International Corp 132,000
1,800 Temple Inland Inc 116,100
50,000 Tenneco Inc 2,428,125
4,300 Trinity Industries Inc 170,925
37,700 United Technologies Corp 2,942,956
230,000 Westinghouse Electric Corp 5,922,500
----------
28,226,163
----------
Metals and Mining -- 2.0%
39,000 Alcan Aluminum Ltd 1,362,563
20,000 Allegheny Teledyne Inc 617,500
17,600 Asarco Inc 541,200
40,700 Cyprus Amax Minerals Co 1,027,675
47,500 Inco Ltd 1,285,469
2,500 Newmont Mining Corp 105,781
5,000 Pegasus Gold 21,250
8,500 Phelps Dodge Corp 683,719
25,000 Pittston Minerals Group 279,688
21,300 Reynolds Metals Co 1,505,644
3,100 Timken Co 116,056
200 Wesco Financial Corp 55,013
----------
7,601,558
----------
Oil and Gas -- 6.7%
25,000 Amerada Hess Corp 1,453,125
2,800 Amoco Corp 264,775
8,100 Atlantic Richfield Co 607,500
20,000 Cabot Oil & Gas Corp, Class A 463,750
2,200 Columbia Natural Gas Systems Inc 145,200
12,500 Dresser Industries Inc 521,875
900 El Paso Natural Gas Co 50,625
50,000 Enron Oil & Gas 1,206,250
74,975 Enserch Exploration Inc * 674,778
15,000 Exxon Corp 917,813
1,000 FINA Inc, Class A 66,000
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Oil and Gas -- continued
25,000 Mitchell Energy, Class B 625,000
20,300 Mobil Corp 1,476,825
230,300 Occidental Petroleum Corp 5,397,656
2,500 Phillips Petroleum Co 118,906
11,600 Questar Corp 464,000
12,300 Texaco Inc 1,417,575
5,500 Union Pacific Resources Group 137,500
125,000 Union Texas Petroleum Holdings Inc 2,914,063
67,400 Unocal Corp 2,632,813
97,800 USX - Marathon Group 3,184,613
50,000 Westcoast Energy Inc 956,250
--------------
25,696,892
--------------
Paper and Allied Products -- 1.8%
16,400 Boise Cascade Corp 648,825
1,300 Bowater Inc 66,544
17,600 Champion International Corp 1,041,700
22,000 Fort James Corp 924,000
44,000 International Paper Co 2,321,000
1,900 Kimberly Clark Corp 90,131
3,000 Louisiana Pacific Corp 66,375
1,600 Mead Corp 113,500
2,100 Plum Creek Timber Co Limited Partnership 69,956
900 Potlatch Corp 42,019
1,600 Rayonier Inc 78,100
2,400 Sonoco Products Co 78,150
4,000 Stone Container Corp 69,000
1,800 Union Camp Corp 106,763
3,200 Westvaco Corp 108,400
12,700 Weyerhaeuser Co 733,425
1,700 Willamette Industries Inc 135,575
--------------
6,693,463
--------------
Pharmaceuticals -- 1.6%
38,800 Abbott Laboratories 2,325,575
11,600 Allergan Inc 375,550
2,100 American Home Products Corp 151,200
1,500 Amgen Inc 74,344
2,600 Bergen Brunswig Corp, Class A 109,200
9,500 Bristol Myers Squibb Co 722,000
2,400 General Nutrition Cos Inc * 66,600
25,000 Immulogic Pharmaceutical 79,688
</TABLE>
See accompanying notes to financial statements. 9
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Pharmaceuticals -- continued
12,500 Lilly (Eli) & Co 1,307,813
5,000 Merck & Co Inc 459,063
5,000 Schering Plough Corp 240,000
1,100 Warner Lambert Co 139,769
--------------
6,050,802
--------------
Primary Materials -- 0.8%
5,000 Crown Cork & Seal Inc 254,375
7,800 Premark International Inc 232,050
100,000 Rubbermaid Inc 2,500,000
1,500 Vulcan Materials Co 131,813
--------------
3,118,238
--------------
Primary Processing -- 0.8%
3,100 Alumax Inc * 128,456
20,000 Bethlehem Steel Corp * 240,000
10,500 Dow Chemical Co 929,250
5,000 Du Pont (EI) De Nemours & Co 311,563
23,300 LTV Corp 302,900
29,300 USX-US Steel Group Inc 1,029,163
--------------
2,941,332
--------------
Printing and Publishing -- 0.1%
2,600 Dun and Bradstreet Corp 72,800
25,000 News Corporation Ltd ADR 451,563
--------------
524,363
--------------
Real Estate -- 1.3%
50,000 Crown American Realty Trust 484,375
25,000 Evans Withycombe Residential 595,313
7,500 JP Realty Inc 184,688
125,000 Summit Properties Inc 2,492,188
50,000 Walden Residential Properties Inc 1,193,750
--------------
4,950,314
--------------
Refining -- 0.2%
22,500 Quaker State Corp 348,750
6,400 Royal Dutch Petroleum 324,800
2,000 Ultramar Diamond Shamrock Corp 65,250
--------------
738,800
--------------
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Retail Trade -- 3.1%
10,500 Albertsons Inc 360,938
5,900 American Stores Co 139,756
5,200 Autozone Inc * 146,900
2,300 Bed, Bath & Beyond Inc * 70,869
25,000 Cone Mills Corp * 196,875
4,400 Costco Cos Inc * 158,675
3,700 Dayton Hudson Corp 210,900
5,300 Dillards Department Stores Inc 212,000
57,100 Federated Department Stores * 2,398,200
2,100 Fruit of the Loom Inc * 56,175
8,500 Gap Inc 377,719
20,100 Kmart Corp * 278,888
25,400 Limited Inc 577,850
3,400 May Department Stores Co 182,963
8,000 Mercantile Stores 499,500
6,000 Officemax Inc * 88,875
5,300 Penney (JC) Co Inc 318,000
2,200 Safeway Inc * 112,063
1,000 Sears Roebuck & Co 56,750
2,000 Tandy Corp 132,750
10,500 Toys R Us Inc * 362,906
127,700 Wal Mart Stores Inc 4,533,350
3,300 Weismarkets Inc 111,375
1,900 Winn Dixie 64,006
2,000 Woolworth (FW) Co * 44,750
--------------
11,693,033
--------------
Services -- 3.7%
1,200 BHC Communications Inc, Class A 147,300
22,500 Browning Ferris Industries Inc 786,094
2,309 Chris Craft Industries Inc 113,285
4,600 Circus Circus Enterprises Inc * 110,113
1,100 Gannett Co Inc 107,181
2,500 Harrahs Entertainment Inc 56,094
1,400 Healthcare Compare Corp * 78,050
1,900 Kelly Services 63,650
3,100 Kingworld Productions Inc 123,225
2,000 Meredith Corp 60,000
45,000 Ogden Corp 1,043,438
3,100 Olsten Corp 58,125
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Services -- continued
5,000 Servicemaster Industry Inc 127,188
41,200 Supervalu Inc 1,617,100
251,700 Waste Management Inc 8,054,400
175,000 Waste Management International PLC ADR * 1,421,875
--------------
13,967,118
--------------
Technology -- 7.5%
2,400 Adobe Systems Inc 94,500
5,900 Advanced Micro Devices Inc * 220,881
1,700 Autodesk Inc 74,375
9,600 Avnet Inc 664,200
4,100 Bay Networks Inc * 145,038
4,700 BMC Software Inc 294,338
7,400 Cabletron Systems Inc 223,850
12,400 Cisco Systems Inc * 934,650
77,600 Digital Equipment Corp * 3,336,800
1,100 Grainger (WW) Inc 97,694
58,100 Intel Corp 5,352,463
44,300 Microsoft Corp 5,855,906
43,900 Novell Inc * 411,563
2,500 Seagate Technology Corp 95,469
103,499 Storage Technology Corp * 5,271,980
145,000 Tandem Computers Inc * 4,930,000
2,500 Teradyne Inc * 139,219
5,800 Xerox Corp 437,900
--------------
28,580,826
--------------
Telecommunications -- 6.8%
97,100 AT & T Corp 3,786,900
6,456 Bell Atlantic Corp 467,253
2,400 Bellsouth Corp 105,600
12,500 Comcast Corp, Class A 290,625
22,500 Comsat Corp 487,969
25,000 Cox Communications, Class A * 676,563
107,900 GTE Corp 4,808,294
76,300 MCI Communications Corp 2,174,550
6,700 Nextel Communications Inc, Class A 167,919
62,500 SBC Communications 3,398,414
21,000 Sprint Corp 987,000
32,500 Tele-Communications, Class A 568,750
</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)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Telecommunications -- continued
116,300 US West Inc 4,164,994
185,200 US West Media Group * 3,704,000
3,800 Viacom Inc, Class B 112,575
2,400 Worldcom Inc * 71,850
-----------
25,973,256
-----------
Tobacco -- 0.9%
17,500 Gallaher Group Plc ADR 313,906
75,000 Imperial Tobacco Group Plc ADR 939,008
52,900 Philip Morris Cos Inc 2,307,763
-----------
3,560,677
-----------
Transportation -- 1.4%
10,000 American West Holdings Corp, Class B * 120,625
8,100 AMR Corp * 816,075
5,800 Burlington Northern Santa Fe Railroad Co 531,788
85,000 Canadian Pacific 2,480,938
6,500 CSX Corp 371,719
2,100 Delta Air Lines Inc 181,650
1,300 Federal Express Corp 86,369
1,100 Gatx Corp 68,819
700 Norfolk Southern Corp 68,600
7,500 Ryder System Inc 267,656
11,700 Sabre Group Holding Inc 359,775
900 UAL Corp * 68,569
-----------
5,422,583
-----------
Utilities -- 9.6%
3,400 AES Corp 125,800
6,400 American Water Works Co 132,800
3,000 Baltimore Gas and Electric Co 81,000
3,500 Boston Edison Co 98,875
62,500 Calpine Corp * 1,156,250
13,100 Centerior Energy Corp 147,375
4,600 Central & South West Corp 95,163
30,000 Cinergy Corp 991,875
6,900 CMS Energy Corp 247,969
3,400 Coastal Corp 196,350
24,600 Consolidated Edison 753,375
2,500 Delmarva Power and Light Co 44,844
3,700 Dominion Resources Inc 133,200
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
20,000 DPL Inc 473,750
10,000 DTE Energy Co 296,250
50,000 Duke Power Co 2,421,875
21,900 Edison International 528,338
47,500 Energy Group PLC ADR 1,920,781
3,300 Enova Corp 79,200
85,300 Entergy Corp 2,116,506
2,000 Florida Progress Corp 64,375
2,500 FPL Group Inc 116,250
11,800 General Public Utilities Inc 396,775
43,781 Houston Industries Inc 886,565
66,200 Illinova Corp 1,522,600
9,200 Long Island Lighting Co 227,125
3,600 Midamerican Energy Holding Co 61,425
2,300 Montana Power Co 53,044
3,300 New England Electric System 126,225
6,000 New York State Electric and Gas Corp 146,250
212,000 Niagara Mohawk Power Corp * 1,894,750
8,300 Northeast Utilities 83,519
46,600 Ohio Edison Co 1,025,200
28,900 Pacificorp 599,675
16,000 Peco Energy Co 381,000
104,600 PG & E Corp 2,425,413
2,800 Pinnacle West Capital Corp 90,475
7,000 PP & L Resources Inc 153,563
63,900 Public Service Enterprise Group Inc 1,585,519
1,900 Puget Sound Power and Light Co 48,213
36,100 Southern Co 760,356
241,750 Texas Utilities Co 8,431,031
25,000 TransCanada Pipeline Ltd 468,750
127,100 Unicom Corp 3,002,738
1,900 Western Resources Inc 63,650
--------------
36,656,062
--------------
TOTAL COMMON STOCKS (COST $283,401,394) 348,040,008
--------------
PREFERRED STOCKS -- 2.5%
Banking and Financial Services -- 0.1%
10,000 Time Warner Financing Convertible $1.24 390,000
--------------
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Metals and Mining -- 0.1%
7,500 Freeport McMoran Corp $0.34 223,594
--------------
Paper and Allied Products -- 1.0%
100,200 Fort James Corp Convertible 9.00% 3,820,125
--------------
Refining -- 0.4%
30,000 Unocal Corp Convertible 6.25% 144A 1,736,250
--------------
Transportation -- 0.9%
23,900 Navistar International Corp $6.00 1,431,013
22,500 US Air Group Inc Convertible Series B $8.759 1,926,563
--------------
3,357,576
--------------
TOTAL PREFERRED STOCKS (COST $5,837,267) 9,527,545
--------------
SHORT-TERM INVESTMENTS -- 15.0%
Cash Equivalents -- 8.5%
$10,750,565 BankBoston Eurodollar Time Deposit, 5.7875%
due 9/2/97/(a)/ 10,750,565
$682,757 First Union National Bank of North Carolina
Eurodollar Time Deposit, 5.5625% due
9/2/97/(a)/ 682,757
$2,048,272 Harris Bank and Trust Eurodollar Time Deposit,
5.625% due 9/2/97/(a)/ 2,048,272
13,900,000 Merrimac Cash Fund Premium Class/(a)/ 13,900,000
$5,000,000 Prudential Securities Group Inc Master Note,
5.8875% due 9/2/97/(a)/ 5,000,000
--------------
32,381,594
--------------
U.S. Government -- 0.1%
$600,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 592,619
--------------
Repurchase Agreements -- 6.4%
$19,275,617 Salomon Brothers Repurchase Agreement, dated
8/29/97, due 9/2/97, with a maturity value of
$19,286,433 and an effective yield of 5.05%,
collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with
maturity dates ranging from 2/15/99 to 8/15/26
and with an aggregate market value of
$19,717,318. 19,275,617
$5,161,101 Prudential Securities, Inc. Repurchase
Agreement, dated 8/29/97, due 9/2/97, with a
maturity value of $5,163,962 and an effective
yield of 4.99%, collateralized by a U.S.
Government Agency Obligation with a rate of
6.811%, with a maturity date of 3/1/35 and a
market value of $5,264,341. 5,161,101
--------------
24,436,718
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $57,410,632) 57,410,931
--------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Value ($)
- --------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS -- 108.6%
(COST $346,649,293) 414,978,484
Other Assets and Liabilities (net) -- (8.6)% (32,960,335)
--------------
TOTAL NET ASSETS-- 100% $382,018,149
==============
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
144A - Securities exempt from registration under
rule 144A of the Securities Act of 1933.
These securities may be resold in
transactions exempt from registration,
normally to qualified institutional investors.
* Non-income producing security.
/(a)/Represents investments of security lending
collateral (Note 1).
/(b)/Security has been segregated to cover margin requirements on
open financial futures contracts.
</TABLE>
16 See accompanying notes to financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $346,649,293) (Note 1) $414,978,484
Receivable for investments sold 1,060,049
Dividends and interest receivable 784,038
Receivable for open swap contracts (Notes 1 and 6) 1,075,223
Receivable for variation margin on open futures contracts
(Notes 1 and 6) 55,896
Receivable for expenses waived or borne by Manager (Note 2) 117,968
------------
Total assets 418,071,658
------------
Liabilities:
Payable for investments purchased 1,087,577
Payable upon return of securities loaned (Note 1) 32,381,594
Payable for Fund shares repurchased 2,274,126
Payable to affiliate for (Note 2):
Management fee 222,058
Shareholder service fee 47,588
Accrued expenses 40,566
------------
Total liabilities 36,053,509
------------
Net assets $382,018,149
============
Net assets consist of:
Paid-in-capital $264,390,609
Accumulated undistributed net investment income 1,233,449
Accumulated undistributed net realized gain 47,092,608
Net unrealized appreciation 69,301,483
------------
$382,018,149
============
Net assets attributable to:
Class III shares $382,018,149
============
Shares outstanding:
Class III 24,464,821
============
Net asset value per share:
Class III $ 15.61
============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends $ 4,975,348
Interest (including securities lending income of $8,282) 644,731
-----------
Total income 5,620,079
-----------
Expenses:
Management fee (Note 2) 1,477,425
Custodian and transfer agent fees 49,012
Registration fees 35,494
Audit fees 23,964
Legal fees 10,300
Trustees fees (Note 2) 2,096
Miscellaneous 1,550
Fees waived or borne by Manager (Note 2) (628,962)
-----------
970,879
Shareholder service fee (Note 2)
Class III 316,593
-----------
Net expenses 1,287,472
-----------
Net investment income 4,332,607
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 45,425,771
Closed futures contracts 2,723,015
Closed swap contracts (210,045)
-----------
Net realized gain 47,938,741
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 9,077,820
Open futures contracts 122,684
Open swap contracts 1,230,012
-----------
Net unrealized gain 10,430,516
-----------
Net realized and unrealized gain 58,369,257
-----------
Net increase in net assets resulting from operations $62,701,864
===========
</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>
Six Months Ended
August 31, 1997 Year Ended
(Unaudited) February 28, 1997
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 4,332,607 $ 7,642,847
Net realized gain 47,938,741 62,774,750
Change in net unrealized appreciation (depreciation) 10,430,516 (1,146,140)
------------- ------------
Net increase in net assets resulting from operations 62,701,864 69,271,457
------------- ------------
Distributions to shareholders from:
Net investment income
Class III (4,363,090) (7,540,588)
------------- ------------
Total distributions from net investment income (4,363,090) (7,540,588)
------------- ------------
Net realized gains
Class III (34,897,880) (44,759,234)
------------- ------------
Total distributions from net realized gains (34,897,880) (44,759,234)
------------- ------------
(39,260,970) (52,299,822)
------------- ------------
Net share transactions: (Note 5)
Class III (111,014,107) 135,007,878
------------- ------------
Increase (decrease) in net assets resulting from net
share transactions (111,014,107) 135,007,878
------------- ------------
Total increase (decrease) in net assets (87,573,213) 151,979,513
Net assets:
Beginning of period 469,591,362 317,611,849
------------- ------------
End of period (including accumulated undistributed net investment
income of $1,233,449 and $1,263,932, respectively) $ 382,018,149 $469,591,362
============= ============
</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>
Six Months Ended Year Ended February 28/29,
August 31, 1997 --------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94
-------- ------- -------- -------- -------- ---------
Income from investment operations:
Net investment income 0.17 0.31 0.39 0.41 0.43 0.38
Net realized and unrealized
gain 2.11 2.47 3.71 0.32 1.27 0.98
-------- ------- -------- -------- -------- ---------
Total from investment
operations 2.28 2.78 4.10 0.73 1.70 1.36
-------- ------- -------- -------- -------- ---------
Less distributions to shareholders:
From net investment income (0.16) (0.32) (0.39) (0.45) (0.40) (0.38)
From net realized gains (1.36) (1.86) (1.51) (1.71) (1.32) (0.42)
-------- ------- -------- -------- -------- ---------
Total distributions (1.52) (2.18) (1.90) (2.16) (1.72) (0.80)
-------- ------- -------- -------- -------- ---------
Net asset value, end
of period $ 15.61 $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50
======== ======= ======== ======== ======== =========
Total Return/(a)/ 15.89% 21.26% 35.54% 6.85% 13.02% 11.01%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $382,018 $469,591 $317,612 $350,694 $679,532 $1,239,536
Net expenses to average
daily net assets 0.61%* 0.61% 0.61% 0.61% 0.61% 0.62%
Net investment income to
average daily net assets 2.05%* 2.17% 2.66% 2.86% 2.70% 3.15%
Portfolio turnover rate 19% 84% 65% 77% 35% 50%
Average broker commission
rate per equity share /(b)/ $ 0.0554 $0.0457 N/A N/A N/A N/A
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.02 $ 0.04 $ 0.02 $ 0.02 $ 0.02 $ 0.01
</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.
* Annualized.
20 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange.
On June 1, 1996, the Fund began to offer three classes of shares: Class I,
Class II and Class III. The principal economic difference among the classes
of shares is the level of shareholder service fee borne by the classes.
Eligibility for and automatic conversion between the various classes of
shares is generally based on the total amount of assets invested with GMO,
as more fully outlined in the Trust's prospectus. Class III shares are the
continuation of the Trust's shares that existed prior to June 1, 1996, and
bear the same total operating expenses (after the voluntary expense waiver)
as those shares. At August 31, 1997, Class III was the only active class of
shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on the domestic stock
indices. Stock index futures contracts represent commitments for future
delivery of cash based upon the level of a specified index of equity
securities at a specified price at a given date. The Fund may use futures
contracts to manage its exposure to the stock markets. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. Upon purchase of a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S.
21
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
government obligations in accordance with the initial margin requirements
of the broker or exchange. Futures contracts are marked to market daily and
an appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts held as of August 31, 1997.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At August 31, 1997, the Fund
loaned securities having a market value of $31,572,585, collateralized by
cash in the amount of $32,381,594, which was invested in short-term
instruments.
Swap agreements
The Fund may enter into swap agreements to manage its exposure to the
equity markets. A swap is an agreement to exchange the return generated by
one instrument for the return generated by another instrument. The Fund
enters into equity swap agreements which involve a commitment by one party
in the agreement to pay interest in exchange for a market linked return
based on a notional amount. To the extent that the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from
or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
Entering into these agreements involves, to varying degrees, elements of
credit and market risk in excess of the amounts recognized on the Statement
of Assets and Liabilities. Such risks involve the possibility that there is
no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform, or that there may be
unfavorable
22
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
changes in the price of the security or index underlying these
transactions. See Note 6 for a summary of all open swap agreements as of
August 31, 1997.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds. Investment income, common
expenses and realized and unrealized gains and losses are allocated
pro-rata among the classes based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. Prior to June 1, 1996, the premium on cash purchases was .15% of
the amount invested. All purchase premiums are paid to and recorded as
paid-in capital by the Fund. For the six months ended August 31, 1997, the
Fund
23
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
received $2,561 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .70% of
average daily net assets. Effective June 1, 1996, the Fund adopted a
Shareholder Services Plan under which the Fund pays GMO a shareholder
service fee for client and shareholder service, reporting, and other
support. Pursuant to the Shareholder Services Plan, the shareholder service
fee is calculated based on the average daily net assets of each class at
the annual rate of .28% for Class I shares, .22% for Class II shares, and
.15% for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .46% of average daily net assets. Prior to
June 1, 1996, a similar waiver existed for annual expenses exceeding .61%;
thus, the net annual expense ratio after the waiver for a Class III
shareholder is unchanged.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $2,096. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1997,
aggregated $73,730,948 and $194,126,326, respectively.
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C>
$346,649,293 $74,530,013 $6,200,822 $68,329,191
</TABLE>
4. Principal shareholder
At August 31, 1997, 30% of the outstanding shares of the Fund were held by
one shareholder.
24
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1997 February 29, 1997
-------------------------------- ------------------------------
Shares Amount Shares Amount
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 122,462 $ 1,829,289 9,674,742 $ 141,074,274
Shares issued to shareholders
in reinvestment of
distributions 2,471,174 36,764,383 3,486,567 48,679,629
Shares repurchased (9,758,297) (149,607,779) (3,824,235) (54,746,025)
------------- --------------- -------------- --------------
Net increase (decrease) (7,164,661) $ (111,014,107) 9,337,074 $ 135,007,878
============= =============== ============== ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1997 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
--------------- --------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
15 Russell 2000 September 1997 $3,180,750 $ 69,013
18 S&P 500 September 1997 8,127,900 (171,944)
----------------
$ (102,931)
================
</TABLE>
At August 31, 1997, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
25
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Appreciation
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
$3,491,545/ 9/11/97 Agreement with Morgan Stanley Capital $ 204,486
3,366,900 Services, Inc. dated September 9, 1996
to pay (receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread and to receive
(pay) the change in market value of a
basket of selected securities
(including dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread.
10,795,563/ 5/13/98 Agreement with Morgan Stanley Capital 870,737
9,970,214 Services, Inc. dated May 13, 1997 to
pay (receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by LIBOR adjusted by a
specified spread and to receive (pay)
the change in market value of a basket
of selected securities (including
dividends) less the counterparty's
notional amount multiplied by LIBOR
adjusted by a specified spread.
----------------
Net unrealized appreciation $1,075,223
================
</TABLE>
26
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1997
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
333,335 GMO Core Fund (Class III Shares) 6,433,363
276,704 GMO Currency Hedged International Core Fund (Class III Shares) 3,472,632
52,514 GMO Emerging Country Debt Fund (Class III Shares) 700,538
604,808 GMO Emerging Markets Fund (Class III Shares) 7,868,546
61,210 GMO Growth Fund (Class III Shares) 280,952
61,942 GMO Inflation Indexed Bond Fund (Class III Shares) 633,047
72,590 GMO International Bond Fund (Class III Shares) 790,502
775,245 GMO International Core Fund (Class III Shares) 18,954,738
90,698 GMO International Small Companies Fund (Class III Shares) 1,269,768
181,492 GMO REIT Fund (Class III Shares) 2,424,736
153,951 GMO Small Cap Growth Fund (Class III Shares) 1,924,390
103,227 GMO Small Cap Value Fund (Class III Shares) 1,883,897
105,894 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 1,118,238
87,365 GMO Value Fund (Class III Shares) 1,363,771
-----------
TOTAL MUTUAL FUNDS (COST $46,704,691) 49,119,118
-----------
SHORT-TERM INVESTMENT -- 0.0%
Repurchase Agreement -- 0.0%
$11,914 Salomon Brothers Repurchase Agreement, dated 8/29/97, due
9/2/97, with a maturity value of $11,921 and an effective
yield of 5.05%, collateralized by U.S. Treasury Obligations
with rates ranging from 5.00% to 6.75%, with maturity dates
ranging from 2/15/99 to 8/15/26 and with an aggregate market
value of $12,187. 11,914
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $11,914) 11,914
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $46,716,605) 49,131,032
Other Assets and Liabilities (net) -- 0.0% 436
-----------
TOTAL NET ASSETS -- 100% $49,131,468
===========
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $46,716,605) (Note 1) $49,131,032
Receivable for expenses waived or borne by Manager (Note 2) 13,931
-----------
Total assets 49,144,963
-----------
Liabilities:
Payable to affiliate for (Note 2):
Shareholder service fee 1,081
Accrued expenses 12,414
-----------
Total liabilities 13,495
-----------
Net assets $49,131,468
===========
Net assets consist of:
Paid-in-capital $44,185,923
Accumulated undistributed net investment income 306,753
Accumulated undistributed net realized gain 2,224,365
Net unrealized appreciation 2,414,427
-----------
$49,131,468
===========
Net assets attributable to:
Class I shares $10,126,038
===========
Class III shares $39,005,430
===========
Shares outstanding:
Class I 901,408
===========
Class III 3,470,046
===========
Net asset value per share:
Class I $ 11.23
===========
Class III $ 11.24
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends from investment company shares $ 312,899
Interest 243
----------
Total income 313,142
----------
Expenses:
Custodian and transfer agent fees 12,539
Registration fees 11,856
Audit fees 7,918
Legal fees 1,037
Trustees fees (Note 2) 182
Miscellaneous 102
Fees waived or borne by Manager (Note 2) (33,634)
----------
--
Shareholder service fee (Note 2)
Class I 6,389
----------
Net expenses 6,389
----------
Net investment income 306,753
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (17,561)
Realized gain distributions from investment company shares 2,317,252
----------
Net realized gain 2,299,691
----------
Change in net unrealized appreciation (depreciation) on:
Investments 1,044,605
----------
Net unrealized gain 1,044,605
----------
Net realized and unrealized gain 3,344,296
----------
Net increase in net assets resulting from operations $3,651,049
==========
</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>
Six Months Ended Period from June 28, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- ----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 306,753 $ 159,870
Net realized gain 2,299,691 634,574
Change in net unrealized appreciation
(depreciation) 1,044,605 1,369,822
----------- -----------
Net increase in net assets resulting from
operations 3,651,049 2,164,266
----------- -----------
Distributions to shareholders from:
Net investment income
Class I -- (95,107)
Class III -- (64,763)
----------- -----------
Total distributions from net
investment income -- (159,870)
----------- -----------
In excess of net investment income
Class I -- (702)
Class III -- (478)
----------- -----------
Total distributions in excess of net
investment income -- (1,180)
----------- -----------
Net realized gains
Class I (92,297) (157,650)
Class III (354,272) (104,501)
----------- -----------
Total distributions from net realized
gains (446,569) (262,151)
----------- -----------
(446,569) (423,201)
----------- -----------
Net share transactions: (Note 5)
Class I 61,705 9,038,695
Class II -- (24,488)
Class III (305,009) 35,415,020
----------- -----------
Increase (decrease) in net assets
resulting from net share transactions (243,304) 44,429,227
----------- -----------
Total increase in net assets 2,961,176 46,170,292
Net assets:
Beginning of period 46,170,292 --
----------- -----------
End of period (including accumulated
undistributed net investment income of
$306,753 and $0, respectively) $49,131,468 $46,170,292
=========== ===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from June 28, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- -------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.52 $10.00
-------- -------
Income from investment operations:
Net investment income/(b)/ 0.06+ 0.09
Net realized and unrealized gain 0.75 0.72
-------- -------
Total from investment operations 0.81 0.81
-------- -------
Less distributions to shareholders:
From net investment income -- (0.11)
In excess of net investment income -- 0.00
From net realized gains (0.10) (0.18)
-------- -------
Total distributions (0.10) (0.29)
-------- -------
Net asset value, end of period $ 11.23 $10.52
======== =======
Total Return/(a)/ 7.70% 8.23%
Ratios/Supplemental Data:
Net assets, end of period (000's) $10,126 $9,424
Net expenses to average daily net assets 0.13%* 0.16%*
Net investment income to average daily net
assets/(b)/ 1.21%* 1.80%*
Portfolio turnover rate 18% 31%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.01
</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)/Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund invests.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 5
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from October 22, 1996
August 31, 1997 (commencement of operations)
(Unaudited) to February 28, 1997
---------------- --------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.52 $ 10.07
------- -------
Income from investment operations:
Net investment income/(b)/ 0.07++ 0.11
Net realized and unrealized gain 0.75 0.63
------- -------
Total from investment operations 0.82 0.74
------- -------
Less distributions to shareholders:
From net investment income -- (0.11)
In excess of net investment income -- 0.00
From net realized gains (0.10) (0.18)
------- -------
Total distributions (0.10) (0.29)
------- -------
Net asset value, end of period $ 11.24 $ 10.52
------- -------
Total Return/(a)/ 7.79% 7.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $39,005 $36,746
Net expenses to average daily net assets 0.00%* 0.00%*
Net investment income to average daily net
assets/(b)/ 1.33%* 0.91%*
Portfolio turnover rate 18% 31%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.03
</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)/ Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
++ Computed using average shares outstanding throughout the period.
* Annualized.
6 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited)
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO World Equity Allocation Fund (the "Fund"), which commenced operations
on June 28, 1996, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the World Lite Extended Index, a modification of the Morgan Stanley Capital
International World Index that reduces the weighting of Japan and includes
a weighting for emerging countries. The Fund will pursue its objective by
investing primarily in Class III shares of equity funds of the Trust.
The Fund offers three classes of shares: Class I, Class II and Class III.
The principal economic difference among the classes of shares is the level
of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus. At August 31, 1997, Class I and Class
III were the only active classes of shares of the Fund.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying funds are valued at their net asset value as reported
on each business day. Short-term investments with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the
Trustees.
7
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its taxable net investment
income and net realized short-term and long-term capital gains, if any,
after giving effect to any available capital loss carryovers for federal
income tax purposes. Therefore, no provision for federal income or excise
tax is necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. Investment income, common
expenses and realized and unrealized gains and losses
8
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
are allocated pro-rata among the classes based on the relative net assets
of each class. Shareholder service fees, which are directly attributable to
a class of shares, are charged to that class' operations. In addition, the
Fund will also incur fees and expenses indirectly as a shareholder in the
underlying funds. Because the underlying funds have varied expense and fee
levels and the Fund may own different proportions of underlying funds at
different times, the amount of fees and expenses indirectly incurred by the
Fund will vary.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .66% of the amount
invested. In the case of cash redemptions, the fee is .15% of the amount
redeemed. Prior to June 30, 1997, the premium on cash purchases was .69%
and the fee on cash redemptions was .09%. All purchase premiums and
redemption fees are paid to and recorded as paid-in capital by the Fund.
For the six months ended August 31, 1997, the Fund received $11,234 in
purchase premiums and $5,485 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
fees from the underlying funds in which the Fund invests. The Fund has
adopted a Shareholder Services Plan under which the Fund pays GMO a
shareholder service fee for client and shareholder service, reporting and
other support. Pursuant to the Shareholder Services Plan, the shareholder
service fee is calculated based on the average daily net assets of each
class at the annual rate of .13% for Class I shares and .07% for Class II
shares. No shareholder service fee is charged for Class III shares.
GMO has agreed to reimburse all expenses until further notice (excluding
brokerage commissions, certain other transaction costs (including transfer
taxes), shareholder service fees and extraordinary expenses). Prior to
November 25, 1996, GMO had agreed to reimburse these expenses to the extent
that the Fund's annual expenses exceeded .05% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1997 was $182. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the six months ended August 31, 1997, aggregated
$10,529,894 and $8,614,924, respectively.
9
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
At August 31, 1997, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held was
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ ----------------- ------------------ ----------------
<S> <C> <C> <C>
$ 46,716,605 $ 2,436,960 $ 22,533 $ 2,414,427
</TABLE>
4. Principal shareholders
At August 31, 1997, 79% of the outstanding shares of the Fund were held by
two shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended
Class I: August 31, 1997
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold -- $ --
Shares issued to shareholders in reinvestment
of distributions 5,320 61,705
Shares repurchased -- --
--------------- ---------------
Net increase 5,320 $ 61,705
=============== ===============
<CAPTION>
Period from June 28, 1996
(commencement of operations)
to February 28, 1997
---------------------------------
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
=============== ===============
</TABLE>
10
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Period from June 28, 1996
(commencement of operations)
Class II: to February 28, 1997
---------------------------------
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 decrease -- $ (24,488)
=============== ===============
<CAPTION>
Six Months Ended
Class III: August 31, 1997
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 534,391 $ 5,429,961
Shares issued to shareholders in
reinvestment of distributions 30,514 354,272
Shares repurchased (588,862) (6,089,242)
=============== ===============
Net increase/(decrease) (23,957) $ (305,009)
=============== ===============
<CAPTION>
Period from October 22, 1996
(commencement of operations)
to February 28, 1997
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
Shares sold 3,482,496 $ 35,298,804
Shares issued to shareholders in
reinvestment of distributions 11,501 116,216
Shares repurchased -- --
=============== ===============
Net increase/(decrease) 3,494,003 $ 35,415,020
=============== ===============
</TABLE>
11
