<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Global Hedged Equity Fund
Schedule of Investments
(A Series of GMO Trust)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
MUTUAL FUNDS - 75.5%
United States - 75.5%
949,664 GMO Emerging Markets Fund 5,023,721
1,032,635 GMO Evolving Countries Fund 4,719,143
2,127,259 GMO International Core Fund 43,949,176
288,032 GMO International Small Companies Fund 3,162,591
542,325 GMO REIT Fund 5,190,046
551,281 GMO Small Cap Growth Fund 4,944,986
389,998 GMO Small Cap Value 5,062,172
2,293,254 GMO U.S. Core Fund 38,045,082
---------------
110,096,917
---------------
TOTAL MUTUAL FUNDS (Cost $143,077,046) 110,096,917
---------------
DEBT OBLIGATIONS - 3.6%
U.S. Government - 3.6%
$ 5,250,000 U.S. Treasury Note, 5.5% due 11/15/98(a) 5,254,102
---------------
TOTAL DEBT OBLIGATIONS (Cost $5,303,684) 5,254,102
---------------
STOCK AND EQUIVALENTS - 0.0%
Hong Kong - 0.0%
400 Johnson Electric Holdings Ltd* 676
---------------
Italy - 0.0%
12,500 Grasetto SPA (b) -
---------------
TOTAL STOCK AND EQUIVALENTS (Cost $7,537) 676
---------------
SHORT-TERM INVESTMENTS - 12.9%
Cash Equivalents - 7.7%
$ 11,200,000 First national Bank of Chicago Time Deposit,
5.75% due 9/1/98 11,200,000
---------------
U.S. Government - 5.2%
$ 7,750,000 U.S. Treasury Bill, 5.39% due 1/7/99 (a) 7,619,387
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $18,810,864) 18,819,387
---------------
TOTAL INVESTMENTS - 92.0%
(Cost $167,199,131) 134,171,082
Other Assets and Liabilities (net) - 8.0% 11,727,678
---------------
TOTAL NET ASSETS - 100.0% $ 145,898,760
===============
1
See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
(a) This security is held as collateral for open futures contracts.
(b) Bankrupt issuer.
* Non-income producing security.
See accompanying notes to the financial statements.
2
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $167,199,131) (Note 1) $ 134,171,082
Foreign currency, at value (cost $38,948) (Note 1) 39,911
Cash 16,889
Interest receivable 90,692
Receivable for open forward foreign currency contracts (Notes 1 and 6) 10,280
Receivable for open swap contracts (Notes 1 and 6) 7,080,913
Receivable for variation margin on open futures contracts (Notes 1 and 6) 4,647,031
Receivable for expenses waived or borne by Manager (Note 2) 74,136
------------------
Total assets 146,130,934
------------------
Liabilities:
Payable for open forward foreign currency contracts (Notes 1 and 6) 76,727
Payable to affiliate for (Note 2):
Management fee 81,544
Shareholder service fee 3,164
Accrued expenses 70,739
------------------
Total liabilities 232,174
------------------
Net assets $ 145,898,760
==================
Net assets consist of:
Paid-in capital $ 174,587,423
Distributions in excess of net investment income (641,840)
Accumulated net realized loss (12,845,158)
Net unrealized depreciation (15,201,665)
------------------
$ 145,898,760
==================
Net assets attributable to Class III Shares $ 145,898,760
==================
Shares outstanding - Class III 17,683,898
==================
Net asset value per share - Class III $ 8.25
==================
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends from investment company shares $ 435,569
Interest 624,196
--------------------
Total income 1,059,765
--------------------
Expenses:
Management fee (Note 2) 532,548
Custodian fees 45,250
Audit fees 20,871
Transfer agent fees 14,366
Legal fees 1,823
Trustees fees (Note 2) 732
Registration fees 412
Miscellaneous 640
Fees waived or borne by Manager (Note 2) (500,858)
--------------------
115,784
Shareholder service fee - Class III (Note 2) 14,533
--------------------
Net expenses 130,317
--------------------
Net investment income 929,448
--------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 145,650
Realized gain distributions from investment company shares 6,237,637
Closed futures contracts (13,259,920)
Closed swap contracts (6,912,761)
Foreign currency, forward contracts and foreign currency related
transactions 1,820,894
--------------------
Net realized loss (11,968,500)
--------------------
Change in net unrealized appreciation (depreciation) on:
Investments (26,220,127)
Open futures contracts 18,698,789
Open swap contracts 11,201,944
Foreign currency, forward contracts and foreign currency related
transactions (1,496,660)
--------------------
Net unrealized gain 2,183,946
--------------------
Net realized and unrealized loss (9,784,554)
--------------------
Net decrease in net assets resulting from operations $ (8,855,106)
====================
</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, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 929,448 $ 6,813,996
Net realized gain (loss) (11,968,500) 17,777,218
Change in net unrealized appreciation (depreciation) 2,183,946 (27,674,481)
---------------- -----------------
Net decrease in net assets resulting from operations (8,855,106) (3,083,267)
---------------- -----------------
Distributions to shareholders from:
Net investment income - Class III - (6,516,906)
Net realized gains - Class III - (19,721,985)
In excess of net realized gains - Class III - (7,564,405)
---------------- -----------------
- (33,803,296)
---------------- -----------------
Net share transactions - Class III (Note 5) (15,951,803) (89,109,720)
---------------- -----------------
Total decrease in net assets (24,806,909) (125,996,283)
Net assets:
Beginning of period 170,705,669 296,701,952
---------------- -----------------
End of period (including distributions in excess of net
investment income of $641,840 and $1,571,288, respectively.) $ 145,898,760 $ 170,705,669
================ =================
</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, 1998 -------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995*
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.72 $ 10.69 $ 10.64 $ 10.12 $ 10.00
-------------- -------------- -------------- -------------- --------------
Income from investment operations:
Net investment income 0.04 0.35 0.24 0.21 0.11
Net realized and unrealized gain (loss) (0.51) (0.52) 0.01 0.55 0.08
-------------- -------------- -------------- -------------- --------------
Total from investment operations (0.47) (0.17) 0.25 0.76 0.19
-------------- -------------- -------------- -------------- --------------
Less distributions to shareholders:
From net investment income - (0.35) (0.20) (0.24) (0.07)
From net realized gains - (1.05) - - -
In excess of net realized gains - (0.40) - - -
-------------- -------------- -------------- -------------- --------------
Total distributions - (1.80) (0.20) (0.24) (0.07)
-------------- -------------- -------------- -------------- --------------
Net asset value, end of period $ 8.25 $ 8.72 $ 10.69 $ 10.64 $ 10.12
============== ============== ============== ============== ==============
Total Return (a) (5.39%) (1.63%) 2.34% 7.54% 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $145,899 $170,706 $296,702 $382,934 $214,638
Net expenses to average
daily net assets (c) 0.16%** 0.58% 0.91%(b) 0.78% 0.92%**
Net investment income to average
daily net assets 1.13%** 2.93% 1.99% 2.44% 2.85%**
Portfolio turnover rate 7% 277% 463% 214% 194%
Fees and expenses voluntarily waived or
borne by the Manager consisted of
the following per share amounts: $ 0.02 $ 0.04 $ 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) Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximates .02% of average daily net assets.
(c) On August 20, 1997, the Fund revised its voluntary waiver. See Note 2.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Hedged Equity Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate series
of shares, and to subdivide a series into classes.
The Fund seeks total return consistent with minimal exposure to general
equity market risk, either directly or through investment in other Funds of
the Trust ("underlying Funds"). On August 20, 1997, the Fund began to invest
a substantial portion of its assets in underlying Funds.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying Funds are valued at their net asset value as reported
on each business day. Portfolio securities listed on a securities exchange
for which market quotations are available are valued at the last quoted sale
price on each business day, or if there is no such reported sale, at the
most recent quoted bid price. Unlisted securities for which market
quotations are readily available are valued at the most recent quoted bid
price. Securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars
at the current exchange rate. Short-term investments with a remaining
maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains
7
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
and losses that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gain or loss on
investments. Net realized gains and losses on foreign currency transactions
represent 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. Buying futures tends to increase the Fund's exposure
to the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the initial
margin requirements of the broker or exchange. Futures contracts are marked
to market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. The payable or
receivable is subsequently settled. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from the changes in the value of the underlying instrument,
if there is an illiquid secondary market for the contracts or if
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of August 31, 1998.
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are unable
to meet
8
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
the terms of the contracts or if the value of the currency changes
unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the
Fund has committed to buy or sell is shown under Note 6 and represents the
currency exposure the Fund has acquired or hedged through currency contracts
as of August 31, 1998.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into total return swap agreements
which involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is recorded
as unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there 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, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryover for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States.
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
9
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
excess of tax basis earnings and profits, if any, are reported in the Fund's
financial statements as a return of capital. Differences in the recognition
or classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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. 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 are recorded by the Fund as paid-in capital.
Purchase premiums are included as part of "shares sold" and redemption fees
are included as part of "shares repurchased", respectively, as summarized in
Note 5. For the six months ended August 31, 1998, the Fund received $23,781
in purchase premiums and no redemption fees. There is no premium for
reinvested distributions. Normally, no purchase premium is charged with
respect to in-kind purchases of Fund shares. A purchase premium of up to
.10% may be charged on certain in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments 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 Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .65% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based on
the average daily net assets at the annual rate of .15% for Class III
shares. The Fund will invest in Class III shares of each underlying Fund
being offered. Like the management fee (as described below), the shareholder
service fee will be waived (but not below zero) to the extent of the
indirect shareholder service fees paid in connection with the Fund's
investment in shares of underlying Funds.
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. 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.
For the six months ended August 31, 1998, operating expenses (excluding
shareholder service fees and fund expenses) incurred indirectly by the Fund
were .41% 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, 1998, was $732. 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, 1998, aggregated
$9,917,506 and $38,163,889, respectively.
11
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
$167,199,131 $8,702 $33,036,751 $33,028,049
</TABLE>
4. Principal shareholders
At August 31, 1998, 47% 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, including the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
------------------------------ -------------------------------
Class III: Shares Amount Shares Amount
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 977,477 $ 8,484,590 58,635 $ 595,622
Shares issued to
shareholders in
reinvestment of 3,493,801 30,813,859
distributions - -
Shares repurchased (2,864,919) (24,436,393) (11,741,685) (120,519,201)
------------ -------------- ------------- --------------
Net decrease (1,887,442) $ (15,951,803) (8,189,249) $ (89,109,720)
============ ============== ============= ==============
</TABLE>
12
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
-------------- ---------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Buys
50 ALL ORDS September 1998 $ 70,644 $ (7,903)
================
Sales
60,250 S&P 500 September 1998 $ 57,478,500 $ 10,554,106
10,000 MIB30 September 1998 179,912 17,112
200 DAX September 1998 547,321 84,514
50,000 TOPIX September 1998 390,608 32,158
50 HANG SENG September 1998 45,166 5,151
70 FT-SE 100 September 1998 615,965 69,699
1,500 OMX September 1998 123,141 8,031
250 MATIF CAC 40 September 1998 154,822 22,517
2,000 IBEX September 1998 110,406 25,791
----------------
$ 10,819,079
================
</TABLE>
At August 31, 1998, the Fund had cash and/or securities to cover any margin
requirements on open futures contracts.
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
------------ ------------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Sales
12/11/98 ATS 814,350 $ 65,990 $ (364)
12/11/98 AUD 458,829 262,686 6,181
12/11/98 BEF 487,825 13,490 (67)
12/11/98 CHF 547,545 382,814 (11,769)
12/11/98 DEM 1,217,213 694,271 (7,127)
12/11/98 DKK 743,205 110,983 (511)
12/11/98 ESP 15,480,750 103,717 (437)
12/11/98 FIM 524,368 98,237 (357)
12/11/98 FRF 3,506,245 596,680 (6,768)
</TABLE>
13
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
--------------- ---------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C>
Sales - continued
12/11/98 GBP 665,595 $ 1,108,794 $ (27,364)
12/11/98 HKD 748,508 94,155 84
12/11/98 IEP 21,277 30,206 (141)
12/11/98 ITL 346,206,050 198,966 (544)
12/11/98 JPY 115,640,200 831,067 (20,203)
12/11/98 MYR 1,524,360 347,435 (178)
12/11/98 NLG 423,209 213,971 (897)
12/11/98 NOK 51,791 6,553 288
12/11/98 NZD 39,992 19,786 434
12/11/98 SEK 807,784 100,222 1,192
12/11/98 SGD 583,295 327,745 2,101
----------------
$ (66,447)
================
</TABLE>
Currency Abbreviations:
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CHF Swiss Franc JPY Japanese Yen
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
GBP British Pound SGD Singapore Dollar
14
<PAGE>
GMO Global Hedged Equity Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Appreciation
- ------------------------- ---------------- ------------------------------------------------------- ----------------------
<S> <C> <C> <C>
$ 9,515,478 9/30/98 Agreement with Deutsche Bank AG dated 9/30/97 to pay $ 1,229,995
(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.
33,275,877 5/31/99 Agreement with Swiss Bank Corporation dated 5/26/98 4,019,161
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.
15,000,000 5/31/99 Agreement with Deutsche Bank AG dated 5/26/98 to pay 1,831,757
(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.
---------------------
$ 7,080,913
=====================
</TABLE>
15
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 97.9%
Australia - 4.8%
1,000 Amcor Ltd 3,582
200 AMP Limited* 2,448
181,395 Australia and New Zealand Banking Group Ltd 916,791
47,800 Australian Gas & Light 271,347
156,708 Australian National Industries Ltd 62,773
30,000 Austrim Ltd 38,112
36,800 Bank of Western Australia 60,018
105,509 Boral Ltd 141,887
81,200 Broken Hill Proprietary Ltd 560,388
24,500 Caltex Australia Ltd 52,716
67,400 Capital Property Trust 79,839
47,200 Capral Aluminum Ltd 52,670
21,300 Coca-Cola Amatil Ltd 48,756
8,600 Coca-Cola Beverage* 20,965
95,698 Coles Myer Ltd 350,484
68,800 Colonial Ltd 195,279
21,000 Comalco Ltd 69,820
23,756 Commonwealth Bank of Australia 253,603
76,461 Consolidated Rutile Ltd* 22,753
62,100 CRA Ltd 602,703
13,800 CSL Ltd 78,734
275,363 CSR Ltd 559,396
12,300 Cultus Petroleum* 2,956
103,700 Delta Gold 95,541
25,900 Email Ltd 35,867
41,190 Foodland Associated 227,696
246,929 Fosters Brewing Group Ltd 508,698
6,910 G E Crane Holdings Ltd 30,052
97,100 General Property Trust Units 142,248
105,527 Goodman Fielder Ltd 123,795
32,300 Hardie (James) Industries Ltd 63,954
64,900 Harvey Norman Holdings 304,540
12,150 Incitec Ltd 29,689
13,200 Jupiters Ltd 18,507
10,200 Lend Lease Corp Ltd 192,911
7,200 Macquarie Bank Ltd 52,327
28,000 Mayne Nickless Ltd 145,553
254,900 MIM Holdings Ltd 102,107
31,700 Mirvac Ltd 27,210
45,266 National Australia Bank Ltd* 560,111
136,700 National Food Ltd 199,165
156,300 National Mutual Holdings 247,756
123,400 National Mutual Property Trust 88,976
365,103 News Corp Ltd 2,233,464
326,715 Normandy Mining Ltd 188,832
See accompanying notes to the financial statements. 1
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Australia - continued
47,749 North Broken Hill Peko Ltd 82,847
68,200 Pacific Dunlop Ltd 118,878
5,337 Perpetual Trustees Australia 41,200
187,352 Pioneer International Ltd 343,079
16,574 PMP Communications Ltd 24,470
128,900 Qantas Airways Ltd 173,343
31,200 QBE Insurance Group Ltd 99,769
156,535 QCT Resources Ltd 85,994
26,369 Rothmans Holdings Ltd 156,932
50,004 Santos Ltd 113,028
142,797 Schroders Property 199,386
25,300 Seven Network Ltd 73,837
19,251 Simsmetal Ltd 64,446
41,500 Stockland Trust Group 84,307
20,900 Sydney Harbour Casinos Preferred* 11,362
36,500 Tabcorp Holdings 186,313
158,000 Telstra Corp Ltd Installment Receipts 409,582
3,549 W H Soul Pattison & Co Ltd 49,859
27,700 Westfarmers Ltd 181,498
242,200 Westfield America Trust 223,144
44,800 Westfield Holdings Ltd 180,739
235,265 Westfield Trust Units 417,354
142,850 Westpac Banking Corp 760,237
46,100 Woodside Petroleum Ltd 208,408
----------
14,357,031
----------
Austria - 2.9%
13,377 Bank Austria AG (Participating Certificate) 684,546
5,077 Bau Holdings AG Preferred (Non Voting) 245,487
9,348 Brau Union AG 500,969
3,796 Creditanstalt AG 290,616
2,197 EA-Generali AG 460,335
4,589 Erste Bank Der Oesterreichischen Sparkassen AG 253,880
2,704 EVN Energie-Versorgung Niederoesterreich AG 371,536
2,762 Leykam-Muerztaler Papier und Zellstoff AG* 72,340
11,860 Oesterreichische Brau Beteiligungs AG 648,014
3,610 Oesterreichische Elektrizitaetswirtschafts AG 608,028
12,963 Oesterreichische Laenderbank AG 710,370
3,367 OMV AG 347,342
12,779 Radex-Heraklith AG 467,544
7,553 Universale Bau AG 236,777
88,827 Voest-Alpine Stahl AG 2,763,138
----------
8,660,922
----------
Belgium - 0.7%
1,500 Almanij NV 111,968
450 Arbed SA 37,735
1,100 CBR Cimenteries NPV 102,524
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Belgium - continued
11,000 Cockerill Sambre SA 63,208
2,600 Compagnie Benelux Paribas SA 170,488
1,200 Credit Commercial Dexia 179,149
2,650 Electrabel SA 863,370
1,050 Electrafina NPV 129,330
250 Glaverbel NPV 29,693
600 Groupe Bruxelles Lambert NPV 111,184
840 Petrofina SA Bruxelles 315,820
740 Solvay Et Cie 46,794
800 Union Miniere NPV 39,371
---------
2,200,634
---------
Canada - 4.3%
20,000 Abitibi Consolidated Inc 156,635
38,761 Agrium Inc* 329,586
39,700 Air Canada Inc* 168,785
22,000 Anderson Exploration Ltd* 193,396
10,100 BC Telecom Inc 238,916
40,996 BCE Inc 1,326,214
9,700 Biochem Pharma Inc 151,936
46,600 Bombardier Inc Class B* 497,535
41,900 CAE Industries Inc 238,411
10,300 Canadian Hotel Inc 466,221
25,100 Canadian Marconi Co 300,882
17,800 Canadian Tire Corp Ltd Class A 364,159
243 Clinichem Development Inc Class A* 932
25,089 Cominco Ltd 232,580
30,800 Dofasco Inc 305,214
15,500 Donohue Inc Class A 265,080
33,300 Falconbridge Ltd 255,474
32,500 Imasco Ltd 523,607
21,479 Imperial Oil Ltd 302,105
32,500 Inco Ltd 275,309
9,350 Ipsco Inc 186,205
20,200 Laidlaw Inc 175,635
11,600 Loewen Group Inc 133,491
32,981 Macmillan Bloedel Ltd 253,027
4,400 Magna International Class A 263,862
34,700 Methanex Corp* 202,989
20,800 Molson Co Ltd Class A 279,922
22,500 Moore Corporation Ltd 217,211
9,800 Newbridge Networks Corp* 184,516
16,200 Noranda Inc 178,659
260 Nova Corp 3,034
16,000 Nova Scotia Power Inc 155,484
30,600 Placer Dome Inc 243,564
6,400 Potash Corp of Saskatchewan 327,334
See accompanying notes to the financial statements. 3
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Canada - continued
14,700 Quebecor Inc Class B 272,544
30,500 Renaissance Energy Ltd * 333,440
16,100 Rogers Cantel Mobile Communications Class B* 128,664
19,500 Seagram Ltd 610,875
15,900 Telus Corp 315,123
70,600 Trans Canada Pipelines Ltd * 961,404
36,100 Transalta Corp 438,513
7,999 United Dominion Industries Ltd 195,609
18,000 Westcoast Energy Inc 318,767
----------
12,972,849
----------
Finland - 0.6%
6,200 Amer Group Class A 93,576
1,200 Cultor OY Class 1 16,770
75,400 Enso OY Class R 636,441
6,500 Finnair Class A 45,419
3,800 Instrumentarium OY Class A 194,647
14,100 Kesko OY 189,165
400 Kone Corp Class B 48,446
3,600 Metra AB Class A 97,266
12,300 Partek OY 162,724
19,848 Rautaruukki OY 140,167
4,800 Stockmann AB Class A 117,166
600 Stockmann AB Class B 11,627
3,500 Valmet OY 46,956
----------
1,800,370
----------
France - 10.6%
2,505 Accor SA 577,718
1,899 Air Liquide L Shares 254,807
5,223 Alcatel Alsthom Cie Generale d'Electricite SA 840,452
4,300 Assurances Generales De France (Bearer) 234,863
26,239 Banque Nationale de Paris 1,715,080
10,190 Banque Paribas A Shares* 855,201
950 BIC SA 53,126
630 Bongrain 318,731
1,510 Christian Dior 145,635
3,150 Clarins 268,629
1 Colas SA 205
960 Compagnie Generale d'Industrie et de Participations 462,132
6,990 Credit Commercial de France 487,053
3,740 Credit Local de France SA 486,643
10,446 Credit Lyonnais* 936,782
10,160 Elf Aquitaine SA 1,010,843
6,704 Eridania Beghin-Say SA 1,202,409
1,210 Essilor International 479,496
155,500 Eurotunnel SA Warrants 12/31/01 & 10/31/03* 18,155
180 Fromageries Bel SA 158,071
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
7,700 Generale Des Eaux 1,521,760
3,420 Generale Des Eaux Warrants 5/2/2001* 5,671
11,480 Groupe Danone 3,061,333
25,843 Lafarge Coppee SA 2,199,497
6,432 Lyonnaise Des Eaux 1,049,145
11,990 Pernod Ricard 833,619
7,945 Peugeot SA 1,322,822
1,750 Pinault Printemps Redoute 272,716
4,900 Remy Cointreau SA 77,521
10,250 Renault SA 450,931
44,285 Rhone Poulenc SA Class A 2,135,571
9,340 Saint-Gobain 1,355,959
14,000 Seita 599,560
3,230 SGS Thomson Microelectronics* 179,809
26,430 Skis Rossignol 419,034
1,550 Societe Eurafrance 878,596
19,367 Societe Generale Paris 3,342,528
12,699 SPIE Batignolles 739,593
5,520 Strafor Facom 425,255
5,120 Total SA 498,139
15,600 Usinor Sacilor 165,239
----------
32,040,329
----------
Germany - 4.2%
2,250 Allianze AG 645,591
450 Axel Springer Verlag AG 275,588
24,400 BASF AG 975,447
25,250 Bayer AG 947,859
300 Bayerische Motorenwerke AG 222,852
6,200 Bayerische Vereinsbank 472,866
1,200 Bilfinger & Berger 28,035
900 Buderus AG 408,279
13,490 Continental AG 361,059
9,300 Deutsche Bank AG 578,514
34,000 Deutsche Telekom AG 900,369
5,800 Dresdner Bank 260,811
8,350 FAG Kugelfischer 111,270
2,050 Friedrich Krupp AG 296,428
42,000 Hamburgische Electricitaets-Werke AG* 1,178,906
4,105 Heidelberg Port-Zement 336,361
1,100 Henkel KGAA Preferred 87,950
150 Hugo Boss Preferred 318,968
5,950 Leirheit AG 195,690
19,005 Lufthansa AG 468,794
10,700 Metallgesellschaft 177,474
900 Munich Reinsurance (Registered) 349,589
2,250 RWE AG 107,811
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments -- continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Germany - continued
500 Schmalbach-Lubeca 79,246
4,950 SGL Carbon AG 437,879
15,000 Siemens AG 973,916
422 Suedzucker AG 217,760
3,350 Thyssen AG 628,778
8,400 Veba AG 423,358
1,900 Villeroy & Boch Preferred (Non-Voting) 183,158
1,950 Volkswagen AG 140,210
----------
12,790,816
----------
Hong Kong - 4.6%
472,400 Allied Properties Ltd Warrants 7/3/00* 2,438
326,500 Amoy Properties Ltd 155,894
45,000 Asia Satellite Telecom 47,327
1,540,000 Cathay Pacific Airways Ltd 1,112,889
1,500 Century City International 93
38,275 Century City International Warrants 12/31/98* 49
38,275 Century City International Warrants 12/31/99* 49
242,000 Cheung Kong Holdings 936,871
724,000 CLP Holdings Limited 3,064,471
108,000 Dairy Farm International 102,600
72,000 Dao Heng Bank 71,543
44,133 Dickson Concept International Ltd 26,625
845,000 Elec & Eltek International Holdings Ltd 122,129
9,400 Gold Peak Industries Ltd Warrants 8/6/00* 182
115,281 Great Eagle Holdings Ltd 92,978
111,656 Great Eagle Holdings Ltd Warrants 11/30/98* 144
55,700 Guoco Group 33,603
480,300 Hang Lung Development Co Ltd 371,884
36,800 Hang Seng Bank 198,028
391,000 Henderson Investment Ltd 191,736
100,000 HKCB Bank Holding Co Ltd 33,229
768 HKR International Ltd 194
158,300 Hong Kong Aircraft Engineering Co Ltd 165,466
882,000 Hong Kong Electric Holdings Ltd 2,617,819
143,000 Hong Kong Ferry Co Ltd 84,886
326,000 Hong Kong Telecommunications 576,343
74,000 Hong Kong & Shanghai Hotels 36,526
210,000 Hopewell Holdings 21,138
34,000 Hung Hing Printing Group Ltd 10,420
210,000 Hutchison Whampoa 907,836
600 Hysan Development Co Ltd 403
9,960 Hysan Development Co Ltd Warrants 4/30/99* 13
1,000 Innovative International Holdings 155
187,400 International Bank of Asia 21,523
10,000 Kowloon Motor Bus Co Ltd 11,421
120,127 Kumagai Gumi Ltd 26,508
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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------
Hong Kong - continued
<C> <S> <C>
24,025 Kumagai Gumi Ltd Warrants 12/31/99* 155
400 Lai Sun Garment International Ltd 59
71,049 Lai Sun Hotel International Warrants 4/30/99* 92
220,000 Lane Crawford International Ltd Class B 11,924
44,796 Leading Spirit Conrowa Electric* 1,093
900 Liu Chong Hing Bank Ltd 473
142,000 Liu Chong Hing Investment Ltd 65,968
478,000 Mandarin Oriental 224,660
142,600 New Asia Realty & Trust A Shares 90,169
815 New World Development Co Ltd* 878
1,000 Oriental Press Group 88
65,300 Oriental Press Group Warrants 10/2/98* 84
11,100 Realty Development Corp Ltd Class A 16,329
4,728,000 Regal Hotels International Ltd 451,494
18,980 Semi Tech (Global) Co Ltd* 661
126,900 Shaw Brothers Ltd 55,678
1,144,000 Shun Tak Holdings Ltd* 85,624
1,291,972 South China Morning Post Ltd 425,144
28,000 Sun Hung Kai Properties Ltd 85,996
134,600 Sun Hung Kai Properties Warrants 2/18/00* 208
118,500 Swire Pacific Ltd Class A 342,539
597,500 Swire Pacific Ltd Class B 267,939
1,723,200 Tan Chong International Ltd 28,019
27,000 VTech Holdings Ltd 94,771
450 Wharf Holdings Ltd Warrants 12/31/99* 5
348,200 Wheelock and Co Ltd 181,981
16,180 Wing Lung Bank 30,067
154,000 Yue Yuen Industrial Holdings 278,222
----------
13,785,733
----------
Italy - 5.1%
78,136 Alitalia Linee Aeree * 268,994
15,000 Alleanza Assicurazioni SPA 187,193
50,750 Assicurazioni Generali SPA 1,720,931
120,169 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 478,166
55,000 Banca Commerciale Italiana SPA 369,223
51,000 Banca Intesa SPA 241,122
9,800 Banca Popolare di Bergamo Credit 208,050
27,000 Banca Popolare di Milano 199,613
77,000 Banco Ambrosiano Veneto SPA (Non Convertible) 187,767
168,997 Banco di Napoli di Risp 199,750
21,900 Burgo (Cartiere) SPA 133,196
295,000 Compart SPA* 226,812
107,500 Credito Italiano 516,575
39,000 Credito Italiano (Non Convertible) 146,011
14,000 Edison SPA 120,452
107,700 Fiat SPA 335,549
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------
Italy - continued
<C> <S> <C>
128,270 Fiat SPA (Non Convertible) 233,673
132,500 Fiat SPA Preferred 244,040
180,500 Finmeccanica SPA* 167,984
332,480 HPI SPA 206,411
9,500 IFI Istituto Finanziario Preferred 153,169
45,000 IFIL Finanziaria di Partecipazioni SPA 165,247
102,900 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 220,224
3,900 Industrie Natuzzi SPA ADR 88,725
61,000 Istituto Bancario San Paolo 897,754
32,250 Istituto Mobilaire Italiano 494,987
220,892 Istituto Nazionale Delle Assicurazioni 589,350
31,250 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 116,189
26,500 Italcementi SPA 214,390
2,900 Italmobiliare SPA 79,703
8,950 Luxottica Group Sponsored ADR 97,331
34,500 Mediobanca SPA 374,129
9,500 Mondadori Editore 90,484
469,200 Montedison SPA 480,817
130,000 Montedison SPA (Non Convertible) 97,117
123,136 Olivetti and Co SPA* 275,543
80,535 Parmalat Finanziaria SPA 119,912
87,000 Pirelli & Co 151,252
22,500 RAS SPA 279,499
22,250 RAS SPA (Non Convertible) 192,135
18,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 153,163
274,000 Seat SPA* 174,664
25,150 Sirti SPA 122,803
280,000 Telecom Italia Mobile SPA 1,837,909
255,146 Telecom Italia Mobile SPA (Non Convertible) 921,562
56,936 Telecom Italia SPA (Non Convertible) 283,398
11,000 Toro Assicurazioni 173,566
----------
15,236,534
----------
Japan - 16.1%
8,000 Acom Ltd 396,629
800 Advantest Corp 34,280
20,000 Amada Co Ltd 98,874
29,000 Anritsu Corp 219,980
10,200 Arabian Oil Co Ltd 133,650
162,000 Atsugi Nylon Industrial 177,845
6,000 Autobacs Seven 158,935
8,000 Bandai Co 105,957
5,000 Banyu Pharmaceutical Co Ltd 65,125
33,000 Brother Industries Ltd 107,748
29,000 Canon Inc 588,462
48,000 Canon Sales Co Inc 620,441
10,000 Casio Computer Co 70,118
</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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
33,800 Chubu Electric Power Co Inc 497,939
78,000 Chugai Pharmaceutical Co Ltd 527,587
17,500 Chugoku Electric Power Co Inc 261,527
10,000 Citizen Watch Co 71,181
276,000 Cosmo Oil Co Ltd 351,866
17,000 Credit Saison Co 333,522
9,900 CSK Corp 171,790
64,000 Daicel Chemical Industries Ltd 106,523
33,000 Daiichi Seiyaku Co Ltd 409,023
6,000 Dainippon Pharmaceutical Co Ltd 17,423
28,000 Dainippon Screen Manufacturing Co Ltd 86,862
47,000 Daishowa Paper Manufacturing* 209,717
6,300 Daito Trust Construction Co Ltd 50,421
10,000 Eisai Co Ltd 118,989
36,000 Ezaki Glico Co Ltd 191,232
29,800 Fanuc Co 960,337
50,000 Fuji Electric Co 134,570
16,800 Fuji Photo Film Co Ltd 541,398
16,000 Fujisawa Pharmaceutical Co Ltd 138,027
21,000 Fukuyama Transporting Co Ltd 77,938
36,000 Gakken Co Ltd 48,955
63,000 General Sekiyu (KK) 220,426
44,000 Hankyu Corp 158,935
108,000 Hino Motors 249,366
399,000 Hitachi Ltd 1,997,967
12,700 Hokkaido Electric Power 175,402
4,200 Hokuriku Electric Power 59,048
32,000 Hosiden Corp* 430,625
17,000 House Foods Corp 196,862
12,000 Hoya Corp 399,462
17,000 INAX Corp 63,815
15,000 Intec Inc 106,240
50,000 Itochu Corp 85,700
32,000 Itoham Foods Inc 101,990
20,000 Ito-Yokado 930,661
14,000 Japan Airport Terminal Co Ltd 65,245
320,000 Japan Energy Co Ltd 324,102
50,000 Japan Radio Co 184,149
53,000 Japan Synthetic Rubber Co Ltd 204,582
267 Japan Tobacco Inc 1,802,189
4,000 Kandenko Co 20,965
22,000 Kaneka Corp 113,124
45,400 Kansai Electric Power 747,610
18,000 Kao Corp 277,286
6,000 Katokichi Co Ltd 68,418
83,000 Kawasaki Kisen 114,633
See accompanying notes to the financial statements. 9
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments -- continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
185,000 Keio Teito Electric Railway Co Ltd 564,735
53,000 Keisei Electric Railway 134,762
2,300 Keyence Corp 231,971
85,000 Kirin Brewery Co Ltd 710,390
11,000 Kissei Pharmaceutical Co Ltd 152,001
6,000 Kokusai Denshin Denwa 167,859
26,000 Komatsu Ltd 114,725
21,000 Konica Corp 81,061
179,000 Kubota Corp 342,305
79,000 Kurabo Industries Ltd 90,644
20,000 Kyocera Corp 907,996
165,000 Kyowa Hakko Kogyo Co Ltd 593,668
58,100 Kyushu Electric Power Co Inc 849,752
4,000 Kyushu Matsushita Electric 42,213
36,000 Maeda Corp 86,947
2,000 Maeda Road Construction 10,142
145,000 Marubeni Corp 239,287
31,000 Marudai Food Co Ltd 59,721
14,000 Matsushita Communications* 470,997
9,000 Matsushita Electric Industrial Co Ltd 129,400
56,000 Meiji Milk Products 122,162
41,000 Meiji Seika Kaisha Ltd 111,509
12,000 Mitsubishi Corp* 64,849
292,000 Mitsubishi Electric Corp* 556,328
31,000 Mitsubishi Gas Chemical Co Inc* 80,799
441,000 Mitsubishi Heavy Industries* 1,605,454
71,000 Mitsubishi Motors* 127,729
167,000 Mitsubishi Oil Co Ltd* 193,980
10,000 Mitsubishi Warehouse & Transportation Co Ltd* 74,793
38,000 Mitsui Marine & Fire Insurance Co 151,257
85,000 Mitsui Petrochemical Industries Ltd 201,679
10,000 Mochida Pharmaceutical Co Ltd 38,530
13,000 MOS Food Services 148,332
24,000 Nagoya Railroad Co Ltd 67,824
2,300 Namco Ltd 49,848
26,000 NEC Corp 191,699
3,000 Nichicon Corp 36,525
86,000 Nichii Co Ltd 535,406
199,000 Nichirei 325,583
26,000 Nikon Corp 147,688
16,100 Nintendo Co Ltd 1,492,662
59,000 Nippon Carbon Co Ltd* 69,785
16,000 Nippon Chemi-Con Corp 55,528
31,000 Nippon Hodo Co 117,466
37,000 Nippon Meat Packers Inc 404,094
30,000 Nippon Oil Co Ltd 77,980
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
61,000 Nippon Paper Industries 197,875
208,000 Nissan Motor Co 553,920
43,000 Nisshin Oil Mills Ltd 81,925
138,000 Nisshinbo Industries Inc 432,014
539,000 Nissho Iwai Corp 782,598
475,000 NKK Corp 396,983
13,000 NOF Corp 19,520
95,000 Odakyu Electric Railway 255,684
205,000 Oki Electric Industry 451,555
42,000 Okumura Corp 135,052
17,000 Omron Corp 185,424
15,000 Ono Pharmaceutical Co Ltd 362,278
61,000 Onward Kashiyama Co Ltd 747,865
69,000 Osaka Gas Co 174,956
11,000 Promise Co 459,664
27,000 Q.P. Corp 155,280
125,000 Renown Inc* 77,024
15,000 Royal Co Ltd 197,606
12,000 Ryosan Co 188,682
77,000 Sagami Railway Co Ltd 163,609
33,000 Sankyo Co Ltd 717,544
28,000 Sapporo Breweries Ltd 86,267
11,500 Secom Co Ltd 663,007
81,000 Seino Transportation Co Ltd 407,323
47,200 Shikoku Electric Power 668,603
31,000 Shionogi and Co Ltd 168,843
51,000 Shiseido Co Ltd 487,280
49,000 Showa Denko 41,299
86,000 Showa Shell Sekiyu 356,328
26,000 Skylark Co Ltd 241,419
64,000 Snow Brand Milk Products Co Ltd 176,783
58,000 Stanley Electric Co Ltd 189,376
61,000 Sumitomo Bakelite Co Ltd 337,857
11,000 Sumitomo Corp 45,265
43,000 Sumitomo Electric 360,897
21,000 Taisho Pharmaceutical Co Ltd 427,615
15,000 Takara Standard Co 90,729
9,000 Takeda Chemical Industries Ltd 235,215
31,000 Takuma Corp 189,043
45,000 Tanabe Seiyaku Co Ltd 203,980
13,700 TDK Corp 949,947
60,000 Teijin Ltd 148,736
123,000 Teikoku Oil Co Ltd 316,233
13,000 TOA Corp 16,573
126,000 Toei Co Ltd 304,313
24,900 Tohoku Electric Power Co Inc 358,889
See accompanying notes to the financial statements. 11
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments -- continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
93,000 Tokio Marine & Fire Insurance Co 765,394
34,000 Tokyo Electric Co Ltd 82,116
12,000 Tokyo Electron 276,224
142,000 Tokyo Gas Co 293,675
171,000 Tomen Corp 124,747
170,000 Toshiba Corp 610,454
16,000 Toto Limited 86,125
16,000 Toyo Suisan Kaisha 87,598
307,000 Toyobo Co Ltd 315,284
10,000 Tsumura and Co 41,434
24,000 Yakult Honsha Co Ltd 115,589
12,000 Yamaha Corp 95,276
42,000 Yamanouchi Pharmaceutical Co Ltd 910,263
17,000 Yamato Transport Co Ltd 184,220
5,000 Yamazaki Baking Co Ltd 43,558
23,000 Yoshitomi Pharmaceutical Industries Ltd 184,078
----------
48,638,651
----------
Malaysia - 1.7%
17,000 Aluminum Co of Malaysia 2,417
119,500 AMMB Holdings Berhad 41,401
225,500 Arab Malaysian Finance (Foreign Registered) 32,867
348,000 Berjaya Group Berhad 22,450
73,000 Berjaya Leisure Berhad 26,163
218,700 Berjaya Sports Toto 142,133
50,700 Carlsberg Brew Malaysia 93,278
65,000 Cement Industries of Malaysia Berhad 20,190
213,000 DMIB Berhad 32,572
122,500 Edaran Otomobil Berhad 105,370
65,000 Genting Berhad 119,587
349,000 Golden Hope Plantations Berhad 200,131
90,000 Guinness Anchor Berhad 53,545
356,000 Highlands and Lowlands Berhad 162,466
550,000 Hong Leong Properties Berhad 41,395
213,300 IGB Corp Berhad 30,579
299,000 IOI Corporation Berhad 104,304
82,000 Jaya Tiasa Holdings Berhad 53,096
110,300 Kedah Cement Berhad 49,546
374,000 Kuala Lumpur Kepong Berhad (Malaysia) 371,744
385,900 Kumpulan Guthrie Berhad 155,826
282,000 Magnum Corp Berhad 55,251
187,550 Malayan Cement Berhad 52,430
57,000 Malaysia Mining Berhad 8,172
53,840 Malaysia Mining Corp Berhad 7,730
270,000 Malaysian International Shipping* 273,532
155,500 Malaysian International Shipping (Foreign Registered)* 153,076
55,000 Malaysian Pacific Industries* 51,251
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Malaysia - continued
363,600 Malaysian Resources Corp* 48,651
3,000 Matsushita Electric Co (Malaysia) Berhad 6,344
574,000 MBF Capital Berhad 50,059
339,000 Multi Purpose Holdings 37,259
88,000 Nestle Malaysia 273,341
168,000 New Straits Times 48,169
319,680 Oriental Holdings Berhad 307,058
30,000 OYL Industries Berhad 35,123
259,500 Pan Malaysia Cement 39,062
96,300 Perlis Plantations 80,073
531,000 Pernas International Hotel & Property 83,737
234,000 Perusahaan Otomobil Nasional Berhad 112,939
128,100 Petronas Dagangan Berhad 58,154
321,300 Petronas Gas Berhad 383,848
125,000 Rashid Hussain Berhad 42,411
630,000 Renong Berhad* 51,180
102,000 Resorts World Berhad 78,476
169,000 RJ Reynolds Berhad 121,140
109,000 Rothmans of Pall Mall Berhad 494,833
167,000 Sarawak Enterprises Corp 28,330
65,000 Shell Refinery Co 55,289
375,000 TA Enterprise Berhad 47,040
574,400 Tan Chong Motor Holdings Berhad 73,425
139,000 Tenaga Nasional 72,402
236,000 UMW Holdings Berhad 56,952
---------
5,147,797
---------
New Zealand - 0.0%
349,000 Brierley Investment Ltd* 119,829
---------
Norway - 0.5%
299 Bona Shipholding Ltd* 1,902
40,900 Norsk Hydro AS 1,459,729
---------
1,461,631
---------
Portugal - 0.7%
10,048 Banco Commercial Portugues (Registered) 279,083
5,981 Banco Espirito Santo e Commercial de Lisboa (Registered) 177,248
5,637 BPI-SGPS SA (Registered) 182,657
5,803 Cimpor Cimentos De Portugal SA (Registered) 175,089
24,512 Electricidade De Portugal 571,309
1,920 Est Jeronimo Martins Filho Admin 75,682
6,530 Portucel Industrial Empresa 42,658
12,891 Portugal Telecom SA 588,777
2,829 Sonae Investimentos 128,177
---------
2,220,680
---------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Singapore - 3.1%
113,800 Asia Food & Properties Ltd Warrants 7/12/02* 4,552
90,000 Cerebos Pacific Ltd 65,878
43,000 Chuan Hup Holdings Ltd 7,869
24,500 City Developments 43,041
497,000 Comfort Group 72,759
93,000 Creative Technology Ltd* 905,912
45,000 Cycle & Carriage Ltd 59,797
282,890 Development Bank of Singapore (Foreign Registered) 979,602
301,984 Hai Sun Hup Group Ltd 34,007
106,564 Haw Par Brothers International Ltd 71,403
9,500 Haw Par Brothers International Ltd Warrants 7/18/2001* 535
7,495 Highlands and Lowlands Berhad 3,165
225,708 Inchcape Berhad 79,430
164,708 Inchcape Marketing Services* 38,951
194,441 Jardine Matheson Holdings Ltd 346,105
302,500 Jardine Strategic Holdings Ltd 353,925
146,000 Marco Polo Developments Ltd 61,244
96,000 Metro Holdings Ltd 24,595
170,000 Natsteel Ltd 105,293
215,000 Overseas Chinese Banking (Foreign Registered) 554,448
416,000 Overseas Union Bank Ltd (Foreign Registered) 550,450
6,000 Prima Ltd 4,899
90,800 Robinson and Co Ltd 204,505
51,000 Shangri-La Hotel Ltd 41,639
625,000 Singapore Airlines Ltd (Foreign Registered) 2,674,550
170,856 Singapore Press Holdings 1,202,534
439,000 Singapore Telecom 640,208
290,000 Straits Trading Co Ltd 111,036
46,000 Times Publishing Ltd 49,212
----------
9,291,544
----------
Spain - 3.5%
24,800 Acerinox SA* 482,703
4,520 Azucarera Ebro Agricolas SA 132,795
85,339 Banco Bilbao Vizcaya SA 1,128,242
17,600 Banco Popular Espanol 1,185,751
11,600 Compania Espanola de Petroleos SA 364,037
1,530 Cristaleria Espanola SA 112,172
17,350 Dragados & Construcciones SA 428,059
24,997 FENOSA SA 294,593
8,860 Fomento de Construcciones y Contratas SA 396,368
24,596 Iberdrola SA 362,129
61,250 Repsol SA 2,760,575
75,458 Telefonica de Espana SA 2,821,519
----------
10,468,943
----------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Sweden - 3.3%
24,920 Assi Doman 576,146
23,800 Avesta Sheffield AB 75,329
10,500 Bilspedition AB Class B 49,331
82,700 Electrolux AB Class B 1,318,979
12,900 Esselte AB Class B 229,665
2,400 Foreningssparbanken AB Class A 54,301
11,600 Kinnevik Investment Class B 367,148
48,400 Mo Och Domsjo AB Class B 951,448
9,400 Nordbanken Holdings AB 56,017
11,400 Scancem AB Class A 380,550
3,500 Skandia Forsakrings AB 49,114
4,000 Skandinaviska Enskilda Banken Class A 50,196
34,455 Skanska AB Class B 1,392,973
17,200 SKF AB Class B 263,690
7,400 Ssab Swedish Steel Class A 80,511
91,100 Stora Kopparberg Bergslags Class A 1,103,792
20,550 Stora Kopparberg Bergslags Class B 248,989
55,100 Svenska Cellulosa Ser B Free 1,171,717
1,600 Svenska Handelsbanken Class A* 62,114
14,000 Svenska Kullagerfabriken AB 216,362
42,500 Trelleborg AB Class B 383,579
13,850 Volvo AB Class A 369,868
13,100 Volvo AB Class B 361,176
----------
9,812,995
----------
Switzerland - 6.6%
170 ABB Ltd (Bearer) 198,057
300 Adecco SA (Bearer) 139,805
220 Alusuisse Lonza Group AG (Registered)* 222,845
6,430 CIBA Specialty Chemicals Holdings (Registered) 622,416
570 Clariant Namen AG 276,665
24,000 CS Holdings (Registered) 4,206,596
460 Holderbank Financiere Glarus AG (Bearer) 468,810
100 Jelmoli (Bearer) 118,578
530 Merkur Holding AG (Registered) 144,749
2,835 Nestle AG (Registered) 5,257,187
2,363 Novartis AG (Registered) 3,674,471
90 Novartis AG (Bearer) 139,141
800 Oerlikon-Buhrle (Registered) 124,870
410 Rieter Holdings AG (Registered) 242,094
68 Roche Holdings (Participating Certificate) 703,602
1,510 Sairgroup Zuerich (Registered)* 375,334
140 Saurer Group Holdings (Registered)* 112,480
190 Sika Finanz AG (Bearer) 60,167
1,250 Swiss Reinsurance (Bearer) 2,766,542
----------
19,854,409
----------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - 24.6%
62,200 Abbey National 1,166,520
52,500 Allied Domecq Plc* 448,347
32,100 Anglian Water Plc 467,100
59,940 Arcadia Group 319,175
162,800 Arjo Wiggins Appleton Plc 365,296
280,938 ASDA Group 799,732
92,900 Associated British Foods 834,585
89,200 Bank of Scotland* 909,635
18,880 Barclays Plc 447,346
33,990 Barratt Development* 92,204
9,280 Bass Plc 124,626
72,800 BAT Industries* 718,012
26,300 BBA Group* 166,909
334,500 BG Plc 2,061,243
41,100 Blue Circle Industries 194,766
50,531 Booker Plc 180,228
14,000 Boots Co 233,898
243,381 British Airways Plc 1,833,937
71,400 British Energy Plc 675,510
55,600 British Land Co 478,545
115,500 British Steel Plc 207,910
283,900 British Telecom Plc 3,826,894
304,990 BTR Plc 683,069
72,660 Carlton Communications 538,605
191,382 Coats Viyella 182,667
76,000 Compass Group Plc 689,760
17,500 Cookson Group 45,421
118,500 Courtaulds Textiles Plc 388,919
24,000 Electrocomponents Plc 152,714
135,700 English China Clays Plc 339,708
33,800 Express Dairies Plc 74,144
10,200 GKN 113,923
37,410 Granada Group 479,219
7,100 Great Portland Estates Plc 24,967
77,056 Greenalls Group Plc 473,541
93,652 Guardian Royal Exchange 403,028
125,000 Halifax Plc 1,465,188
40,300 Hammerson Plc 273,304
132,612 Hazlewood Foods 384,162
356,744 Hillsdown Holdings 839,302
20,000 Hyder Plc 319,495
47,300 Kingfisher Plc 388,099
185,591 Ladbroke Group 745,853
52,200 Land Securities 734,235
18,900 Laporte Plc 179,128
200,500 Lasmo Plc 533,084
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
73,675 Legal & General Group 878,386
59,992 Lonrho Africa Plc 49,224
112,501 Lonrho Plc 418,210
118,100 Lucas Variety Plc 417,270
198,511 Marley Plc 262,601
56,669 MEPC Plc 452,636
68,600 MEPC Plc Class B* 106,830
101,500 Mirror Group Plc 299,982
32,800 National Grid Group Plc 236,171
234,493 National Power 1,947,586
47,800 NFC Plc 102,052
450,000 Norcros Plc 486,024
144,800 Northern Foods Plc 424,318
101,300 Orange Plc* 1,204,351
98,100 Peninsular & Oriental Steam Navigation Co 1,131,810
367,237 Pilkington 485,801
88,859 Powergen 1,099,591
45,078 Provident Financial Plc 672,555
92,600 Prudential Corp 1,311,797
32,200 Racal Electronics 176,315
15,200 Railtrack Group Plc 360,151
156,900 Rentokil Plc 945,825
124,773 Reuters Holdings Plc 1,050,930
44,820 RMC Group 606,706
83,300 Royal Bank of Scotland Group 1,171,681
100,208 Safeway Plc 518,497
39,700 Sainsbury (J) 344,354
65,516 Scottish Hydro-Electric Plc 605,032
91,942 Scottish Power Plc 888,331
41,521 Sears Plc* 135,577
24,000 Securicor Plc 208,174
276,000 Sedgwick Group 979,783
41,521 Selfridges Plc* 164,780
19,000 Severn Trent Plc 321,655
72,200 Slough Estates 368,742
345,528 Smithkline Beecham Plc 4,079,036
95,700 Smiths Industries Plc 1,038,418
39,189 Southern Electric Plc 367,811
96,000 St James's Place Capital 504,761
89,930 Storehouse Plc 328,281
484,740 Tarmac 633,124
34,800 Tate & Lyle 254,069
140,666 Taylor Woodrow Plc 320,342
53,300 Telewest Communications Plc* 140,124
36,117 Thames Water Plc 648,317
39,400 Thames Water Plc Class B 50,141
See accompanying notes to the financial statements. 17
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
114,700 TI Group Plc 774,426
92,647 Transport Development Group Plc 367,676
115,115 Transport Development Group Plc Class B 66,309
44,000 Unigate 368,390
404,712 Unilever Plc 3,774,735
165,468 United Biscuits Plc 518,132
186,152 United Biscuits Plc Class B 77,928
194,800 United Utilities 2,870,495
447,630 Vodafone Group Plc 6,236,310
44,420 Whitbread Plc Class A 569,017
418,869 Wilson (Connolly) Holdings 792,578
103,288 Yorkshire Water 824,567
27,030 Zeneca 1,057,314
-------------
74,499,982
-------------
TOTAL STOCK AND EQUIVALENTS (Cost $352,175,190) 295,361,679
-------------
INVESTMENT FUNDS - 0.1%
Australia - 0.1%
186,900 Advance Property Fund 152,944
20,800 Franked Income Fund 49,992
-------------
202,936
-------------
TOTAL INVESTMENT FUNDS (Cost $281,676) 202,936
-------------
SHORT-TERM INVESTMENTS - 6.8%
Cash Equivalents - 4.1%
$2,700,000 First National Bank of Chicago Time Deposit, 5.75% due 9/1/98 2,700,000
9,768,957 The Boston Global Investment Trust (b) 9,768,957
-------------
12,468,957
-------------
U.S. Government - 2.7%
$8,150,000 U.S. Treasury Bill, 5.39% due 1/7/99 (a) 8,012,645
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost $20,471,081) 20,481,602
-------------
TOTAL INVESTMENTS - 104.8%
(Cost $372,927,947) 316,046,217
Other Assets and Liabilities (net) - (4.8%) (14,385,766)
-------------
TOTAL NET ASSETS - 100.0% $ 301,660,451
=============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures contracts.
(b) Represents investment of security lending collateral (Note 1).
* Non-income producing security.
See accompanying notes to the financial statements. 19
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's equity
investments was as follows:
Industry Sector
Banking 10.1 %
Utilities 9.3
Consumer Goods 8.8
Telecommunications 7.4
Services 5.0
Construction 4.2
Insurance 4.2
Transportation 4.2
Electronic Equipment 4.1
Health Care 4.0
Chemicals 4.0
Oil and Gas 3.8
Conglomerates 3.6
Machinery 3.1
Food and Beverage 3.0
Metals and Mining 2.7
Retail Trade 2.3
Paper and Allied Products 2.2
Real Estate 2.1
Automotive 1.7
Communications 1.7
Financial Services 1.6
Textiles 1.1
Computers 0.3
Aerospace 0.3
Miscellaneous 5.2
---------
100.0%
=========
20 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $372,927,947) (Note 1) $ 316,046,217
Foreign currency, at value (cost $852,223) (Note 1) 851,510
Cash 6,528
Dividends and interest receivable 572,330
Foreign withholding taxes receivable 408,357
Receivable for open forward foreign currency contracts (Notes 1 and 6) 8,053,020
Receivable for expenses waived or borne by Manager (Note 2) 124,494
----------------
Total assets 326,062,456
----------------
Liabilities:
Payable for investments purchased 50,509
Payable for open forward foreign currency contracts (Notes 1 and 6) 12,925,428
Payable upon return of securities loaned (Note 1) 9,768,957
Payable for variation margin on open futures contracts (Notes 1 and 6) 1,114,263
Payable to affiliate for (Note 2):
Management fee 215,659
Shareholder service fee 35,881
Accrued expenses 291,308
----------------
Total liabilities 24,402,005
----------------
Net assets $ 301,660,451
================
Net assets consist of:
Paid-in capital $ 302,909,130
Distributions in excess of net investment income (2,716,535)
Accumulated undistributed net realized gain 65,431,226
Net unrealized depreciation (63,963,370)
----------------
$ 301,660,451
================
Net assets attributable to:
Class III Shares $ 131,263,767
================
Class IV Shares $ 170,396,684
================
Shares outstanding:
Class III 13,198,430
================
Class IV 17,137,368
================
Net asset value per share:
Class III $ 9.95
================
Class IV $ 9.94
================
</TABLE>
See accompanying notes to the financial statements. 21
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $749,117) $ 6,390,377
Interest (including securities lending income of $49,438) 889,735
-----------------
Total income 7,280,112
-----------------
Expenses:
Management fee (Note 2) 1,644,233
Custodian fees 386,400
Audit fees 27,600
Transfer agent fees 19,596
Legal fees 3,496
Registration fees 3,414
Trustees fees (Note 2) 1,472
Miscellaneous 1,380
Fees waived or borne by Manager (Note 2) (903,744)
-----------------
1,183,847
Shareholder service fee - (Note 2)
Class III 139,868
Class IV 117,164
-----------------
Net expenses 1,440,879
-----------------
Net investment income 5,839,233
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 23,120,537
Closed futures contracts 25,871,612
Foreign currency, forward contracts and foreign currency
related transactions 18,067,179
-----------------
Net realized gain 67,059,328
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (67,880,609)
Open futures contracts (7,802,414)
Foreign currency, forward contracts and foreign currency
related transactions (5,200,290)
-----------------
Net unrealized loss (80,883,313)
-----------------
Net realized and unrealized loss (13,823,985)
-----------------
Net decrease in net assets resulting from operations $ (7,984,752)
=================
</TABLE>
22 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, 1998 Year Ended
Increase (decrease) in net assets: (Unaudited) February 28, 1998
--------------------- -----------------------
<S> <C> <C>
Operations:
Net investment income $ 5,839,233 $ 12,109,056
Net realized gain 67,059,328 87,568,440
Change in net unrealized appreciation (depreciation) (80,883,313) (6,942,524)
--------------------- -----------------------
Net increase (decrease) in net assets resulting from operations (7,984,752) 92,734,972
--------------------- -----------------------
Distributions to shareholders from:
Net investment income
Class III (278,514) (12,103,195)
Class IV (489,700) -
--------------------- -----------------------
Total distributions from net investment income (768,214) (12,103,195)
--------------------- -----------------------
Net realized gains
Class III (15,875,316) (108,544,439)
Class IV (18,908,739) -
--------------------- -----------------------
Total distributions from net realized gains (34,784,055) (108,544,439)
--------------------- -----------------------
(35,552,269) (120,647,634)
--------------------- -----------------------
Net share transactions - (Note 5)
Class III (52,747,599) (313,055,281)
Class IV (172,536,574) 330,350,503
--------------------- -----------------------
Increase (decrease) in net assets resulting from
net share transactions (225,284,173) 17,295,222
--------------------- -----------------------
Total decrease in net assets (268,821,194) (10,617,440)
Net assets:
Beginning of period 570,481,645 581,099,085
--------------------- -----------------------
End of period (including distributions in excess of
net investment income of $2,716,535 and
$7,787,554, respectively) $ 301,660,451 $ 570,481,645
===================== =======================
</TABLE>
See accompanying notes to the financial statements. 23
<PAGE>
GMO Currency Hedged International 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, 1998 ------------------------------------------------
(Unaudited) 1998 1997 1996*
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.92 $ 12.68 $ 11.54 $ 10.00
-------------- ------------- ----------- -----------
Income from investment operations:
Net investment income 0.16 + 0.27 + 0.22 0.23
Net realized and unrealized gain (loss) (0.91) 1.72 1.63 1.44
-------------- ------------- ----------- -----------
Total from investment operations (0.75) 1.99 1.85 1.67
-------------- ------------- ----------- -----------
Less distributions to shareholders from:
Net investment income (0.02) (0.27) (0.28) (0.06)
Net realized gains (1.20) (2.48) (0.43) (0.07)
-------------- ------------- ----------- -----------
Total distributions (1.22) (2.75) (0.71) (0.13)
-------------- ------------- ----------- -----------
Net asset value, end of period $ 9.95 $ 11.92 $ 12.68 $ 11.54
============== ============= =========== ===========
Total Return (a) (7.87%) 17.98% 16.55% 16.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 131,264 $ 207,653 $ 581,099 $ 407,227
Net expenses to average
daily net assets 0.69% ** 0.69% 0.72% (b) 0.69% **
Net investment income to average
daily net assets 2.63% ** 2.15% 2.25% 1.89% **
Portfolio turnover rate 46% 96% 84% 7%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ 0.03 $ 0.05 $ 0.04 $ 0.05
</TABLE>
* Period from June 30, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have
been lower had certain expenses not been waived during the periods
shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .03% of average daily net assets.
24 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class IV share outstanding throughout each period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Period from January 9, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
-------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.92 $ 10.87
-------------- --------------
Income from investment operations:
Net investment income 0.17 + 0.01 +
Net realized and unrealized gain (loss) (0.92) 1.04
-------------- --------------
Total from investment operations (0.75) 1.05
-------------- --------------
Less distributions to shareholders from:
Net investment income (0.03) -
Net realized gains (1.20) -
-------------- --------------
Total distributions (1.23) -
-------------- --------------
Net asset value, end of period $ 9.94 $ 11.92
============== ==============
Total Return (a) (7.88%) 9.66%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 170,397 $ 362,829
Net expenses to average
daily net assets 0.63% * 0.63% *
Net investment income to average
daily net assets 2.69% * 0.72% *
Portfolio turnover rate 46% 96%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.01
</TABLE>
+ Computed using average shares outstanding throughout the period.
* 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. 25
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Currency Hedged International Core Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company Act
of 1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into classes.
The Fund seeks 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class I,
Class II, and Class III. Effective January 9, 1998, Class I and Class II
shares ceased to be offered, and Class IV shares commenced operations. The
principal economic difference among the classes of shares is the level of
shareholder service fee borne by the classes. Eligibility for and automatic
conversion between the various classes of shares is generally based on the
total amount of assets invested with GMO, as more fully described in the
Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Securities
which are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost which approximates market value.
Other assets and securities for which no quotations are readily available
are valued at fair value as determined in good faith by the Trustees or
other persons acting at their direction.
26
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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 market. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. Upon entering
into a futures contract, the Fund is required to deposit with its custodian,
in a segregated account in the name of the futures broker, an amount of cash
or U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
subsequently settled. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts involve,
to varying degrees, risk of loss in excess of the variation margin disclosed
in the Statement of Assets and Liabilities. Losses may arise from the changes
in the value of the underlying instrument, if there is an illiquid secondary
market for the contracts or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts as of August 31, 1998.
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
27
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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, 1998.
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. Total
returns 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, 1998, there were no open swap agreements.
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, 1998, the Fund loaned securities having a market value of
$8,714,894 collateralized by cash in the amount of $9,768,957 which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund
intends to distribute substantially all of its net investment income and net
realized short-term and long-term capital gains, if any, after giving effect
to any available capital loss carryovers for federal income tax purposes.
Therefore, no provision for federal income or excise tax is necessary. Taxes
on foreign interest and dividend income have been withheld in accordance with
the applicable country's tax treaty with the United States.
28
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the Fund,
at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment income
on each class of shares.
Income 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 of
shares of the Fund based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount invested.
All purchase premiums are paid to and recorded by the Fund as paid-in capital.
These fees are allocated relative to each class' net assets on the share
transaction date. Purchase premiums are included as part of each class'
"shares sold" as summarized in Note 5. For the six months ended August 31,
1998, the Fund received $2,118 in purchase premiums. There is no premium for
cash redemptions or reinvested distributions. Normally, no purchase premium
is charged with respect to in-kind purchases of Fund shares. A purchase
premium of up to .10% may be charged on certain in-kind transactions.
29
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. The Fund has adopted a Shareholder Service Plan under which
the Fund pays GMO a shareholder service fee for client and shareholder
service, reporting and other support. Pursuant to the Shareholder Service
Plan, the shareholder service fee is calculated based on the average daily
net assets of each class at the annual rate of .15% for Class III shares and
.09% for Class IV shares.
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.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1998, was $1,472. 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, 1998, aggregated
$187,969,548 and $404,055,676, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
- ----------------------- ----------------------- --------------------- ----------------------
<S> <C> <C> <C>
$372,927,947 $21,967,893 $78,849,623 $56,881,730
</TABLE>
4. Principal shareholders
At August 31, 1998, 47% 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.
30
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Class III: Six Months Ended Year Ended
August 31, 1998 February 28, 1998
----------------------------- ------------------------------
Shares Amount Shares Amount
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Shares sold 27,819 $ 351,823 8,582,791 $ 112,053,373
Shares issued to
shareholders in
reinvestment of
distributions 1,371,452 16,100,846 10,291,607 116,658,063
Shares repurchased (5,625,857) (69,200,268) (47,260,509) (541,766,717)
------------ ------------ ------------ -------------
Net decrease (4,226,586) $ (52,747,599) (28,386,111) $ (313,055,281)
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Period from January 9, 1998
Class IV: Six Months Ended (commencement of operations) to
August 31, 1998 February 28, 1998
------------------------------- -----------------------------------
Shares Amount Shares Amount
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold -- $ 1,177 31,203,675 $ 339,183,949
Shares issued to
shareholders in
reinvestment of
distributions 1,625,729 19,069,800 -- --
Shares repurchased (14,923,481) (191,607,551) (768,555) (8,833,446)
------------- ------------- -------------- ---------------
Net increase/
(decrease) (13,297,752) $ (172,536,574) 30,435,120 $ 330,350,503
============= ============= ============== ===============
</TABLE>
31
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
----------- ----------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Buys
11/20/98 ATS 486,606,944 $ 39,390,953 $ 998,463
11/20/98 BEF 590,828,027 16,320,623 366,645
12/11/98 CAD 20,707,456 13,226,526 (391,167)
11/20/98 CHF 34,751,872 24,242,620 923,397
11/20/98 DEM 78,239,087 44,575,330 917,201
11/20/98 DKK 5,186,232 774,024 19,114
11/20/98 ESP 489,395,034 3,276,140 77,153
11/20/98 FIM 43,965,687 8,227,887 209,199
11/20/98 FRF 30,516,470 5,187,379 87,379
11/20/98 GBP 25,946,320 43,267,046 658,043
12/11/98 HKD 65,879,586 8,286,995 (95,572)
11/20/98 IEP 9,840,377 13,966,185 369,880
12/11/98 JPY 866,338,550 6,266,082 116,892
12/11/98 MYR 9,402,673 2,143,073 18,487
11/20/98 NLG 63,831,146 32,234,371 590,434
11/20/98 NOK 169,722,980 21,491,720 (579,969)
12/11/98 NZD 16,025,052 7,928,305 (253,285)
11/20/98 PTE 671,655,000 3,729,374 90,283
11/20/98 SEK 244,785,495 30,349,686 (227,990)
12/11/98 SGD 5,934,325 3,334,411 (30,676)
---------------
$ 3,863,911
===============
Sales
11/20/98 ATS (461,769,043) $ (37,380,319) $ (744,051)
12/11/98 AUD (22,966,415) (13,148,604) 757,704
11/20/98 BEF (703,730,233) (19,439,355) (460,654)
12/11/98 CAD (12,300,816) (7,856,931) 279,388
11/20/98 CHF (85,002,121) (59,296,779) (2,870,379)
11/20/98 DEM (124,697,473) (71,044,170) (1,741,540)
11/20/98 DKK (86,813,679) (12,956,589) (294,471)
11/20/98 ESP (988,134,350) (6,614,834) (80,472)
</TABLE>
32
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts - continued
Sales - continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
----------- ------------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
11/20/98 FIM (13,634,650) $ (2,551,634) $ (43,570)
11/20/98 FRF (172,051,824) (29,246,438) (668,446)
11/20/98 GBP (79,268,792) (132,185,467) (1,959,473)
12/11/98 HKD (186,352,566) (23,441,295) 114,373
11/20/98 IEP (271,250) (384,977) (8,768)
11/20/98 ITL (37,523,272,854) (21,553,528) (427,379)
12/11/98 JPY (9,493,135,115) (68,223,949) (1,350,938)
12/11/98 MYR (42,651,983) (9,721,311) 109,678
11/20/98 NLG (42,967,761) (21,698,478) (541,383)
11/20/98 NOK (110,819,266) (14,032,847) 452,608
12/11/98 NZD (14,674,816) (7,260,283) 221,505
11/20/98 PTE (1,172,014,000) (6,507,625) (155,245)
11/20/98 SEK (335,724,711) (41,624,769) 352,249
12/11/98 SGD (27,672,449) (15,548,746) 322,945
---------------
$ (8,736,319)
===============
</TABLE>
Currency Abbreviations:
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CAD Canadian Dollar JPY Japanese Yen
CHF Swiss Franc MYR Malaysian Ringgit
DEM German Mark NLG Netherlands Guilder
DKK Danish Krona NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
FIM Finnish Markka PTE Portuguese Escudo
FRF French Franc SEK Swedish Krona
GBP British Pound SGD Singapore Dollar
33
<PAGE>
GMO Currency Hedged International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
------------- ------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Buys
103 DAX September 1998 $ 28,187,014 $ (4,684,155)
82 MIB 30 September 1998 14,752,801 (1,348,848)
----------------
$ (6,033,003)
================
Sales
13 ALL ORDS September 1998 $ 459,188 $ 15,402
75 FTSE 100 September 1998 6,599,625 755,082
129 HANG SENG September 1998 5,826,408 654,220
21 IBEX 35 September 1998 1,159,266 229,077
37 MATIF CAC 40 September 1998 1,145,685 76,542
117 OMX STOCK September 1998 960,499 58,081
295 TOPIX September 1998 23,045,896 1,968,273
3 TSE 35 September 1998 278,682 54,903
----------------
$ 3,811,580
================
</TABLE>
At August 31, 1998, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
7. Subsequent event
Effective September 1, 1998, Malaysia's central bank imposed foreign currency
controls prohibiting foreign exchange transactions and the repatriation of
foreign currency for at least a one-year period. Malaysian securities must be
held for at least one year before a foreign exchange application will be
considered by the central bank. The twelve-month holding period starts on the
date of acquisition or September 1, 1998, whichever is later. The proceeds of
any sale of Malaysian securities during that holding period must be held in
Malaysian ringgits (or re-invested in Malaysian securities) until the end of
the holding period, at the earliest September 1, 1999. The Manager has
assessed the risks inherent to these controls and has taken action to limit
those risks. All forward foreign currency contracts with Malaysian exposure
as of August 31, 1998 have been terminated. Under fair value procedures
adopted by the Board of Trustees, Malaysian securities are valued at their
exchange-traded prices, and that value is converted into U.S. dollars at a
discounted foreign exchange rate to reflect the currency and inflation risk
of holding ringgit.
34
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 90.9%
Argentina - 0.1%
57,500 YPF SA ADR 1,272,188
----------
Australia - 3.2%
346,591 Australia and New Zealand Banking Group Ltd 1,751,710
583,538 Broken Hill Proprietary Ltd 4,027,191
2,840,000 Burns Philp & Co Ltd* 284,408
501,000 Burswood Ltd 229,358
229,100 Caltex Australia Ltd 492,945
350,862 Capral Aluminum Ltd 391,523
5,674,100 Crown Limited* 1,168,921
237,472 Dominion Mining Ltd Warrants 12/31/98* 408
494,945 Dominion Mining Ltd* 96,299
690,504 Email Ltd 956,241
465,510 Foodland Associated 2,573,309
807,358 Goodman Fielder Ltd 947,122
3,365,000 Menzies Gold NL* 275,364
3,426,139 MIM Holdings Ltd 1,372,426
296,888 Newcrest Mining Ltd* 241,250
882,345 Oil Search Ltd 1,070,434
500,000 Orogen Minerals Ltd 509,303
54,000 Orogen Minerals Ltd GDR 144A* 540,000
4,588,371 Pasminco Ltd 2,993,293
796,990 Qantas Airways Ltd 1,071,782
583,543 Rothmans Holdings Ltd 3,472,898
1,441,276 Western Mining Corp Holdings Ltd 3,538,264
529,994 Westpac Banking Corp 2,820,588
511,706 Wills (WD & HO) Holdings Ltd 951,677
----------
31,776,714
----------
Austria - 0.4%
42,920 Bank Austria AG (Participating Certificate) 2,196,361
4,613 Oesterreichische Brau Beteiligungs AG 252,048
7,170 Radex-Heraklith AG 262,328
1,991 Universale Bau AG 62,415
4,107 VA Technologie AG (Bearer) 400,480
3,140 Wienerberger Baustoffindustrie AG 611,107
----------
3,784,739
----------
Belgium - 3.6%
28,925 Almanij NV 2,159,116
1,109 Bekaert SA 716,526
6,000 CBR Cimenteries NPV 559,221
25,192 Cie Francois De Enterprises 6,683,790
14,350 Credit Commercial Dexia 2,142,321
19,398 Electrabel SA 6,319,870
10,726 Fortis AG 2,895,890
See accompanying notes to the financial statements. 1
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments-continued
(showing percentage of total net assets)
August 31,1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Belgium - continued
10,726 Fortis AG CVG* 72,545
10,726 Fortis AG Strip 590
17,305 GIB Holdings Ltd 875,432
30,120 Kredietbank NPV 2,384,955
2,713 Petrofina SA Bruxelles 1,020,023
24,780 Solvay Et Cie 1,566,975
33,775 Tractebel 5,116,580
715 UCB Cap NPV 3,717,324
----------
36,231,158
----------
Brazil - 0.0%
6,439,529 Gerdau SA Preferred 62,923
158,537 Metalurgica Gerdau SA 2,425
2,809,994 Metalurgica Gerdau SA Preferred 57,303
----------
122,651
----------
Canada - 0.6%
137,220 Abitibi Consolidated Inc 1,074,670
29,693 Alliance Forest Products Inc Preferred* 292,345
10,200 Alliance Forest Products Inc (c)* 100,425
295,000 Boliden Ltd* 688,393
114,149 Cambridge Shopping Centres Ltd* 740,730
82,500 Canadian Hotel Income Properties 440,415
33,500 Canfor Corp 117,796
73,264 Concord Pacific Group* 32,788
101,500 Iamgold (International African Mining Gold)* 160,931
220,100 KAP Resources Ltd* 133,680
116,600 KAP Resources Ltd Class A Warrants 8/5/2000* 7,455
200,000 Meridian Gold Inc* 600,965
64,137 Oxford Properties Group* 574,061
633,600 Semi-Tech Class A* 68,863
38,800 St Laurent Paperboard* 248,058
124,300 Tembec Inc Class A* 532,436
24,140 Trizec Hahn Corp (Sub-Voting) 422,872
----------
6,236,883
----------
Denmark - 0.0%
12,300 Alm Brand AS Class B 331,128
----------
France - 10.0%
9,350 Accor SA 2,156,354
37,245 Alcatel Alsthom Cie Generale d'Electricite SA 5,993,231
25,136 Axa SA 2,862,357
4,788 Axa UAP Certificates 7/1/99* 1,701
31,516 Banque Nationale de Paris 2,060,005
20,576 Banque Paribas A Shares* 1,726,852
46,500 BIC SA 2,600,381
17,046 Bouygues 3,264,987
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
16,000 Casino Guichard Perrachon Preferred 1,001,692
5,278 Chargeurs International SA 329,183
5,943 Christian Dior 573,183
14,064 Club Mediterranee SA* 1,048,494
3,200 Colas SA 655,161
7,843 Compagnie Generale d'Industrie et de Participations 3,775,522
2,893 Comptoirs Modernes 1,566,430
6,890 Credit Local de France SA 896,516
16,505 Credit Lyonnais* 1,480,144
7,679 Dollfus-Mieg and Cie* 125,385
79,005 Elf Aquitaine SA 7,860,396
2,871 Elf Gabon 392,030
10,339 Eridania Beghin-Say SA 1,854,372
42,550 France Telecom SA 3,103,054
18,250 Gaz Et Eaux 935,660
3,374 Generale Des Eaux 666,807
11,021 Generale Des Eaux Warrants 5/2/2001* 18,275
8,463 Groupe Andre* 902,147
3,038 Groupe Axime* 699,100
17,638 Groupe Danone 4,703,467
2,299 Guyenne Et Gascogne 931,659
7,163 Imetal 810,837
4,389 Labinal SA 1,336,751
9,999 Lafarge Coppee SA 851,015
42,617 Lagardere Groupe 1,601,563
57,365 Lyonnaise Des Eaux 9,356,998
47,010 Michelin SA Class B 2,037,100
4,318 Pathe SA 840,220
58,823 Pechiney SA Class A 1,919,959
23,970 Pernod Ricard 1,666,544
18,953 Peugeot SA 3,155,626
44,112 Rhone Poulenc SA Class A 2,127,228
13,296 Saint-Gobain 1,930,282
58,994 Seita 2,526,460
16,483 Sidel (Bearer) 1,121,179
13,355 Societe Generale Paris 2,304,924
15,100 Sommer Allibert 605,533
17,800 Sophia SA 724,650
35,350 SPIE Batignolles 2,058,794
4,196 Strafor Facom 323,255
6,000 Sylea (Bearer) 456,853
66,056 Thomson CSF 2,152,688
26,044 Total SA 2,533,892
10,102 TV Francaise 1,493,934
See accompanying notes to the financial statements. 3
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments-continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
107,637 Usinor Sacilor 1,140,114
9,260 Vallourec 452,816
25,620 Worms et Compagnie SA* 416,162
-----------
100,129,922
-----------
Germany - 7.0%
128,500 Bankgesellschaft Berlin AG 2,164,134
61,990 Bayer AG 2,327,042
135,000 Bayerische Hypotheken und Wechsel-Bank AG 2,066,912
27,200 Brau und Brunnen 2,976,807
9,945 Cologne Reinsurance (Registered) 13,421,661
141,000 Commerzbank AG 4,077,686
88,010 Continental AG 2,355,584
35,500 Deutsche Bank AG 2,208,307
169,940 Dresdner Bank 7,641,759
3,641 Dyckerhoff AG (Non Voting) 1,238,787
9,800 Holzmann (Philipp)* 1,722,711
3,331 Koelnische Rueckversicherungs-Gesellschaft AG 4,306,595
161,500 Lufthansa AG 3,983,697
26,772 Metro AG Class I Preferred 1,047,501
55,000 Rheinmetall AG 1,481,429
16,144 Rheinmetall AG Preferred 330,478
131,860 RWE AG 6,318,214
104,600 Siemens AG 6,791,437
5,150 Villeroy & Boch Preferred (Non-Voting) 496,456
76,000 Volkswagen AG Preferred* 3,783,839
-----------
70,741,036
-----------
Hong Kong - 3.2%
3,709,400 Amoy Properties Ltd 1,771,122
1,595,000 Cheung Kong Holdings 6,174,831
3,255,052 Dairy Farm International 3,092,299
293,000 Goldlion Holdings Ltd 21,174
464,449 Great Eagle Holdings Ltd 374,594
233,071 Great Eagle Holdings Ltd Warrants 11/30/98* 301
1,394,800 Hang Lung Development Co Ltd 1,079,957
237,500 Henderson Land Development Co Ltd 712,574
945,000 HKR International Ltd 239,018
5,118,641 Hong Kong Land Holdings 4,197,286
1,550,900 Hysan Development Co Ltd 1,040,711
82,190 Hysan Development Co Ltd Warrants 4/30/99* 106
302,000 Jardine International Motor Holdings Ltd 120,812
83,200 Lai Fung Holdings Ltd 3,597
4,220,000 Lai Sun Development 484,669
2,110,000 Lai Sun Development Rights 7/28/98* 2,723
1,250,000 Lai Sun Garment International Ltd 185,503
1,050,266 Liu Chong Hing Bank Ltd 552,294
4 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments-continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<C> <S> <C>
Hong Kong - continued
1,103,000 National Mutual Asia Ltd 427,012
1,733,000 New World Development Co Ltd* 1,867,361
220,000 Orient Overseas International Ltd 85,170
7,204,073 Regal Hotels International Ltd 687,944
7,460,882 Semi Tech (Global) Co Ltd* 259,954
4,877,000 South China Morning Post Ltd 1,604,856
774,000 Sun Hung Kai Properties Ltd 2,377,174
646,500 Swire Pacific Ltd Class A 1,868,786
1,844,500 Swire Pacific Ltd Class B 827,135
2,261,500 Wharf Holdings Ltd 2,159,591
134,725 Wharf Holdings Ltd Warrants 12/31/99* 1,478
183,912 Wing On Co 46,279
758,486 Winsor Industrial Corp Ltd 113,540
429,243 Winsor Properties Holdings Ltd 166,176
----------
32,546,027
----------
India - 0.0%
59,007 Mahindra & Mahindra GDR (Reg S)* 197,673
----------
Indonesia - 0.0%
600,000 HM Sampoerna* 112,500
627,640 PT Daya Guna Samudera 367,057
----------
479,557
----------
Ireland - 0.5%
384,335 Allied Irish Banks Plc 5,386,672
----------
Italy - 6.9%
141,409 Assicurazioni Generali SPA 4,795,176
535,792 Banca Commerciale Italiana SPA 3,596,848
59,948 Banca di Legano SPA 359,444
236,958 Banca Toscana 1,176,055
513,583 Banco Ambrosiano Veneto SPA (Non Convertible) 1,252,390
135,000 Banco Nazionale del Lavoro* 402,789
207,500 Comau Finanziaria SPA 565,525
1,546,464 Credito Italiano 7,431,297
163,232 Danieli & Co Di Risp (Non Convertible) 557,266
179,500 Edison SPA 1,544,368
346,322 ENI SPA 1,828,133
30,472 Ericsson SPA 1,542,089
146,530 Falck Acciaierie and Ferriere Lombarde 1,029,918
236,490 Fiat SPA 736,805
345,502 Fiat SPA Preferred 636,349
29,074 Fiat SPA (Non Convertible) 52,965
70,000 Gruppo Editoriale L'Express 403,649
39,570 IFI Istituto Finanziario Preferred 637,988
172,607 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 369,409
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------
<C> <S> <C>
Italy - continued
627,004 Industriali Riunite SPA* 579,210
292,693 Istituto Mobilaire Italiano 4,492,376
1,642,000 Istituto Nazionale Delle Assicurazioni 4,380,928
160,238 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 595,773
555,315 Italgas SPA 2,389,685
309,998 Magneti Marelli SPA 442,892
233,142 Mediaset SPA 1,337,705
42,000 Mediobanca SPA 455,461
975,630 Montedison SPA (Non Convertible) 728,847
210,955 Montefibre SPA 150,695
456,096 Olivetti and Co SPA* 1,020,612
58,000 Pagnossin SPA 329,460
194,430 RAS SPA 2,415,245
73,200 Rinascente per l'Esercizio di Grandi Magazzini SPA 622,863
117,157 SAI di Risp 645,326
2,419,880 Seat SPA di Risp 1,110,769
663,947 Seat SPA* 423,241
127,537 Sirti SPA 622,739
1,361,241 Telecom Italia Mobile SPA (Non Convertible) 4,916,666
753,724 Telecom Italia SPA 5,820,997
833,884 Telecom Italia SPA (Non Convertible) 4,150,640
70,931 Toro Assicurazioni 1,119,203
5,456 Toro Assicurazioni Warrants 12/31/00* 57,601
159,857 Unicem Di Risp 624,624
68,306 Unione Cementi Marchino Emiliane e di Augusta-Casale 595,720
----------
68,947,741
----------
Japan - 16.4%
6,450 Advantest Corp 276,383
20,100 Aiful Corp 902,571
22,100 AJL Peps Trust Exchangeable Preferred* 118,788
41,300 Akita Bank 181,358
117,000 Arisawa Manufacturing 1,284,439
286,000 Asahi Breweries Ltd 3,376,741
353,000 Bridgestone Corp 7,775,551
253,000 Canon Inc 5,133,827
40,980 Circle K Japan Co Ltd 1,282,893
38,800 Credit Saison Co 761,215
185,000 Dainippon Ink & Chemicals Inc 448,120
151,000 Dainippon Printing Co Ltd 2,107,947
281 East Japan Railway Co 1,347,383
30,100 Exedy Corp 140,491
190,000 Fuji Photo Film Co Ltd 6,122,955
89,000 Fujitec Co 488,526
442,000 Fujitsu Ltd 4,476,663
37,000 H I S Co Ltd 592,252
</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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
66,000 Hitachi Credit Corp 1,012,041
46,312 Hokkaido Electric Power 639,623
371,000 Honda Motor Co Ltd 12,770,451
85,000 Hosiden Corp* 1,143,849
48,000 Japan Airport Terminal Co Ltd 223,699
120 Japan Tobacco Inc 809,972
86,350 Kansai Electric Power 1,421,940
242,000 Kao Corp 3,727,955
27,000 Kirin Beverage 455,131
954,000 Marubeni Corp 1,574,347
67,000 Marui Co Ltd 944,330
267,000 Matsushita Electric Industrial Co Ltd 3,838,870
554,000 Minebea Co Ltd 5,618,868
397,000 Minolta Co Ltd 2,336,617
170,000 Mitsubishi Trust & Banking* 842,836
368,000 Mitsui & Co 1,978,270
35,350 Nichido Fire & Marine Insurance Co Ltd 172,256
45,400 Nintendo Co Ltd 4,209,122
77,700 Nippon Electric Glass Co 894,824
112,000 Nippon Meat Packers Inc 1,223,203
159,000 Nippon Soda Chemical Co Ltd 845,733
407,000 Nissho Iwai Corp 590,941
37,900 Nitta Corp 229,778
130,000 Onward Kashiyama Co Ltd 1,593,810
104,000 Orix Corp 7,034,493
34,080 Paris Miki Inc 506,891
105,000 Pioneer Electronics Corp 1,729,053
226,000 Ricoh Co Ltd 2,164,119
28,000 Rinnai Corp 436,292
109,000 Rohm Co Ltd 11,116,935
650,000 Sakura Bank Ltd 1,141,724
175,000 Shibusawa Warehouse 399,108
25,000 Shimachu Co 401,941
159,750 Shin-Etsu Chemical Co Ltd 2,257,251
64,000 Showa Corp 392,096
38,300 SMC 2,636,702
124,100 Sony Corp 9,062,051
43,000 Sumitomo Bakelite Co Ltd 238,161
86,000 Sumitomo Realty and Development Co Ltd 261,917
473,000 Suzuki Motor Corp 4,348,424
17,000 Tachi-S Co Ltd 72,243
250,000 Takeda Chemical Industries Ltd 6,533,749
120,000 TDK Corp 8,320,703
312,000 Terumo Corp 5,889,086
130,000 Toko Inc 543,240
See accompanying notes to the financial statements. 7
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
26,000 Tokyo Broadcasting System Inc 246,760
36,000 Tokyo Ohka Kokyo 790,424
85,000 Tokyo Seimitsu Co Ltd 3,166,655
126,000 Tsubaki Nakashima Co Ltd 731,780
15,000 Unicharm Corp 545,010
112,000 UNY Co Ltd 1,584,135
230,000 Yamanouchi Pharmaceutical Co Ltd 4,984,772
106,000 Yamatake Honeywell 1,009,774
96,000 Yamato Kogyo Co 632,339
-----------
165,094,397
-----------
Korea - 0.6%
390 Daehan Flour Mill 12,995
114,350 Daewoo Corp 238,776
22,000 Daewoo Securities Ltd Preferred 28,345
70,000 Dongwon Securities 258,127
67,310 Dongwon Securities Co Preferred 83,733
43,886 Hana Bank Sponsored GDR 144A* 100,938
163,400 Hankook Tire Manufacturing Co Ltd* 298,851
15,069 Hansol Paper Manufacturing Ltd 76,098
41,000 Hyundai Motor Service Co GDR 144A* 62,525
68,540 Jinro Ltd Preferred* 23,853
278,140 Kookmin Bank* 766,146
120,000 Kookmin Bank GDR (Registered)* 309,000
68 Korea Trust* 102,000
83,190 LG Electronics Co 665,274
30,000 LG Securities Co Preferred* 23,325
22,290 Nhong Shim 873,114
44,390 Pusan Bank* 42,401
122,300 Samsung Corp 285,714
41,142 Samsung Display Devices 1,066,250
104,905 Shinhan Bank* 246,241
27,230 Shinyoung Securities Preferred 65,126
6,746 Sindoricom Co Ltd 154,351
133 SK Telecom 64,350
-----------
5,847,533
-----------
Malaysia - 0.2%
914,800 Genting Berhad 1,683,044
315,000 New Straits Times 90,317
407,000 Resorts World Berhad 313,133
-----------
2,086,494
-----------
Netherlands - 6.3%
137,580 ABN Amro Holdings NV 3,111,027
91,034 Aegon NV 8,234,024
112,244 Akzo Nobel NV 4,608,093
586,358 ASM International NV* 3,408,206
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Netherlands - continued
13,661 Bam Groep* 1,026,265
15,637 Buhrmann NV* 353,592
35,508 De Boer Unigro NV 2,141,132
66,554 Dordtsche Petroleum 2,782,489
92,660 Elsevier NV 1,140,760
30,869 Endemol Entertainment 775,584
12,821 Fugro NV 399,438
54,225 Hal Trust Class B 1,226,163
64,274 Hal Trust (Participating Units) 1,469,544
35,949 Heidemij Holdings NV 307,094
42,322 Hunter Douglas NV 1,748,131
24,644 ING Groep NV 1,451,359
42,672 Kon Bolswessanen 536,067
94,181 Koninklijke KPN NV 4,254,603
47,625 Koninklijke Numico NV 1,447,859
11,088 Koninklijke Pakhoed 323,717
79,383 Koninklijke Volker Wessels 1,882,806
82 Moeara Enim Petroleum 1,598,754
20,560 Nedlloyd 325,439
98,883 Philips Electronics 6,449,593
24,778 Philips NV ADR 1,485,131
13,917 Roto Smeets D Boer 615,410
52,608 Royal Dutch Petroleum 2,331,613
94,181 TNT Post Group NV 1,978,225
20,564 Unilever NV CVA 1,419,810
17,102 Van Ommeren (Koninklijke) (Participating Certificate) 587,813
28,462 Vedior NV 858,129
28,843 Vendex NV 988,464
28,111 Wereldhave NV 1,603,276
----------
62,869,610
----------
New Zealand - 1.1%
850,000 Air New Zealand Class B 800,475
4,494,736 Brierley Investment Ltd* 1,537,193
978,881 Brierley Investment Ltd New* 315,369
1,286,561 Carter Holt Harvey Ltd* 905,511
38,750 DB Group Ltd* 49,937
317,646 Fisher and Paykel Industries Ltd* 802,950
316,475 Fletcher Challenge Buildings* 368,623
473,511 Fletcher Challenge Energy* 889,497
2,245,891 Fletcher Challenge Ltd* 812,618
586,821 Fletcher Challenge Paper* 363,572
273,307 Lion Nathan Ltd 555,405
1,731,203 Progressive Enterprise* 900,974
1,842,505 Sovereign Ltd* 1,461,180
6,739,327 Trans Tasman Properties Ltd 1,503,156
485,082 Wrightson Ltd* 100,981
----------
11,367,441
----------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Norway - 0.7%
285,000 Christiania Bank OG Kreditkasse 881,185
139,700 Den Norske Bank Ser A 497,703
30,800 Dyno Industrier AS 442,838
25,900 Elkem AS Class A 293,296
15,395 Leif Hoegh and Co AS 201,759
30,000 Norsk Data AS Class B ADR* 300
34,916 Norsk Hydro AS 1,246,159
5,400 Norske Skogindustrier AS Class A 147,723
70,800 Orkla-Borregaard AS Class A* 1,099,029
33,200 Orkla-Borregaard AS Class B (Non Voting) 443,551
139,000 Saga Petroleum Class A 1,459,099
37,900 Schibsted AS 453,297
27,000 Unitor AS 319,494
---------
7,485,433
---------
Poland - 0.0%
40,000 Bank Handlowy W Warszawie 440,268
---------
Portugal - 0.1%
24,500 Sonae Investimentos 1,110,048
---------
Russia - 0.0%
8,715,000 Irkutskenergo (Registered) 229,205
141,384 Mosenergo Sponsored ADR 144A* 159,057
---------
388,262
---------
Singapore - 0.4%
268,000 Cycle & Carriage Ltd 356,126
1,023,512 Jardine Matheson Holdings Ltd 1,821,851
562,263 Jardine Strategic Holdings Ltd 657,848
715,000 Singapore Land Ltd 877,646
330,000 United Overseas Bank (Foreign Registered) 780,405
---------
4,493,876
---------
South Africa - 0.2%
61,000 Barlow Ltd 220,731
55,000 De Beers Centenary Link Units 665,110
82,900 Goldfields of South Africa Ltd* 683,818
1,109,100 Sun International Ltd 184,699
40,000 Western Areas Gold Mining Co Ltd* 79,686
---------
1,834,044
---------
Spain - 6.0%
22,800 Acerinox SA* 443,775
64,000 Argentaria Corporacion Bancaria de Espana SA 1,226,455
16,000 Azucarera Ebro Agricolas SA 470,070
600,066 Banco Bilbao Vizcaya SA 7,933,300
48,330 Banco Popular Espanol 3,256,099
262,446 Banco Santander SA (Registered) 4,906,679
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, 1998 (Unaudited)
Shares Description Value ($)
- -------------------------------------------------------------------------------
Spain - continued
76,812 Bankinter SA 2,461,841
44,007 Corporacion Mapfre (Registered) 1,081,332
216,548 Endesa 4,113,638
264,417 FENOSA SA 3,116,189
20,816 General Aguas de Barcelona SA 959,038
48,361 Hidroelec Cantabrico 2,082,786
493,243 Iberdrola SA 7,262,049
23,950 Metrovacesa SA 591,694
49,000 Midesa 1,020,799
75,860 Repsol SA 3,419,057
93,767 Sevillana de Electricidad 954,794
348,688 Telefonica de Espana SA 13,038,112
72,174 Vallehermoso SA 708,415
----------
59,046,122
----------
Sweden - 0.0%
39,000 Castellum AB 368,866
----------
Switzerland - 4.4%
1,590 Ascom Holding AG (Bearer) 2,616,470
1,586 Banque Cantonale Vaudoise (Bearer) 563,648
3,700 Barry Callebaut AG* 844,223
2,186 Belimo Automation AG 801,065
360 Bobst SA (Bearer) 572,495
43,816 CS Holdings (Registered) 7,679,842
1,825 Fischer (George) AG (Registered)* 548,901
280 Flughafen Immobilien 648,551
3,099 Forbo Holdings AG (Registered) 1,392,761
2,293 Hero AG (Bearer) 1,395,174
777 Holderbank Financiere Glarus AG (Bearer) 791,881
3,274 Jelmoli (Registered) 769,661
1,100 Keramik (Bearer)* 399,295
4,900 Kraftwerk Laufenberg (Bearer) 880,868
2,048 Merkur Holding AG (Registered) 559,331
3,456 Nestle AG (Registered) 6,408,762
2,808 Novartis AG (Registered) 4,366,447
154 Roche Holdings (Participating Certificate) 1,593,452
400 SGS Societe Generale de Surveillance Holding SA (Bearer) 445,274
275 Stratec Holding AG Class B (Registered) 347,957
1,500 Sulzer Gebrueder AG (Registered) 822,443
2,305 Sulzer Medica AG 454,211
3,854 Swatch Group AG (Bearer) 2,171,756
161 Swiss Insurance Co 345,087
1,300 Swiss Reinsurance (Bearer) 2,877,204
3,700 Zellweger Luwa AG (Bearer) 2,558,252
3,059 Zurich Reinsurance 1,882,396
----------
44,737,407
----------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Thailand - 0.1%
634,600 Bangkok Bank Plc (Foreign Registered) 446,795
428,900 First Bangkok City (Foreign Registered) (b)* 102
645,900 Jasmine International Public Co (Foreign Registered)* 131,030
9,000 Telecomasia Sponsored GDR 144A* 26,442
462,200 Telecomasia (Foreign Registered)* 82,733
315,000 Thai Farmers Bank Plc (Foreign Registered) 135,322
487,700 Thai Telephone & Telecommunications (Foreign Registered)* 38,411
204,800 Total Access Communication* 107,520
77,200 United Communication Industries (Foreign Registered)* 18,425
----------
986,780
----------
United Kingdom - 18.9%
344,941 Allied Domecq Plc* 2,945,779
119,028 Amstrad Plc* 57,801
317,976 Anglian Water Plc 4,626,998
1,712,281 ASDA Group 4,874,265
319,838 BAA 3,186,634
424,056 Bank of Scotland* 4,324,398
162,536 Barclays Plc 3,851,156
36,000 Bass Plc 483,462
706,643 BAT Industries* 6,969,482
107,000 BBA Group* 679,060
694,613 Berkley Group 5,990,117
1,109,347 BG Plc 6,835,974
610,000 Billiton Plc* 1,036,767
117,500 Boots Co 1,963,071
246,953 BPB Industries Plc* 1,198,182
411,421 British Airways Plc 3,100,160
415,100 British Energy Plc 3,927,230
590,344 British Petroleum Co Plc 7,414,378
1,091,250 British Steel Plc 1,964,345
1,446,455 British Telecom Plc 19,497,816
639,437 BTR Plc 1,432,111
175,000 Cable & Wireless 1,705,478
641,375 Capital Shopping Centres Plc 3,683,760
408,800 Caradon Plc 958,350
519,527 Centrica Plc* 804,702
281,601 Commercial Union Plc 4,121,267
280,000 Cookson Group 726,733
492,767 Costain Group Plc* 165,028
432,916 Diageo Plc 4,349,507
350,000 Elementis Plc 574,354
68,927 Flextech Plc* 638,263
596,000 Gallaher Group Plc 3,692,607
250,000 General Electric Plc 1,641,010
163,598 Glaxo Wellcome Plc 4,931,007
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
141,974 Granada Group 1,818,676
360,586 Great Portland Estates Plc 1,267,983
223,079 Great Universal Stores Plc 2,682,059
199,617 Guardian Royal Exchange 859,045
166,008 Hanson Plc 860,349
803,094 Hillsdown Holdings 1,889,417
172,944 HSBC Holdings 3,576,495
79,909 Hyder Plc 1,276,525
109,136 Imperial Chemical Industries Plc 1,193,346
132,816 Imperial Tobacco Group Plc 1,180,946
697,065 Ladbroke Group 2,801,365
150,000 Lasmo Plc 398,816
410,000 Lucas Variety Plc 1,448,610
785,537 Marley Plc 1,039,152
361,140 Mirror Group Plc 1,067,347
382,100 National Power 3,173,539
308,924 National Westminster Bank 5,431,579
213,000 Norwich Union Plc* 1,619,275
155,107 Peninsular & Oriental Steam Navigation Co 1,789,517
171,086 Powergen 2,117,113
2,148,935 Raglan Property Plc 809,638
174,630 Railtrack Group Plc 4,137,714
130,000 Reckitt & Colman 2,063,654
66,000 RMC Group 893,408
426,824 Royal & Sun Alliance Insurance 3,587,878
282,799 Safeway Plc 1,463,260
115,771 Scottish & Newcastle Plc 1,443,277
400,000 Scottish Power Plc 3,864,746
117,444 Sears Plc* 383,487
117,445 Selfridges Plc* 466,087
292,593 Severn Trent Plc 4,953,364
180,392 Smithkline Beecham Plc 2,129,568
71,481 Standard Chartered 550,597
206,000 Sun Life & Province Holding 1,828,219
477,000 Tanjong 423,975
200,000 Tate & Lyle 1,460,164
186,263 Thames Water Plc 3,343,540
111,000 TI Group Plc 749,444
100,000 Tomkins Plc 418,625
92,904 United Utilities 1,368,996
271,030 Viglen Technology Plc* 77,153
279,762 Williams Plc 1,639,615
-----------
189,898,815
-----------
TOTAL STOCK AND EQUIVALENTS (Cost $875,400,328) 916,239,485
-----------
See accompanying notes to the financial statements. 13
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
CONVERTIBLE BONDS - 0.8%
Bermuda - 0.3%
JPY 384,000,000 Sanwa International Finance, 1.25% due 8/01/05 1,985,410
------------------
Hong Kong - 0.0%
USD 810,000 Sino Land Co, 5.00% due 2/26/01 441,445
------------------
Japan - 0.3%
JPY 149,000,000 MTI Capital (Cayman) Ltd, .50% due 10/01/07 144A 469,615
USD 2,200,000 SB Treasury Co, 9.40% due 12/29/49 144A 1,738,000
JPY 300,000,000 STB Cayman Capital Ltd., .50% due 10/01/07 1,296,126
------------------
3,503,741
------------------
Mexico - 0.0%
USD 870,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 130,500
------------------
Singapore - 0.2%
USD 1,750,000 Keppel Corp 2.0% due 8/12/02 144A 1,557,500
------------------
TOTAL CONVERTIBLE BONDS (Cost $11,580,560) 7,618,596
------------------
INVESTMENT FUNDS - 0.3%
Chile - 0.0%
141,751 Five Arrows Chile Investment Trust Ltd 212,627
27,821 Five Arrows Chile Investment Trust Ltd Warrants 5/31/99* 573
------------------
213,200
------------------
India - 0.1%
157,150 India Fund Class A 473,666
40,000 India Liberalisation (c)* 324,400
11,000 Morgan Stanley India Fund Inc* 63,938
------------------
862,004
------------------
Korea - 0.1%
100 Dong Yang Dragon Fund 460,000
39,500 Korea Investment Fund 86,406
------------------
546,406
------------------
Russia - 0.1%
180,000 First Russian Frontiers Trust Plc 1,054,935
38,000 First Russian Frontiers Trust Plc Warrants 6/3/2001* 28,634
------------------
1,083,569
------------------
South Africa - 0.0%
25,352 New South Africa Fund Inc 174,295
------------------
TOTAL INVESTMENT FUNDS (Cost $6,824,383) 2,879,474
------------------
</TABLE>
14 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 9.1%
Cash Equivalents - 9.1%
$ 50,800,000 Republic Bank of New York Time Deposit, 5.75% due 9/1/98 50,800,000
40,482,477 The Boston Global Investment Trust (a) 40,482,477
------------------
91,282,477
------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $91,282,477) 91,282,477
------------------
TOTAL INVESTMENTS - 101.1%
(Cost $985,087,748) 1,018,020,032
Other Assets and Liabilities (net) - (1.0%) (9,841,099)
------------------
TOTAL NET ASSETS - 100.0% $ 1,008,178,933
==================
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
JPY Japanese Yen
USD United States Dollar
(a) Represents investment of security lending collateral (Note
1).
(b) Bankrupt issuer.
(c) Security is restricted as to public resale. The aggregate
market value of restricted securities is $424,825 or .04%
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.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's
investments was as follows:
Percentage of
Industry Sector Net Assets
Banking 14.0 %
Consumer Goods 7.5
Insurance 7.2
Utilities 6.4
Telecommunications 6.2
Electronic Equipment 5.6
Conglomerates 5.4
Oil and Gas 4.7
Services 4.5
Construction 4.1
Machinery 4.0
Retail Trade 3.8
Real Estate 3.7
Food and Beverage 3.2
Chemicals 3.0
Health Care 2.9
Automotive 2.7
Metals and Mining 2.2
Transportation 1.8
Financial Services 1.7
Computers 1.5
Communications 1.3
Paper and Allied Products 0.7
Aerospace 0.4
Textiles 0.3
Miscellaneous 1.2
===========
100.0%
===========
16 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $985,087,748) (Note 1) $ 1,018,020,032
Foreign currency, at value (cost $16,236,757) (Note 1) 16,517,678
Cash 106,460
Receivable for investments sold 13,935,107
Receivable for fund shares sold 16,756
Receivable for open forward foreign currency contracts (Notes 1 and 6) 270,972
Dividends and interest receivable 1,813,347
Foreign withholding taxes receivable 1,227,461
Receivable for expenses waived or borne by Manager (Note 2) 234,334
-----------------
Total assets 1,052,142,147
-----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 40,482,477
Payable for investments purchased 2,367,781
Payable for fund shares repurchased 37,781
Payable to affiliate for (Note 2):
Management fee 696,856
Shareholder service fee 135,014
Accrued expenses 243,305
-----------------
Total liabilities 43,963,214
-----------------
Net assets $ 1,008,178,933
=================
Net assets consist of:
Paid-in capital $ 962,316,141
Accumulated undistributed net investment income 8,130,128
Accumulated undistributed net realized gain 4,199,273
Net unrealized appreciation 33,533,391
-----------------
$ 1,008,178,933
=================
Net assets attributable to:
Class II Shares $ 53,139,876
=================
Class III Shares $ 772,162,940
=================
Class IV Shares $ 182,876,117
=================
Shares outstanding:
Class II 4,812,303
=================
Class III 69,839,057
=================
Class IV 16,537,066
=================
Net asset value per share:
Class II $ 11.04
=================
Class III $ 11.06
=================
Class IV $ 11.06
=================
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,622,102) $ 16,080,255
Interest (including security lending income of $147,007) 1,856,706
--------------
Total income 17,936,961
--------------
Expenses:
Management fee (Note 2) 4,351,315
Custodian fees 432,492
Registration fees 57,812
Audit fees 26,772
Transfer agent fees 23,000
Legal fees 15,456
Trustees fees (Note 2) 4,876
Miscellaneous 4,416
Fees waived or borne by Manager (Note 2) (1,435,090)
--------------
3,481,049
Shareholder service fee (Note 2)
Class II 66,719
Class III 665,918
Class IV 97,816
--------------
Net expenses 4,311,502
--------------
Net investment income 13,625,459
--------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 10,201,515
Foreign currency, forward contracts and foreign currency
related transactions (1,061,171)
--------------
Net realized gain 9,140,344
--------------
Change in net unrealized appreciation (depreciation) on:
Investments (115,588,143)
Foreign currency, forward contracts and foreign currency
related transactions 587,006
--------------
Net unrealized loss (115,001,137)
--------------
Net realized and unrealized loss (105,860,793)
--------------
Net decrease in net assets resulting from operations $ (92,235,334)
==============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
Increase (decrease) in net assets: August 31, 1998 Year Ended
Operations: (Unaudited) February 28, 1998
------------------ --------------------
<S> <C> <C>
Net investment income $ 13,625,459 $ 16,444,114
Net realized gain 9,140,344 1,341,628
Change in net unrealized appreciation (depreciation) (115,001,137) 106,316,685
------------------ --------------------
Net increase (decrease) in net assets resulting from operations (92,235,334) 124,102,427
------------------ --------------------
Distributions to shareholders from:
Net investment income
Class I - (265,008)
Class II (295,984) (647,192)
Class III (3,843,099) (18,851,879)
Class IV (1,012,586) -
------------------ --------------------
Total distributions from net investment income (5,151,669) (19,764,079)
------------------ --------------------
Distributions to shareholders from:
Net realized gains
Class I - (5,149)
Class II - (12,389)
Class III - (348,959)
Class IV - -
------------------ --------------------
Total distributions from net realized gains - (366,497)
------------------ --------------------
Net share transactions: (Note 5)
Class I - (4,265,890)
Class II 4,531,224 26,425,821
Class III (48,186) 98,158,725
Class IV (20,078,326) 198,193,992
------------------ --------------------
Increase (decrease) in net assets resulting from net share transactions (15,595,288) 318,512,648
------------------ --------------------
Total increase (decrease) in net assets (112,982,291) 422,484,499
Net assets:
Beginning of period 1,121,161,224 698,676,725
------------------ --------------------
End of period (including accumulated undistributed net investment income
of $8,130,128 and distributions in excess of net investment income of
$343,662, respectively.) $ 1,008,178,933 $ 1,121,161,224
================== ====================
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from March 1, 1997 Period Ended
to January 9, 1998 February 28, 1997*
---------------------- ----------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.65 $ 9.88
---------------------- ----------------------
Income from investment operations:
Net investment income 0.18 (c) 0.06
Net realized and unrealized gain 0.28 0.78
---------------------- ----------------------
Total from investment operations 0.46 0.84
---------------------- ----------------------
Less distributions to shareholders from:
Net investment income (0.22) (0.07)
Net realized gains (0.00)(e) -
---------------------- ----------------------
Total distributions (0.22) (0.07)
---------------------- ----------------------
Net asset value, end of period $ 10.89 (d) $ 10.65
====================== ======================
Total Return (a) 4.31% 8.53%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ - $ 4,891
Net expenses to average
daily net assets 0.88% ** 0.89% **(b)
Net investment income to average
daily net assets 1.82% ** 0.98% **
Portfolio turnover rate 19% 13%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 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 for the period
ended February 28, 1997.
(c) Computed using average shares outstanding throughout the period.
(d) All Class I shares of the Fund were exchanged for Class II shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(e) The per share realized gain distribution was $0.004.
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, 1998 Year Ended Period Ended
(Unaudited) February 28, 1998 February 28, 1997*
-------------- ---------------------- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.09 $ 10.65 $ 10.02
-------------- ---------------------- ----------------------
Income from investment operations:
Net investment income 0.14 0.18 (c) 0.06
Net realized and unrealized gain (loss) (1.13) 1.48 0.65
-------------- ---------------------- ----------------------
Total from investment operations (0.99) 1.66 0.71
-------------- ---------------------- ----------------------
Less distributions to shareholders from:
Net investment income (0.06) (0.22) (0.08)
Net realized gains - (0.00)(d) -
-------------- ---------------------- ----------------------
Total distributions (0.06) (0.22) (0.08)
-------------- ---------------------- ----------------------
Net asset value, end of period $ 11.04 $ 12.09 $ 10.65
============== ====================== ======================
Total Return (a) (8.34%) 15.94% 7.08%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 53,140 $ 53,949 $ 21,957
Net expenses to average
daily net assets 0.82% ** 0.82% 0.84% **(b)
Net investment income to average
daily net assets 2.30% ** 1.60% 0.83% **
Portfolio turnover rate 12% 19% 13%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.03 $ 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.
(c) Computed using average shares outstanding throughout the period.
(d) The per share realized gain distribution was $0.004.
See accompanying notes to the financial statements. 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, 1998 Year Ended Period Ended
(Unaudited) February 28, 1998 February 28, 1997*
-------------- --------------------- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.10 $ 10.66 $ 10.00
-------------- --------------------- ----------------------
Income from investment operations:
Net investment income 0.15 0.21 (c) 0.08
Net realized and unrealized gain (loss) (1.13) 1.45 0.66
-------------- --------------------- ----------------------
Total from investment operations (0.98) 1.66 0.74
-------------- --------------------- ----------------------
Less distributions to shareholders from:
Net investment income (0.06) (0.22) (0.08)
Net realized gains - (0.00)(d) -
-------------- --------------------- ----------------------
Total distributions (0.06) (0.22) (0.08)
-------------- --------------------- ----------------------
Net asset value, end of period $ 11.06 $ 12.10 $ 10.66
============== ===================== ======================
Total Return (a) (8.26%) 15.95% 7.37%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 772,163 $ 847,427 $ 671,829
Net expenses to average
daily net assets 0.75% ** 0.75% 0.76% ** (b)
Net investment income to average
daily net assets 2.34% ** 1.80% 1.24% **
Portfolio turnover rate 12% 19% 13%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.03 $ 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 for the period
ended February 28, 1997.
(c) Computed using average shares outstanding throughout the period.
(d) The per share realized gain distribution was $0.004.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 9, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
-------------- --------------
<S> <C> <C>
Net asset value, beginning of period $ 12.11 $ 10.90
-------------- --------------
Income from investment operations:
Net investment income 0.15 - (b)
Net realized and unrealized gain (loss) (1.14) 1.21
-------------- --------------
Total from investment operations (0.99) 1.21
-------------- --------------
Less distributions to shareholders from:
Net investment income (0.06) -
-------------- --------------
Total distributions (0.06) -
-------------- --------------
Net asset value, end of period $ 11.06 $ 12.11
============== ==============
Total Return (a) (8.23%) 11.10%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 182,876 $ 219,785
Net expenses to average
daily net assets 0.69% * 0.69% *
Net investment income to average
daily net assets 2.40% * 0.26% *
Portfolio turnover rate 12% 19%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ (c)
</TABLE>
* Annualized.
(a) The total return would have been lower had certain expenses not been waived
during the period shown.
(b) Net investment income earned was less than $.01 per share. Computed using
average shares outstanding throughout the period.
(c) Fees or expenses voluntarily waived or borne by the manager were less than
$.01 per share.
See accompanying notes to the financial statements. 23
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series of shares into classes.
The Fund seeks maximum total return through investment primarily in equity
securities of non-U.S. issuers.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II, and Class III. Effective January 9, 1998, Class I shares
ceased operations and all shares were exchanged for Class II shares, and
Class IV shares commenced operations. The principal economic difference
between the classes of shares is the level of shareholder service fee borne
by the classes. Eligibility for and automatic conversion between the
various classes of shares is generally based on the total amount of assets
invested with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a
24
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. 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, 1998.
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, 1998, the Fund loaned securities having a market
value of $37,882,475 collateralized by cash in the amount of $40,482,477
which was invested in a short-term instrument.
25
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss 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.
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 of shares of the Fund based on the relative net
assets of each class. Shareholder service fees, which are directly
attributable to a class of shares, are charged to that class' operations.
26
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statement -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares, and .09% for Class IV
shares.
GMO has 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, 1998, was $4,876. 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, 1998 aggregated
$125,694,249 and $156,338,060, respectively.
At August 31, 1998 the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ------------------ --------------------- ------------------ -------------
$ 985,087,748 $ 190,144,829 $ 157,212,545 $ 32,932,284
27
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statement -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1998, 27.16% 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:
Period from March 1, 1997
to January 9, 1998
---------------------------------
Class I: Shares Amount
------------ --------------
Shares sold 826,358 $ 9,729,112
Shares issued to
shareholders in
reinvestment of
distributions 24,544 270,157
Shares repurchased (1,310,014) (14,265,159)
------------ --------------
Net decrease (459,112) $ (4,265,890)
============ ==============
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
----------------------------- -------------------------
Class II: Shares Amount Shares Amount
----------- ------------- ----------- ------------
Shares sold 750,847 $ 9,554,243 2,339,569 $ 25,766,240
Shares issued
to shareholders
in reinvestment
of distributions 23,641 295,984 59,960 659,581
Shares
repurchased (422,814) (5,319,003) - -
----------- ------------- ----------- ------------
Net increase 351,674 $ 4,531,224 2,399,529 $ 26,425,821
=========== ============= =========== ============
28
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28,1998
------------------------------- ------------------------------
Class III: Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 5,639,070 $ 71,550,034 29,233,963 $ 347,802,219
Shares issued to
shareholders in
reinvestment of
distributions 195,960 2,457,333 851,431 9,367,832
Shares repurchased (6,005,577) (74,055,553) (23,128,254) (259,011,326)
------------- ------------- ------------- -------------
Net increase (decrease) (170,547) $ (48,186) 6,957,140 $ 98,158,725
============= ============= ============= =============
<CAPTION>
Period from January 9, 1998
Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
------------------------------- ------------------------------
Class IV: Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 445,359 $ 5,633,670 18,491,750 $ 202,184,682
Shares issued to
shareholders in
reinvestment of
distributions 6,043 75,784 - -
Shares repurchased (2,067,030) (25,787,780) (339,056) (3,990,690)
------------- ------------- ------------- -------------
Net increase (decrease) (1,615,628) $ (20,078,326) 18,152,694 $ 198,193,992
============= ============= ============= =============
</TABLE>
29
<PAGE>
GMO Foreign Fund
(A Series of GMO Trust)
Notes to Financial Statements -- continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Short forward currency contract
<TABLE>
<CAPTION>
Net Unrealized
Settlement Date Deliver Units of Currency Value Appreciation
--------------- ----------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
9/17/98 MYR 12,013,000 $ 2,849,288 $ 270,972
</TABLE>
See Notes to Schedule of Investments for definitions of currency
abbreviations.
7. Subsequent Event
Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities
during that holding period must be held in Malaysian ringgits (or re-
invested in Malaysian securities) until the end of the holding period, at
the earliest September 1, 1999. The Manager has assessed the risks
inherent to these controls and has taken action to limit those risks. All
forward foreign currency contracts with Malaysian exposure as of August
31, 1998 have been terminated. Under fair value procedures adopted by the
Board of Trustees, Malaysian securities are valued at their exchange-
traded prices, and that value is converted into U.S. dollars at a
discounted foreign exchange rate to reflect the currency and inflation
risk of holding ringgit.
30
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENTS - 95.6%
Canada - 9.4%
13,700 Brookfield Properties Corp 148,899
10,000 Cambridge Shopping Centres Ltd* 64,891
9,000 Canadian Hotel Income Properties 48,045
37,722 Concord Pacific Group* 16,882
49,591 Oxford Properties Group* 443,867
4,000 Trizec Hahn Corp (Sub-Voting) 68,250
---------
790,834
---------
Finland - 1.6%
20,000 Sponda Oyj* 136,023
---------
France - 13.9%
2,665 Klepierre 450,931
1,357 Silic 246,372
11,500 Sophia SA 468,173
---------
1,165,476
---------
Hong Kong - 0.6%
31,275 Great Eagle Holdings Ltd 25,224
115,000 Tai Cheung Holdings Ltd 26,416
---------
51,640
---------
Japan - 6.0%
8,000 Daibiru Corp 49,295
5,000 Hankyu Realty Co Ltd 19,477
10,000 Heiwa Real Estate Co Ltd 25,498
5,000 Keihanshin Real Estate 18,061
26,000 Mitsubishi Real Estate Co Ltd 191,515
13,000 Mitsui Fudosan Co Ltd 83,788
7,000 Sankei Building Co Ltd 19,088
11,000 Sumitomo Realty and Development Co Ltd 33,501
6,180 TOC Co Ltd 47,929
5,000 Tokyo Rakutenchi 12,041
---------
500,193
---------
Netherlands - 21.7%
60,000 Breevast NV 741,690
17,555 German City Estates NV (Bearer) 228,474
2,000 Melia Inversiones Americanas NV* 66,104
11,779 Nagron Nationaal Grandbezit NV 301,866
8,972 Vastned (Offices) NV 320,098
2,858 Vastned Retail NV 162,572
---------
1,820,804
---------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
New Zealand - 7.4%
947,272 Trans Tasman Properties Ltd 211,282
1,736,363 Trans Tasman Properties Ltd (Convertible) 413,102
---------
624,384
---------
Singapore - 0.5%
25,000 DBS Land Ltd 14,217
20,000 Singapore Land Ltd 24,550
---------
38,767
---------
United Kingdom - 12.0%
757,166 Hemingway Properties Plc 408,890
100,000 NHP Plc (New)* 247,826
140,000 NHP Plc 345,784
---------
1,002,500
---------
United States - 22.5%
6,000 Arden Realty Group Inc 126,750
4,500 Bedford Properties Investments Inc 74,813
3,000 Boston Properties Inc 85,688
3,000 Bradley Real Estate Inc 59,625
2,000 Brandywine Realty Trust 36,000
4,000 Crescent Real Estate Equities 92,000
4,500 Eastgroup Properties Inc 76,219
5,000 Felcor Lodging Trust Inc 101,875
2,500 First Industrial Realty Trust Inc 58,594
3,000 Gables Residential Trust 77,250
2,000 Glimcher Realty Trust 32,500
8,000 Host Marriott Corp* 112,000
2,000 Parkway Properties Inc 54,250
5,498 Patriot American Hospitality Preferred 74,223
3,500 Prentiss Properties Trust 78,313
6,000 Reckson Associates Realty Corp 128,625
960 Reckson Service Industries Inc* 2,994
349 Security Capital Group Inc Class B Warrants 9/18/98* 1
4,000 Simon DeBartolo Group Inc 116,250
3,000 Smith (Charles E) Residential Realty 89,245
7,000 Starwood Hotels & Resorts 255,500
5,000 Urban Shopping Centers Inc 158,750
---------
1,891,465
---------
TOTAL REAL ESTATE INVESTMENTS (Cost $9,717,349) 8,022,086
---------
2 See accompanying notes to the fianancial statements.
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 95.6%
(Cost $9,717,349) 8,022,086
Other Assets and Liabilities (net) - 4.4% 365,681
----------
TOTAL NET ASSETS - 100.0% $8,387,767
==========
Notes to the Schedule of Investments:
* Non-income producing security.
See accompanying notes to the financaial statements. 3
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $9,717,349) (Note 1) $ 8,022,086
Foreign currency, at value (cost $113,352) 114,396
Cash 23,647
Receivable for investments sold 252,533
Dividends receivable 2,829
Foreign withholding taxes receivable 20,819
Receivable for expenses waived or borne by Manager (Note 2) 6,520
------------
Total assets 8,442,830
------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 5,630
Shareholder service fee 1,126
Accrued expenses and other liabilities 48,307
------------
Total liabilities 55,063
------------
Net assets $ 8,387,767
============
Net assets consist of:
Paid-in capital $ 10,214,019
Accumulated undistributed net investment income 79,603
Accumulated net realized loss (212,193)
Net unrealized depreciation (1,693,662)
------------
$ 8,387,767
============
Net assets attributable to Class III Shares $ 8,387,767
============
Shares outstanding - Class III 1,016,938
============
Net asset value per share - Class III $ 8.25
============
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $15,885) $ 278,103
Interest 6,344
-----------------
Total income 284,447
-----------------
Expenses:
Management fee (Note 2) 36,295
Custodian fees 34,164
Audit fees 16,560
Transfer agent fees 14,076
Legal fees 92
Trustees fees (Note 2) 92
Miscellaneous 956
Fees waived or borne by Manager (Note 2) (37,375)
-----------------
64,860
Shareholder service fee - Class III (Note 2) 7,259
-----------------
Net expenses 72,119
-----------------
Net investment income 212,328
-----------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (212,277)
Foreign currency and foreign currency related transactions 1,524
-----------------
Net realized loss (210,753)
-----------------
Change in net unrealized appreciation (depreciation) on:
Investments (1,667,756)
Foreign currency and foreign currency related transactions 2,540
-----------------
Net unrealized loss (1,665,216)
-----------------
Net realized and unrealized loss (1,875,969)
-----------------
Net decrease in net assets resulting from operations $ (1,663,641)
=================
</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, 1998 Year Ended
(Unaudited) February 28, 1998
----------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 212,328 $ 287,620
Net realized gain (loss) (210,753) 86,654
Change in net unrealized appreciation (depreciation) (1,665,216) 15,639
----------------- ----------------
Net increase (decrease) in net assets resulting from operations (1,663,641) 389,913
----------------- ----------------
Distributions to shareholders from:
Net investment income - Class III (20,824) (306,831)
Net realized gains - Class III (221,135) -
----------------- ----------------
(241,959) (306,831)
----------------- ----------------
Net share transactions - Class III (Note 5) 232,308 513,622
----------------- ----------------
Total increase (decrease) in net assets (1,673,292) 596,704
Net assets:
Beginning of period 10,061,059 9,464,355
----------------- ----------------
End of period (including accumulated undistributed net investment income
of $79,603 and distributions in excess of net investment income of
$111,901, respectively.) $ 8,387,767 $ 10,061,059
================= ================
</TABLE>
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, 1998 Year Ended Period Ended
(Unaudited) February 28, 1998 February 28, 1997*
---------------- ------------------ -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.14 $ 10.06 $ 10.00
---------------- ------------------ ------------------
Income from investment operations:
Net investment income 0.21 0.30 0.04
Net realized and unrealized gain (loss) (1.86) 0.10 0.02 (b)
---------------- ------------------ ------------------
Total from investment operations (1.65) 0.40 0.06
---------------- ------------------ ------------------
Less distributions to shareholders from:
Net investment income (0.02) (0.32) -
Net realized gains (0.22) - -
---------------- ------------------ ------------------
Total distributions (0.24) (0.32) -
---------------- ------------------ ------------------
Net asset value, end of period $ 8.25 $ 10.14 $ 10.06
================ ================== ==================
Total Return (a) (16.52)% 4.07% 0.60%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,388 $ 10,061 $ 9,464
Net expenses to average
daily net assets 1.49% ** 1.43% 1.98% **
Net investment income to average
daily net assets 4.39% ** 2.89% 2.39% **
Portfolio turnover rate 9% 15% 0%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.08 $ 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 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
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Properties Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks 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 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 or other persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses
8
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States. Dividends received by shareholders of the Fund which are derived
from foreign source income and foreign taxes paid by the Fund are to be
treated, to the extent allowable under the Code, as if received and paid by
the shareholders of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income 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 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.
9
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. In the case of cash redemptions, the fee is .30% of the amount
redeemed. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold" and redemption fees are included as part of "shares
repurchased", respectively, as summarized in Note 5. For the six months
ended August 31, 1998, the Fund received no purchase premiums and $15 in
redemption fees. There is no premium for reinvested distributions.
Investment risks
There are certain additional risks involved in investing in real estate
related securities rather than a more diversified portfolio of investments.
Since the Fund's investments are concentrated in real estate related
securities, the value of its shares can be expected to change in light of
factors affecting the real estate industry, including local or regional
economic conditions, changes in zoning laws, changes in real estate values
and property taxes, and changes in interest rates. The value of the Fund's
shares may fluctuate more widely than the value of shares of a portfolio
that invests in a broader range of industries. Additionally, there are
certain additional risks involved in investing in foreign securities that
are not inherent in investments in domestic securities. These risks may
involve adverse political and economic developments 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 more times 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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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.
10
<PAGE>
GMO Global Properties Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $92. 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, 1998,
aggregated $820,486 and $801,366, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$9,717,349 $570,470 $2,265,733 $1,695,263
</TABLE>
4. Principal shareholder
At August 31, 1998, 71% of the outstanding shares of the Fund were held by
one shareholder, who is an affiliate of the Manager.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Class III: Six Months Ended Year Ended
August 31, 1998 February 28, 1998
------------------------------- --------------------------------
Shares Amount Shares Amount
------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Shares sold - $ - 24,144 $ 243,500
Shares issued to
shareholders in
reinvestment of
distributions 25,299 237,308 27,655 270,122
Shares repurchased
(503) (5,000) - -
-------------- -------------- -------------- ---------------
Net increase 24,796 $ 232,308 51,799 $ 513,622
============== ============== ============== ===============
</TABLE>
11
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 80.1%
Brazil - 8.2%
6,650,000 Cia Energetica de Sao Paolo SA Preferred (Registered) 90,407
5,732,000 Companhia Siderurgica Nacional SA 90,054
15,370,000 Electrobras 219,404
14,783,000 Electrobras Class B Preferred (Registered) 226,097
6,650,000 Elektro Preferred* 129,960
15,370,000 Gerasul ON* 15,541
26,471,000 Gerasul PNB* 26,766
96,391 Souza Cruz (Registered) 586,422
3,000 Telebras Holders Preferred ADR* 215,438
17,000,000 Telebras SA 852,239
3,177,000 Telebras SA Preferred Converted* 225,405
----------
2,677,733
----------
Chile - 6.7%
24,600 Chilectra SA ADR 378,348
23,400 Compania de Telefones de Chile ADR 358,313
21,500 Embotelladora Andina ADR Class A 264,719
48,800 Empresa Natl de Electricidad ADR 442,250
43,100 Gener SA Sponsored ADR 568,372
41,000 Quinenco SA ADR 212,688
----------
2,224,690
----------
Colombia - 0.7%
16,300 Banco Columbia SA Sponsored ADR* 118,175
6,600 Banco Ganadero SA ADR* 125,400
----------
243,575
----------
Egypt - 2.8%
2,325 Al Ahram Beverages Co 134,490
3,000 Al Ahram Beverages Co GDR (Reg S)* 79,050
13,100 Eastern Tobacco Co 291,841
2,500 Egypt Gas Co 238,926
3,270 Egyptian International Pharmaceuticals Industries Co 163,404
----------
907,711
----------
Hong Kong - 0.1%
1,077,000 Tan Chong International Ltd 17,512
----------
India - 6.2%
5,250 Bajaj Auto Ltd GDR 86,625
39,000 Bharat Heavy Electricals Ltd 209,767
42,000 Castrol India 540,212
61,500 Industrial Credit & Investment Corp of India Ltd 101,246
148 ITC Ltd 2,193
13,000 ITC Ltd GDR 216,450
35,800 Mahanagar Telephone 168,391
54,000 Satyam Computer Service 602,103
15,600 State Bank of India GDR (Registered) 133,380
----------
2,060,367
----------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Indonesia - 1.0%
264,000 Aneka Tambang 35,357
385,000 Astra International* 20,625
377,000 Barito Pacific Timber* 9,257
14,000 Gulf Resources Ltd ADR* 98,875
101,000 HM Sampoerna* 18,938
447,000 Indah Kiat Pulp & Paper* 109,754
41,500 International Nickel 16,304
158,000 Telekomunikasi Indonesia 33,152
---------
342,262
---------
Israel - 4.5%
61,000 Bank Hapoalim* 146,581
132,000 Bank Leumi Le Israel 211,114
4,000 Blue Square Chain Stores* 54,594
2,000 Blue Square Sponsored ADR* 27,750
3,400 ECI Telecommunications Ltd 93,500
10,300 Elbit Medical Imaging Ltd (New York) 70,813
8,680 Elbit Medical Imaging Ltd (Tel Aviv) 60,835
1,500 Formula Systems Ltd ADR* 36,750
4,900 Formula Systems Ltd* 131,431
5,800 Koor Industries Ltd ADR* 103,675
21,058 Machteshim Agan Industries* 51,932
2,000 Nice Systems Ltd Sponsored ADR* 56,000
5,500 Orbotech Ltd* 143,000
12,000 Supersol Ltd 32,978
4,050 Supersol Ltd ADR 52,144
2,000 Tadiran Ltd ADR 64,125
3,000 Teva Pharmaceutical Industries Ltd 110,821
1,100 Teva Pharmaceutical Industries Ltd ADR 39,394
---------
1,487,437
---------
Korea - 4.3%
65,000 Daewoo Heavy Industries 227,175
5,451 Housing & Commercial Bank Korea GDR 13,491
9,400 Hyundai Heavy Industries 144A 161,829
25,461 Kookmin Bank GDR (Registered) 144A* 65,562
4,020 Pohang Iron & Steel 156,305
238 Samsung Display Devices 6,168
22,000 Samsung Display Devices Preferred 235,394
8,363 Samsung Electronics 278,044
1,311 Samsung Electronics GDR Rights 12/31/25* 8,114
13,614 Samsung Electronics GDS 144A (Non Voting)* 98,702
806 Samsung Electronics Rights 9/19/98* 9,310
329 SK Telecom 159,182
2,307 SK Telecom ADR* 13,842
---------
1,433,118
---------
Malaysia - 6.8%
297,000 Berjaya Sports Toto 193,021
66,400 Genting Berhad 122,162
388,000 Golden Hope Plantations Berhad 222,496
2 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Malaysia - continued
625,000 Highlands and Lowlands Berhad 285,228
73,000 Kuala Lumpur Kepong Berhad (Malaysia) 72,560
1,741,000 Kumpulan Guthrie Berhad 703,014
204,000 Malaysian International Shipping (Foreign Registered)* 200,820
85,400 Rothmans of Pall Mall Berhad 387,695
503,000 Tan Chong Motor Holdings Berhad 64,298
---------
2,251,294
---------
Mexico - 4.3%
5,000 Alfa SA Class A 11,284
35,000 Carso Global Telecom Class A 67,406
44,000 Cemex SA Class A (Registered) 97,537
86,000 Cemex SA Class B 211,345
23,850 Cemex SA CPO 49,042
114,000 Cifra SA de CV* 123,497
77,000 Formento Economico Mexicano SA de CV 130,065
18,000 Grupo Carso SA de CV Class A 44,235
170,000 Grupo Industrial Bimbo Class A 267,717
36,500 Grupo Mexico Class B 65,535
9,600 Telefonos de Mexico ADR Class L* 342,600
---------
1,410,263
---------
Pakistan - 0.3%
64,800 Pakistan State Oil 102,304
---------
Phillippines - 5.1%
6,884,000 Belle Corporation* 127,307
2,063,000 Benpres Holdings Corp* 169,562
3,200,000 Cosmos Bottling Corp 182,648
4,240,264 DMCI Holdings Inc* 77,448
156,410 Manila Electric Class B 257,112
46,680 Metro Bank & Trust Co* 142,811
43,750 Philippine Long Distance Telephone 724,172
---------
1,681,060
---------
Poland - 1.0%
25,000 Prokon Software SA GDR 326,250
---------
Russia - 3.7%
11,900 Gazprom ADR 144A* 80,028
103,000 Irkutskenergo ADR* 175,224
32,600 Lukoil Holding Co ADR* 456,400
74 Norilsk Nickel RDC* 25,900
59,000 Norilsk Nickel (Registered) (a)* 48,882
43,140 RAO Gazprom ADR (Reg S)* 290,117
16,500 Rostelecom ADR* 59,813
46,000 Rostelekom* 28,060
23,000 Surgutneftegaz ADR* 71,730
---------
1,236,154
---------
See accompanying notes to the financial statements. 3
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
South Africa - 15.3%
125,000 Amalgamated Bank of South Africa 349,208
18,020 Anglo American Corp of South Africa 454,339
10,800 Anglo American Industrial Ltd 117,661
44,900 Anglo American Platinum Corp 562,538
78,800 De Beers Centenary Link Units 952,922
5,500 De Beers Consolidated Mines Ltd ADR* 63,250
38,300 Liberty Life Association of Africa Ltd 447,064
45,900 Nedcor Ltd 596,498
133,600 Rembrandt Group Ltd 598,837
18,100 Sappi Ltd* 56,481
53,300 Sasol Ltd 223,976
288,000 Standard Bank Investment Corp 605,113
----------
5,027,887
----------
Thailand - 7.8%
35,200 Advanced Info Service Public Co Ltd (Foreign Registered) 142,816
297,100 Bangkok Bank Plc (Foreign Registered) 209,175
531,000 Bangkok Expressway Plc (Foreign Registered)* 243,956
16,800 Bangkok Insurance (Foreign Registered) 39,294
78,500 BEC World Public Co Ltd (Foreign Registered) 251,050
199,100 Cogeneration Public Co (Foreign Registered) 62,866
44,000 Delta Electronics Public Co Ltd (Foreign Registered) 173,270
172,000 Electricity Generating Public Co Ltd (Foreign Registered)* 238,091
194,900 Hana Microelectronic Plc (Foreign Registered)* 374,450
42,600 KCE Electronics Plc (Foreign Registered)* 20,080
16,100 KR Precision Plc (Foreign Registered)* 7,109
264,100 Land & House Public Co Ltd (Foreign Registered)* 50,425
46,400 PTT Exploration and Production Public Co Ltd (Foreign Registered)* 305,642
61,636 Shinawatra Computer Public Co Ltd (Foreign Registered)* 144,161
333,300 Thai Airways International (Foreign Registered) 242,617
47,000 Thai Farmers Bank Plc (Foreign Registered) 20,191
1,313,000 Thai Petrochemical (Foreign Registered)* 53,272
----------
2,578,465
----------
Venezuela - 1.3%
32,800 Compania Anonima Nacional Telefonos de Venezuela (CANTV) Sponsored ADR 344,400
32,300 Siderurgica Venezolana (Sivensa) Registered ADR Class A 80,750
----------
425,150
----------
TOTAL STOCK AND EQUIVALENTS (Cost $51,457,629) 26,433,232
----------
INVESTMENT FUNDS - 0.3%
United States - 0.3%
15,000 Morgan Stanley Emerging Markets Fund 100,313
----------
TOTAL INVESTMENT FUNDS (Cost $213,272) 100,313
----------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($) Description Value ($)
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE SECURITIES - 0.7%
Poland - 0.7%
388,000 Elektrim SA Convertible, 2.00% due 5/30/04 224,417
--------------
TOTAL CONVERTIBLE SECURITIES (Cost $267,535) 224,417
--------------
SHORT-TERM INVESTMENTS - 21.2%
Cash Equivalents - 11.3%
3,700,000 Republic Bank of New York Time Deposit, 5.75% due 9/1/98 3,700,000
--------------
U.S. Government - 9.9%
3,300,000 U.S. Treasury Bill, 4.94% due 10/15/98 3,280,761
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,980,704) 6,980,761
--------------
TOTAL INVESTMENTS - 102.3%
(Cost $58,919,140) 33,738,723
Other Assets and Liabilities (net) - (2.3%) (749,172)
--------------
TOTAL NET ASSETS - 100.0% $ 32,989,551
==============
</TABLE>
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
(a) Valued by management (Note 1).
144A Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
* Non-income producing security.
See accompanying notes to financial statements. 5
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's equity
investments was as follows:
Industry Sector
Telecommunications 11.8 %
Utilities 10.2
Banking 9.0
Conglomerates 8.9
Electronic Equipment 5.7
Oil and Gas 5.5
Food and Beverage 5.5
Consumer Goods 4.3
Computers 4.3
Financial Services 4.1
Metals and Mining 3.5
Machinery 2.4
Automotive 2.3
Transportation 2.1
Communications 2.0
Construction 1.6
Insurance 1.6
Real Estate 1.2
Health Care 0.6
Paper and Allied Products 0.5
Services 0.4
Chemicals 0.4
Retail Trade 0.3
Miscellaneous 11.8
=======
100.0%
=======
6 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $58,919,140) (Note 1) $ 33,738,723
Foreign currency, at value (cost $344,252) (Note 1) 339,159
Cash 175,045
Receivable for investments sold 156,867
Dividends and interest receivable 205,665
Receivable for expenses waived or borne by Manager 11,104
----------------
Total assets 34,626,563
----------------
Liabilities:
Payable for investments purchased 6,186
Payable for open forward foreign currency contracts (Notes 1 and 6) 23,658
Payable for open swap contracts (Notes 1 and 6) 1,490,552
Payable to affiliate for (Note 2):
Management fee 26,982
Shareholder service fee 5,059
Accrued expenses 84,575
----------------
Total liabilities 1,637,012
----------------
Net assets $ 32,989,551
================
Net assets consist of:
Paid-in capital $ 65,025,283
Accumulated undistributed net investment income 680,513
Accumulated net realized loss (6,012,699)
Net unrealized depreciation (26,703,546)
----------------
$ 32,989,551
================
Net assets attributable to Class III Shares $ 32,989,551
================
Shares outstanding - Class III 7,226,053
================
Net asset value per share - Class III $ 4.57
================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $101,896) $ 818,084
Interest 162,904
---------------
Total income 980,988
---------------
Expenses:
Management fee (Note 2) 189,236
Custodian fees 94,944
Audit fees 21,344
Transfer agent fees 13,524
Registration fees 7,815
Legal fees 644
Trustees fees (Note 2) 184
Miscellaneous 11,524
Fees waived or borne by Manager (Note 2) (79,177)
---------------
260,038
Shareholder service fee - Class III (Note 2) 35,482
---------------
Net expenses 295,520
---------------
Net investment income 685,468
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (4,579,608)
Foreign currency, forward contracts and foreign
currency related transactions 120,234
---------------
Net realized loss (4,459,374)
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (24,171,114)
Foreign currency, forward contracts and foreign
currency related transactions (38,516)
Open swap contracts (1,490,552)
---------------
Net unrealized loss (25,700,182)
---------------
Net realized and unrealized loss (30,159,556)
---------------
Net decrease in net assets resulting from operations $ (29,474,088)
===============
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from August 29, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- ---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 685,468 $ 93,049
Net realized loss (4,459,374) (1,508,831)
Change in net unrealized appreciation (depreciation) (25,700,182) (1,003,364)
-------------- ------------
Net decrease in net assets resulting from operations (29,474,088) (2,419,146)
-------------- ------------
Distributions from shareholders from:
Net investment income - Class III (142,498) -
-------------- ------------
Net share transactions - Class III (Note 5) 22,907,785 42,117,498
-------------- ------------
Total increase (decrease) in net assets (6,708,801) 39,698,352
Net assets:
Beginning of period 39,698,352 -
-------------- ------------
End of period (including accumulated undistributed
net investment income of $680,513 and $137,543
respectively) $ 32,989,551 $ 39,698,352
============== ============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from August 29, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 8.61 $ 10.00
---------- ----------
Income from investment operations:
Net investment income 0.08 0.03 +
Net realized and unrealized loss (4.10) (1.42)
---------- ----------
Total from investment operations (4.02) (1.39)
---------- ----------
Less distributions to shareholders:
From net investment income (0.02) -
---------- ----------
Total distributions (0.02) -
---------- ----------
Net asset value, end of period $ 4.57 $ 8.61
========== ==========
Total Return (a) (46.76%) (13.90%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 32,990 $ 39,698
Net expenses to average
daily net assets 1.25% * 1.65% * (b)
Net investment income to average
daily net assets 2.90% * 0.78% *
Portfolio turnover rate 66% 56%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.01 $ 0.03
</TABLE>
+ Computed using average shares outstanding throughout the periods.
* Annualized.
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
manager, which approximates .16% of average daily net assets.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Evolving Countries Fund (the "Fund"), which commenced operations on
August 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 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.
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 or other persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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.
11
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown
under Note 6, and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of August 31, 1998.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into total return swap agreements
which involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and
market risk in excess of the amounts recognized on the Statement of Assets
and Liabilities. Such risks involve the possibility that there 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 agreements as of
August 31, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States.
12
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.60% of the amount
invested. In the case of cash redemptions, the fee is .40% of the amount
redeemed. The fees will be reduced by 50% with respect to any portion of a
purchase or redemption that is offset by a corresponding redemption or
purchase, respectively, occuring on the same day. All purchase premiums and
redemption fees are paid to and recorded by the Fund as paid-in capital.
Purchase premiums are included as part of "shares sold" and redemption fees
are included as part of "shares repurchased", respectively, as summarized
in Note 5. For the six months ended August 31, 1998, the Fund received
$364,915 in purchase premiums and $13 in redemption fees. There is no
premium for reinvested distributions. Normally, no purchase premium is
charged with respect to in-kind purchases of Fund shares. A purchase
premium of up to 20% may be charged on certain in-kind transactions.
13
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. Investing in equity securities of
Russian companies includes the risk of loss from Russia's underdeveloped
systems of share registration and transfer. 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. Theses 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 .80% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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 .65% of average
daily net assets.
The Manager has entered into a Consulting Agreement with Dancing Elephant,
Ltd. (the "Consultant") with respect to the management of the portfolio.
Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $184. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
14
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $46,314,354 and $27,032,027, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$58,919,140 $484,420 $25,664,837 $25,180,417
</TABLE>
4. Principal shareholders
At August 31, 1998, 70% of the outstanding shares of the Fund were held by
four shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from August 29, 1997
Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
-------------------------------------------- -------------------------------------------
Class III: Shares Amount Shares Amount
-------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Shares sold 2,597,694 $ 22,807,215 4,671,266 $ 42,593,027
Shares issued to
shareholders in
reinvestment of
distributions 16,177 103,856 - -
Shares
repurchased (503) (3,286) (58,581) (475,529)
--------------------- -------------------- -------------------- --------------------
Net increase 2,613,368 $ 22,907,785 4,612,685 $ 42,117,498
===================== ==================== ==================== ====================
</TABLE>
15
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Short forward currency contracts
<TABLE>
<CAPTION>
Settlement Units Net Unrealized
Date Deliver of Currency Value Depreciation
---------------------- ------------------------ -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
1/19/99 MYR 2,261,250 $ 507,617 $ (7,617)
1/22/99 MYR 6,761,250 1,516,041 (16,041)
-------------------
$ (23,658)
===================
</TABLE>
Currency Abbreviation:
MYR Malaysian Ringgit
16
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Depreciation
------------------------- --------------- ----------------------------------------------------- -------------------
<S> <C> <C> <C>
$ 500,000 12/23/98 Agreement with Indosuez W.I. Carr Ltd. dated $ (188,278)
6/23/98 to receive (pay) the notional amount
multiplied by the return on the Malaysia KLSE Index
and to pay the notional amount multiplied by 6
month LIBOR adjusted by a specified spread.
500,000 12/31/98 Agreement with Bank of America dated 6/25/98 to (170,138)
receive (pay) the notional amount multiplied by the
return on the Malaysia KLSE Index and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
200,000 12/31/98 Agreement with Bank of America dated 6/26/98 to (69,025)
receive (pay) the notional amount multiplied by the
return on the Malaysia KLSE Index and to pay the
notional amount multiplied by 3 month LIBOR
adjusted by a specified spread.
2,000,000 4/30/99 Agreement with Goldman Sachs International dated (1,063,111)
4/30/98 to receive (pay) the notional amount
multiplied by the return on the Thailand SET Index
and to pay the notional amount multiplied by 6
month LIBOR adjusted by a specified spread.
--------------------
$ (1,490,552)
====================
</TABLE>
17
<PAGE>
GMO Evolving Countries Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
7. Subsequent event
Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities during
that holding period must be held in Malaysian ringgits (or re-invested in
Malaysian securities) until the end of the holding period, at the earliest
September 1, 1999. The Manager has assessed the risks inherent to these
controls and has taken action to limit those risks. All forward foreign
currency contracts and swap agreements with Malaysian exposure as of August
31, 1998 have been terminated. Under fair value procedures adopted by the
Board of Trustees, Malaysian securities are valued at their exchange-traded
prices, and that value is converted into U.S. dollars at a discounted
foreign exchange rate to reflect the currency and inflation risk of holding
ringgit.
18
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 85.1%
Hong Kong - 0.3%
9,354,000 Tan Chong International Ltd 152,094
------------
Indonesia - 7.3%
3,263,500 Astra Agro Lestari 531,772
1,141,500 Gudang Garam 866,317
50,820 Gulf Resources Ltd ADR* 358,916
954,000 International Nickel 374,786
1,524,120 PT Daya Guna Samudera 891,338
778,500 PT Perusahaan Perkubunan London Sumatra Indonesia 69,509
1,640,000 Tambang Timah Persero (Foreign Registered) 761,429
------------
3,854,067
------------
Korea - 20.7%
15,020 Dae Duck Electronics 756,283
90,000 Daewoo Heavy Industries 314,550
94,000 Hyundai Heavy Industries 1,618,290
94,000 Medison Ltd 758,682
26,150 Pohang Iron & Steel 1,016,762
71,100 Saehan Percision 784,443
12,787 Samsung Display Devices 331,392
114,350 Samsung Display Devices Preferred 1,223,515
4,509 Samsung Electronics 149,910
47,000 Samsung Electronics GDR 144A (1/2 Voting)* 807,225
4,527 Samsung Electronics GDR Rights 12/31/25* 28,018
71,000 Samsung Electronics Preferred (Non Voting) 820,141
7,273 Samsung Electronics Rights 9/19/98* 84,012
2,609 SK Telecom 1,262,327
168,000 SK Telecom ADR* 1,008,000
------------
10,963,550
------------
Malaysia - 12.0%
227,000 Berjaya Sports Toto 147,528
395,000 Genting Berhad 726,719
1,089,000 Golden Hope Plantations Berhad 624,479
2,650,000 Kumpulan Guthrie Berhad 1,070,068
645,000 Magnum Corp Berhad 126,372
1,573,000 Malaysian International Shipping (Foreign Registered)* 1,548,476
355,000 Rothmans of Pall Mall Berhad 1,611,612
214,000 Sime Darby Berhad 86,924
3,118,000 Tan Chong Motor Holdings Berhad 398,574
------------
6,340,752
------------
Phillippines - 13.4%
19,657,170 Aboitiz Equity Ventures Inc * 448,794
11,646,000 Alaska Milk Corp * 478,603
18,483,000 Belle Corporation * 341,809
1,893,000 Benpres Holdings Corp* 155,589
See accompanying notes to the financial statements. 1
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<S>
Shares Description Value ($)
- ---------------------------------------------------------------------------------------------
<C>
Phillippines - continued
17,340,254 Cosmos Bottling Corp 989,741
33,434,000 Digital Telecommunications* 480,900
20,715,139 DMCI Holdings Inc * 378,359
3,520,500 International Container Terminal* 126,995
3,223,557 Ionics Circuits Inc 537,260
466,990 Manila Electric Class B 767,655
100,770 Philippine Long Distance Telephone 1,667,997
17,926,000 Solid Group Inc * 204,635
1,316,600 SPI Technologies Inc 526,039
--------------
7,104,376
--------------
Singapore - 13.1%
55,650 Creative Technology Ltd* 542,086
315,000 Development Bank of Singapore (Foreign Registered) 1,090,794
445,000 Natsteel Electronics 886,993
1,008,000 Natsteel Ltd 624,324
377,000 Overseas Chinese Banking (Foreign Registered) 972,218
373,000 Overseas Union Bank Ltd (Foreign Registered) 493,553
147,012 Singapore Press Holdings 1,034,713
724,000 Singapore Technologies Engineering Ltd 627,793
254,000 Venture Manufacturing 643,581
--------------
6,916,055
--------------
Thailand - 18.3%
301,700 Advanced Info Service Public Co Ltd (Foreign Registered) 1,224,081
148,600 Bangkok Bank Plc (Foreign Registered) 104,623
50,200 Bangkok Insurance (Foreign Registered) 117,413
800,900 BEC World Public Co Ltd (Foreign Registered) 2,561,351
920,200 Cogeneration Public Co (Foreign Registered) 290,555
129,650 Delta Electronics Public Co Ltd (Foreign Registered) 510,555
256,700 GSS Array Technology Public Company Limited (Foreign Registered) * 392,095
663,000 Hana Microelectronic Plc (Foreign Registered)* 1,273,783
2,011,230 International Broadcasting Plc (Foreign Registered)* 732,011
449,700 KCE Electronics Plc (Foreign Registered) * 211,971
420,300 Land & House Public Co Ltd (Foreign Registered)* 80,248
35,600 PTT Exploration and Production Public Co Ltd (Foreign Registered)* 234,501
228,576 Shinawatra Computer Public Co Ltd (Foreign Registered)* 534,617
4,488,500 Shinawatra Satellite (Foreign Registered)* 1,419,394
--------------
9,687,198
--------------
TOTAL STOCK AND EQUIVALENTS (Cost $86,829,139) 45,018,092
--------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Par Value Description Value ($)
- --------------------------------------------------------------------------------
DEBT OBLIGATIONS - 1.7%
China - 0.4%
$ 850,000 Qingling Motor Co CV, 3.50% due 1/22/02 213,520
-------------
Thailand - 1.3%
$ 1,000,000 Tipco Asphalt Public Co, 2.75% due 9/19/06 700,000
-------------
TOTAL DEBT OBLIGATIONS (Cost $1,494,250) 913,520
-------------
SHORT-TERM INVESTMENTS - 16.8%
Cash Equivalents - 7.4%
$ 3,900,000 Wachovia Bank Time Deposit, 5.70% due 9/1/98 3,900,000
-------------
U.S. Government - 9.4%
$ 5,000,000 U.S. Treasury Bill, 4.90% due 10/15/98 4,970,850
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost $8,870,961) 8,870,850
-------------
TOTAL INVESTMENTS - 103.6%
(Cost $97,194,350) 54,802,462
Other Assets and Liabilities (net) - (3.6%) (1,883,122)
-------------
TOTAL NET ASSETS - 100.0% $ 52,919,340
=============
Notes to the Schedule of Investments:
ADR American Depositary Receipt
144A Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers.
* Non-income producing security.
See accompanying notes to the financial statements. 3
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's equity
investments was as follows:
Industry Sector
Electronic Equipment 18.1%
Telecommunications 14.8
Communications 8.5
Food and Beverage 6.8
Banking 5.2
Metals and Mining 4.7
Machinery 3.8
Transportation 3.3
Consumer Goods 3.2
Construction 2.3
Utilities 2.1
Conglomerates 2.0
Real Estate 1.9
Services 1.7
Financial Services 1.6
Automotive 1.5
Health Care 1.4
Aerospace 1.2
Oil and Gas 1.2
Computers 1.0
Insurance 0.2
Miscellaneous 13.5
----------
100.0%
==========
4 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $97,194,350) (Note 1) $ 54,802,462
Foreign currency, at value (cost $121,751) (Note 1) 121,594
Cash 61,329
Receivable for investments sold 61,496
Dividends and interest receivable 147,072
Receivable for open forward foreign currency contracts (Notes 1 and 6) 1,067,190
Receivable for expenses waived or borne by Manager (Note 2) 15,664
-------------
Total assets 56,276,807
-------------
Liabilities:
Payable for investments purchased 127,342
Payable for open swap contracts (Notes 1 and 6) 3,105,279
Payable for open forward foreign currency contracts (Notes 1 and 6) 18,927
Payable to affiliate for (Note 2):
Management fee 51,118
Shareholder service fee 7,667
Accrued expenses 47,134
-------------
Total liabilities 3,357,467
-------------
Net assets $ 52,919,340
=============
Net assets consist of:
Paid-in capital $ 102,754,474
Accumulated undistributed net investment income 469,497
Accumulated net realized loss (5,858,262)
Net unrealized depreciation (44,446,369)
-------------
$ 52,919,340
=============
Net assets attributable to Class III Shares $ 52,919,340
=============
Shares outstanding - Class III 9,961,321
=============
Net asset value per share - Class III $ 5.31
=============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $127,544) $ 668,483
Interest 293,326
------------
Total income 961,809
------------
Expenses:
Management fee (Note 2) 378,159
Custodian fees 125,488
Audit fees 18,305
Transfer agent fees 14,352
Legal fees 1,564
Trustees fees (Note 2) 276
Miscellaneous 1,564
Fees waived or borne by Manager (Note 2) (107,911)
------------
431,797
Shareholder service fee - Class III (Note 2) 56,723
------------
Net expenses 488,520
------------
Net investment income 473,289
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (5,899,565)
Closed swap contracts (270,257)
Foreign currency and foreign currency related
transactions 329,557
------------
Net realized loss (5,840,265)
------------
Change in net unrealized appreciation (depreciation) on:
Investments (42,804,425)
Open swap contracts (3,105,279)
Foreign currency and foreign currency related
transactions 1,049,260
------------
Net unrealized loss (44,860,444)
------------
Net realized and unrealized loss (50,700,709)
============
Net decrease in net assets resulting from operations $(50,227,420)
============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from February 18, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 473,289 $ 9,195
Net realized gain (loss) (5,840,265) 82,979
Change in net unrealized appreciation (depreciation) (44,860,444) 414,075
------------ ------------
Net increase (decrease) in net assets resulting
from operations (50,227,420) 506,249
------------ ------------
Distributions to shareholders from:
Net investment income - Class III (113,963) --
------------ ------------
Net share transactions - Class III (Note 5) 63,099,838 39,654,636
------------ ------------
Total increase in net assets 12,758,455 40,160,885
Net assets:
Beginning of period 40,160,885 --
------------ ------------
End of period (including accumulated
undistributed net investment income
of $469,497 and $110,171, respectively) $ 52,919,340 $ 40,160,885
============ ============
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from February 18, 1998
August 31, 1998 commencement of operations)
(Unaudited) to February 28, 1998
---------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.44 $ 10.00
---------- ----------
Income (loss) from investment operations:
Net investment income 0.05(b) 0.01(b)
Net realized and unrealized gain (loss) (5.17) 0.43
---------- ----------
Total from investment operations (5.12) 0.44
---------- ----------
Less distributions to shareholders:
From net investment income (0.01) --
---------- ----------
Net asset value, end of period $ 5.31 $ 10.44
========== ==========
Total Return (a) (49.00%) 4.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 52,919 $ 40,161
Net expenses to average daily net assets 1.29%* 2.52%*
Net investment income to average daily net assets 1.25%* 2.86%*
Portfolio turnover rate 16% 1%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.01 $ 0.01
</TABLE>
* Annualized
(a) Calculation excludes subscription and redemption fees. The total return
would have been lower had certain expenses not been waived during the
periods shown.
(b) Computed using average shares outstanding throughout the period.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Asia Fund (the "Fund"), which commenced operations on February 18, 1998,
is a series of GMO Trust (the "Trust"). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The Fund is advised and managed by Grantham,
Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was
established as a Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"), each
of which issues a separate series of shares, and to subdivide a series into
classes.
The Fund seeks long-term capital appreciation through investment in and
exposure to equity and equity-related securities of issuers in countries in
Asia.
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 or other
persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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.
9
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross currency
contracts in connection with settling planned purchases or sales of
securities or to hedge the currency exposure associated with some or all of
the Fund's portfolio securities. A forward currency contract is an agreement
between two parties to buy and sell a currency at a set price on a future
date. The market value of a forward currency contract fluctuates with changes
in forward currency exchange rates. Forward currency contracts are marked to
market daily and the change in value is recorded by the Fund as an unrealized
gain or loss. Realized gains or losses equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed are recorded upon delivery or receipt of the currency or, if a
forward currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Fund's Statement of Assets and Liabilities. In addition, the
Fund could be exposed to risk if the counterparties are unable to meet the
terms of the contracts or if the value of the currency changes unfavorably to
the U.S. dollar. The U.S. dollar value of the currencies the Fund has
committed to buy or sell is shown under Note 6 and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
August 31, 1998.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure to
the equity markets. The Fund enters into total return swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the Fund
will receive a payment from or make a payment to the counterparty,
respectively. Total return swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received or
made at the end of the measurement period are recorded as realized gain or
loss in the Statement of Operations. Entering into these agreements involves,
to varying degrees, elements of credit and market risk in excess of the
amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there 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 agreements as of August 31, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States.
10
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Dividends received by shareholders of the Fund which are derived from foreign
source income and foreign taxes paid by the Fund are to be treated, to the
extent allowable under the Code, as if received and paid by the shareholders
of the Fund.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.20% of the amount invested.
In the case of cash redemptions, the fee is .40% of the amount redeemed.
These fees will be reduced by 50% with respect to any portion of a purchase
or redemption that is offset by a corresponding redemption or purchase,
respectively, occurring on the same day. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. Purchase
premiums are included as part of "shares sold" and redemption fees are
included as part of "shares repurchased", respectively, as summarized in Note
5. For the six months ended August 31, 1998, the Fund received $756,357 in
purchase premiums and $4 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
11
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 1.00% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the Shareholder
Service Plan, the shareholder service fee is calculated based on the average
daily net assets at the annual rate of .15% for Class III shares.
GMO has 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.
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, 1998, was $276. 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, 1998, aggregated $78,803,712
and $10,147,982, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
$97,194,350 $188,019 $42,579,907 $42,391,888
4. Principal shareholders
At August 31, 1998, 64% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
12
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from February 18, 1998
Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
------------------------------ -----------------------------
Class III: Shares Amount Shares Amount
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 6,106,106 $ 63,029,791 3,845,283 $ 39,654,636
Shares issued to shareholders
in reinvestment of
distributions
10,072 71,004 -- --
Shares repurchased
(140) (957) -- --
------------- ------------- ------------- -------------
Net increase 6,116,038 $ 63,099,838 3,845,283 $ 39,654,636
============= ============= ============= =============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
- ---------- --------------- ----------- ----- --------------
Buys
9/23/98 MYR 11,581,250 $ 2,736,471 $ 11,471
==============
Sales
9/23/98 MYR 34,000,000 8,033,676 $ 434,568
1/19/99 MYR 1,809,000 406,094 (6,094)
1/22/99 MYR 5,409,000 1,212,833 (12,833)
9/23/98 SGD 11,334,785 6,378,849 621,151
--------------
$ 1,036,792
==============
13
<PAGE>
GMO Asia Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Currency Abbreviations:
MYR Malaysian Ringgit SGD Singapore Dollar
Swap agreements
Notional Expiration Unrealized
Amount Date Description Depreciation
- ---------- ---------- ------------------------------------- ---------------
$3,000,000 3/02/99 Agreement with Indosuez W.I. Carr Ltd. $ (1,854,848)
dated 3/02/98 to receive (pay) the
notional amount multiplied by the
return on the Thailand SET Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
2,000,000 3/03/99 Agreement with Indosuez W.I. Carr Ltd. (1,250,431)
dated 3/03/98 to receive (pay) the
notional amount multiplied by the
return on the Thailand SET Index and to
pay the notional amount multiplied by
6 month LIBOR adjusted by a
specified spread.
---------------
$ (3,105,279)
===============
7. Subsequent Event
Effective September 1, 1998, Malaysia's central bank imposed foreign currency
controls prohibiting foreign exchange transactions and the repatriation of
foreign currency for at least a one-year period. Malaysian securities must be
held for at least one year before a foreign exchange application will be
considered by the central bank. The twelve-month holding period starts on the
date of acquisition or September 1, 1998, whichever is later. The proceeds of
any sale of Malaysian securities during that holding period must be held in
Malaysian ringgits (or re-invested in Malaysian securities) until the end of
the holding period, at the earliest September 1, 1999. The Manager has
assessed the risks inherent to these controls and has taken action to limit
those risks. All forward foreign currency contracts and swap agreements with
Malaysian exposure as of August 31, 1998 have been terminated. Under fair
value procedures adopted by the Board of Trustees, Malaysian securities are
valued at their exchange-traded prices, and that value is converted into U.S.
dollars at a discounted foreign exchange rate to reflect the currency and
inflation risk of holding ringgit.
14
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 96.5%
Australia - 3.3%
6,000 Australia and New Zealand Banking Group Ltd 30,325
14,100 Burswood Ltd 6,455
500 Consolidated Rutile Ltd* 149
18,200 Crown Limited* 3,749
7,100 Email Ltd 9,832
8,200 National Australia Bank Ltd* 101,465
6,800 PMP Communications Ltd 10,040
700 Resolute Ltd 397
10,000 Telstra Corp Ltd Installment Receipts 25,923
---------------
188,335
---------------
Austria - 1.3%
1,096 Austrian Airlines 38,289
50 Oesterreichische Brau Beteiligungs AG 2,732
309 OMV AG 31,877
5 Strabag Oesterreich AG 322
---------------
73,220
---------------
Belgium - 1.8%
1,600 Cockerill Sambre SA 9,194
100 Electrabel SA 32,580
300 Electrafina NPV 36,952
400 Solvay Et Cie 25,294
---------------
104,020
---------------
Denmark - 1.9%
80 Bikuben Girobank AS 4,216
420 Den Danske Bank 50,963
390 GN Great Store Ltd 11,613
660 SAS Danmark AS 9,531
180 Tele Danmark AS Class B 19,081
150 Unidanmark AS Class A (Registered) 12,283
---------------
107,687
---------------
Finland - 0.9%
4,000 Enso OY Class R 33,763
1,800 Kemira OY 15,160
---------------
48,923
---------------
France - 11.2%
700 Banque Nationale de Paris 45,755
630 Banque Paribas A Shares* 52,873
20 Bongrain 10,118
100 Brocacef Holding 1,955
140 Chargeurs International SA 8,732
270 Christian Dior 26,041
40 Colas SA 8,190
50 Compagnie Generale d'Industrie et de Participations 24,069
50 Compagnie Parisienne de Reescompte 3,723
120 Credit Local de France SA 15,614
See accompanying notes to the financial statements. 1
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
70 Credit National 3,861
10 Damart SA 7,208
40 Eiffage SA 2,937
10 Elf Gabon 1,365
270 Eridania Beghin-Say SA 48,426
40 Esso S.A.F. 3,168
10 Fromageries Bel SA 8,782
210 Gaz Et Eaux 10,767
590 Groupe Danone 157,333
10 Guyenne Et Gascogne 4,052
80 Imetal 9,056
40 Nord-Est 772
470 Pernod Ricard 32,677
530 Peugeot SA 88,244
90 Sylea (Bearer) 6,853
4,990 Usinor Sacilor 52,855
120 Vallourec 5,868
--------------
641,294
--------------
Germany - 10.7%
400 AGIV AG 10,434
600 Bankgesellschaft Berlin AG 10,105
1,900 BASF AG 75,957
500 Beiersdorf AG Bearer 26,652
800 Bilfinger & Berger 18,690
4,300 Deutsche Telekom AG 113,870
400 Douglas Holdings AG 19,575
300 Draegerwerk AG Preferred 5,274
800 Heidelberg Port-Zement 65,551
700 IKB Deutsche Industriebank AG 14,091
100 Leirheit AG 3,289
100 Munich Reinsurance (Registered) 38,843
100 Suedzucker AG 51,602
400 Thyssen AG 75,078
1,200 Veba AG 60,480
100 Villeroy & Boch Preferred (Non-Voting) 9,640
6 Walter Bau AG 732
100 Walter Bau AG Preferred 11,908
--------------
611,771
--------------
Hong Kong - 2.1%
23,000 Cathay Pacific Airways Ltd 16,621
4,000 Chinese Estates Holdings Ltd 496
3,000 CLP Holdings Limited 12,698
12,000 Hang Lung Development Co Ltd 9,291
3,000 Henderson Land Development Co Ltd 9,001
6,800 Hong Kong Telecommunications 12,022
12,000 Jardine International Motor Holdings Ltd 4,801
2 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Hong Kong - continued
24,000 New Asia Realty & Trust A Shares 15,176
4,000 Sino Land 1,136
7,000 Swire Pacific Ltd Class A 20,234
2,000 Tai Cheung Holdings Ltd 459
40,000 Wheelock and Co Ltd 20,905
----------
122,840
----------
Ireland - 0.3%
3,300 Avonmore Foods Plc Class A 11,254
3,600 Crean (James) 5,371
----------
16,625
----------
Italy - 6.9%
3,000 Banca Commerciale Italiana SPA 20,139
1,000 Banca Nazionale dell'Agricoltura Preferred 907
1,000 Banca Popolare di Milano 7,393
1,000 Banca Toscana 4,963
3,000 Banco Ambrosiano Veneto SPA (Non Convertible) 7,316
5,000 Bca Naz Agricol Di Risp (Non-Cv) 4,189
4,000 Burgo (Cartiere) SPA 24,328
13,000 Caffaro 13,053
3,000 Comau Finanziaria SPA 8,176
1,000 Danieli & C Di Risp (Non Convertible) 3,414
15,000 ENI SPA 79,181
25,000 Fiat SPA Preferred 46,045
1,000 Fila Holding SPA ADR 8,500
2,000 IFI Istituto Finanziario Preferred 32,246
1,000 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 2,140
3,000 Istituto Bancario San Paolo 44,152
2,000 Istituto Mobilaire Italiano 30,697
750 Luxottica Group Sponsored ADR 8,156
10,000 Pirelli & Co 17,385
2,000 Pirelli & Co di Risp 3,156
1,000 Rinascente (La) Priv 3,816
4,000 Sirti SPA 19,531
2,000 Unicem Di Risp 7,815
----------
396,698
----------
Japan - 9.9%
2,000 Aida Engineering 7,338
2,000 Alps Electric Co Ltd 24,648
1,000 Aoki International 5,524
7,000 Atsugi Nylon Industrial 7,685
16,000 Cosmo Oil Co Ltd 20,398
11,000 Daido Steel Co Ltd 14,102
1,000 Dainippon Pharmaceutical Co Ltd 2,904
3,000 Daio Paper Corp 13,832
1,000 Daito Trust Construction Co Ltd 8,003
11,000 Fuji Bank 31,086
See accompanying notes to the financial statements. 3
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
7,000 Fukuyama Transporting Co Ltd 25,979
4,000 Heiwa Corp 32,580
2,000 Joshin Denki Co Ltd 4,165
1,000 Maeda Road Construction 5,071
2,000 Mitsuboshi Belting 4,675
3,000 Mizuno Corporation 9,030
1,000 MOS Food Services 11,410
5,000 Nippon Beet Sugar 5,702
4,000 Nippon Metal Industries 3,428
6,000 Nippon Paint Co 8,967
14,000 Nippon Shinpan Co 21,120
7,000 Nippon Suisan Kaisha Ltd* 7,387
25,000 Nisshin Steel Co Ltd 29,216
17,000 Orient Corp 33,352
4,000 Seino Transportation Co Ltd 20,115
3,000 Sekisui House Ltd 22,714
1,000 Seven-Eleven Japan 58,928
2,000 Takeda Chemical Industries Ltd 52,270
7,000 Toagosei Co Ltd 10,263
7,000 Tokyo Ink Manufacturing Co Ltd 14,328
2,000 Toshiba Tungaloy Co Ltd 5,595
3,000 Toyo Kanetsu 2,656
5,000 Yakult Honsha Co Ltd 24,081
5,000 Yodogawa Steel Works 19,831
-------------
568,383
-------------
Malaysia - 0.2%
20,000 Berjaya Group Berhad 1,290
2,000 Cement Industries of Malaysia Berhad 621
4,000 Edaran Otomobil Berhad 3,441
6,000 Golden Hope Plantations Berhad 3,441
1,000 Oriental Holdings Berhad 961
-------------
9,754
-------------
Netherlands - 6.6%
600 Akzo Nobel NV 24,633
1,100 Buhrmann NV* 24,874
400 DSM NV (Bearer) 35,215
100 Gamma Holdings NV 4,824
500 Hollandsche Beton Groep NV 8,115
700 Hoogovens & Staalf CVA 26,311
100 Kon Bolswessanen 1,256
1,700 Koninklijke KPN NV 76,797
100 Koninklijke Ten Cate* 3,553
2,600 Royal Dutch Petroleum 115,233
400 Wereldhave NV 22,814
200 Wolters Kluwer CVA 33,024
-------------
376,649
-------------
4 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------------
<S> <C>
Norway - 1.5%
2,700 Christiania Bank OG Kreditkasse 8,348
15,800 Den Norske Bank Ser A 56,290
600 Dyno Industrier AS 8,627
200 Norsk Hydro AS 7,138
600 SAS Norge ASA Class B 7,404
----------
87,807
----------
Portugal - 0.7%
570 Cimpor Cimentos De Portugal SA (Registered) 17,198
1,000 Electricidade De Portugal 23,307
20 Sonae Investimentos 906
----------
41,411
----------
Singapore - 0.7%
45,000 Chuan Hup Holdings Ltd 8,235
9,000 Cycle & Carriage Ltd 11,959
6,600 Singapore Airlines 19,510
----------
39,704
----------
Spain - 5.5%
4,400 Banco Bilbao Vizcaya SA 58,171
100 Empresa Nacional de Celulosas SA 1,552
1,400 Endesa 26,595
2,000 Europistas Concesionaria Espanola SA* 15,491
200 Fabricacion de Automoviles Renault de Espana SA* 6,944
6,600 FENOSA SA 77,782
5,800 Fuerzas Electricas de Cataluna SA Class A 53,250
1,100 Hidroelec Cantabrico 47,374
600 Repsol SA 27,042
200 Sarrio SA* 734
----------
314,935
----------
Sweden - 2.9%
3,000 Astra AB Series A 50,258
1,800 Astra AB Series B 29,153
1,600 Svenska Cellulosa Ser B Free 34,024
2,000 Trelleborg AB Class B 18,051
1,400 Volvo AB Class A 37,387
----------
168,873
----------
Switzerland - 6.0%
40 ABB Ltd (Bearer) 46,602
10 Bobst SA (Bearer) 15,903
30 Forbo Holdings AG (Registered) 13,483
60 Hilti AG (Participating Certificate) 40,655
40 Nestle AG (Registered) 74,175
10 Pargesa Holdings SA (Bearer) 14,520
30 Saurer Group Holdings (Registered)* 24,103
20 SGS Societe Generale de Surveillance Holding SA (Bearer) 22,264
50 SGS Societe Generale de Surveillance Holding SA (Registered) 12,584
60 Swatch Group AG (Bearer) 33,810
20 Swiss Reinsurance (Bearer) 44,265
----------
342,364
----------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - 22.1%
2,900 Anglian Water Plc 42,199
12,800 Associated British Foods 114,991
8,200 BAA 81,699
9,600 British Airways Plc 72,338
21,600 British Steel Plc 38,882
52,000 BTR Plc 116,461
2,500 Christian Salvesen Plc 3,935
1,300 Delta Plc 2,961
4,700 Elementis Plc 7,713
18,100 Guardian Royal Exchange 77,893
700 Hambros Plc Class A* 2,051
3,000 HSBC Holdings 62,322
800 Hyder Plc 12,780
5,300 Inchcape 14,200
3,600 Marley Plc 4,762
13,300 National Power 110,463
6,300 National Westminster Bank 110,768
5,400 Powergen 66,823
3,100 Safeway Plc 16,040
31,000 Sedgwick Group 110,048
8,300 Signet Group Plc 4,170
7,500 Smithkline Beecham Plc 88,539
3,116 Thames Water Plc 55,934
3,400 Thames Water Plc Class B 4,327
500 Wessex Water Plc 4,923
1,600 Willis Corroon Group Plc 5,358
4,300 Yorkshire Water 34,328
--------------
1,266,908
--------------
TOTAL STOCK AND EQUIVALENTS (Cost $6,235,770) 5,528,201
--------------
SHORT-TERM INVESTMENTS - 8.7%
Cash Equivalents - 8.7%
$ 500,000 First National Bank of Chicago Time Deposit,
5.75% due 9/1/98 500,000
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $500,000) 500,000
--------------
TOTAL INVESTMENTS - 105.2%
(Cost $6,735,770) 6,028,201
Other Assets and Liabilities (net) - (5.2%) (296,345)
--------------
TOTAL NET ASSETS - 100.0% $ 5,731,856
==============
6 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
* Non-income producing security.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's equity
investments was as follows:
Industry Sector
Banking 14.4%
Utilities 9.5
Consumer Goods 9.1
Oil and Gas 5.8
Services 5.2
Insurance 5.0
Conglomerates 4.9
Health Care 4.8
Telecommunications 4.7
Chemicals 4.3
Construction 4.1
Transportation 4.0
Machinery 3.7
Metals and Mining 3.7
Automotive 3.5
Food and Beverage 2.8
Paper and Allied Products 2.3
Retail Trade 2.2
Financial Services 1.3
Real Estate 1.2
Textiles 0.7
Communications 0.6
Electronic Equipment 0.4
Miscellaneous 1.8
-----------
100.0%
===========
8 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Assets:
Investments, at value (cost $6,735,770) (Note 1) $ 6,028,201
Foreign currency, at value (cost $227,066) (Note 1) 232,264
Cash 56,134
Receivable for investments sold 475,114
Dividends and interest receivable 4,221
Foreign withholding taxes receivable 354
Receivable for expenses waived or borne by Manager (Note 2) 24,930
-----------
Total assets 6,821,218
-----------
Liabilities:
Payable for investments purchased 1,060,480
Payable to affiliate for (Note 2):
Management fee 3,456
Shareholder service fee 691
Accrued expenses 24,735
-----------
Total liabilities 1,089,362
-----------
Net assets $ 5,731,856
===========
Net assets consist of:
Paid-in capital $ 6,417,896
Accumulated undistributed net investment income 13,120
Accumulated undistributed net realized gain 6,286
Net unrealized depreciation (705,446)
-----------
$ 5,731,856
===========
Net assets attributable to:
Class III Shares $ 5,731,856
===========
Shares outstanding:
Class III 643,724
===========
Net asset value per share:
Class III $ 8.90
===========
See accompanying notes to the financial statements. 9
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Statement of Operations -
Period from July 29, 1998 (commencement of operations)
to August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment income:
Dividends (net of foreign tax expense of $386) $ 5,099
Interest 11,302
---------
Total income 16,401
---------
Expenses:
Management fee (Note 2) 3,567
Custodian fees 13,152
Audit fees 8,192
Transfer agent fees 2,464
Registration fees 384
Legal fees 320
Trustees fees (Note 2) 64
Miscellaneous 160
Fees waived or borne by Manager (Note 2) (25,735)
---------
2,568
Shareholder service fee (Note 2)
Class III 713
Net expenses 3,281
---------
Net investment income 13,120
---------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (7,572)
Foreign currency, forward contracts and foreign
currency related transactions 13,858
---------
Net realized gain 6,286
---------
Change in net unrealized appreciation (depreciation) on:
Investments (707,569)
Foreign currency, forward contracts and foreign
currency related transactions 2,123
---------
Net unrealized loss (705,446)
---------
Net realized and unrealized loss (699,160)
---------
Net decrease in net assets resulting from operations $ (686,040)
=========
10 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 29, 1998
(commencement of operations)
to August 31, 1998
(Unaudited)
-----------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 13,120
Net realized gain 6,286
Change in net unrealized appreciation (depreciation) (705,446)
-----------
Net decrease in net assets resulting from operations (686,040)
-----------
Net share transactions: (Note 5)
Class III 6,417,896
-----------
Total increase in net assets 5,731,856
Net assets:
Beginning of period --
-----------
End of period (including accumulated undistributed
net investment income of $13,120) $ 5,731,856
===========
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 29, 1998
(commencement of operations)
to August 31, 1998
(Unaudited)
---------------
<S> <C>
Net asset value, beginning of period $ 10.00
---------------
Income (loss) from investment operations:
Net investment income 0.02
Net realized and unrealized loss (1.12)
---------------
Total from investment operations (1.10)
---------------
Net asset value, end of period $ 8.90
===============
Total Return (a) (11.00%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 5,732
Net expenses to average
daily net assets 0.69%*
Net investment income to average
daily net assets 2.76%*
Portfolio turnover rate 1.20%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.04
</TABLE>
* Annualized
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
12 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tax-Managed International Equities Fund (the "Fund"), which commenced
operations on July 29, 1998, is a series of GMO Trust (the "Trust"). The Fund
is registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under the
laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration
of Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares, and to subdivide
a series into classes.
The Fund seeks to maximize after-tax total return through investment in a
portfolio of common stocks of non-U.S. issuers.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees or other
persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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
13
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. There were no open forward currency contracts as of August
31, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States. Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be treated,
to the extent allowable under the Code, as if received and paid by the
shareholders of the Fund.
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.
14
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the ex-
dividend date, if later. Interest income is recorded on the accrual basis and
is adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount invested.
All purchase premiums are paid to and recorded by the Fund as paid-in
capital. Purchase premiums are included as part of "shares sold" as
summarized in Note 5. For the period ended August 31, 1998, the Fund received
$38,507 in purchase premiums. There is no premium for cash redemptions or
reinvested distributions. Normally, no purchase premium is charged with
respect to in-kind purchases of Fund shares. A purchase premium of up to .10%
may be charged on certain in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities. These
risks may involve adverse political and economic developments 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 Service Plan under which
the Fund pays GMO a shareholder service fee for client and shareholder
service, reporting and other support. Pursuant to the Shareholder Service
Plan, the shareholder service fee is calculated based on the average daily
net assets at the annual rate of .15% for Class III shares.
GMO has 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.
15
<PAGE>
GMO Tax-Managed International Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the period ended August 31, 1998, was $64. 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, 1998, aggregated $6,303,540 and
$60,198, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------- ------------------ ------------------ ------------------
$6,735,770 $43,412 $750,981 $707,569
4. Principal shareholders
At August 31, 1998, 100% 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, including the purchase premiums received by the Fund, were as
follows:
Period from July 29, 1998
(commencement of operations)
to August 31, 1998
------------------------------
Class III: Shares Amount
---------- ----------
Shares sold 643,724 $ 6,417,896
Shares issued to shareholders in
reinvestment of distributions -- --
Shares repurchased -- --
---------- ----------
Net increase 643,724 $ 6,417,896
========== ==========
16
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 94.3%
Australia - 4.6%
66,396 Amalgamated Holdings Ltd 151,980
406,800 Amcor Ltd 1,457,274
139,900 AMP Limited * 1,712,436
2,279,375 Australia and New Zealand Banking Group Ltd 11,520,217
395,191 Australian Gas & Light 2,243,389
546,134 Australian National Industries Ltd 218,768
63,300 Bank of Western Australia 103,237
681,267 Boral Ltd 916,159
714,000 Broken Hill Proprietary Ltd 4,927,553
874,740 Burns Philp & Co Ltd* 87,600
212,369 Caltex Australia Ltd 456,946
409,333 Capcount Property Trust 189,735
583,300 Capital Property Trust 690,952
421,800 Capral Aluminum Ltd 470,681
95,200 Coca-Cola Amatil Ltd 217,913
58,100 Coca-Cola Beverage* 141,635
2,904,787 Coles Myer Ltd 10,638,492
435,500 Colonial Ltd 1,236,106
389,000 Comalco Ltd 1,293,337
235,487 Commonwealth Bank of Australia 2,513,900
493,862 Consolidated Rutile Ltd* 146,959
101,149 Cortecs Plc * 63,671
28,100 Coventry Group Ltd 69,949
80,700 CRA Ltd 783,223
119,200 CSL Ltd 680,076
1,876,396 CSR Ltd 3,811,875
637,700 Cultus Petroleum* 153,268
224,300 Email Ltd 310,621
53,682 Energy Resources of Australia Class A 73,727
409,131 Foodland Associated 2,261,650
2,449,772 Fosters Brewing Group Ltd 5,046,775
51,090 G E Crane Holdings Ltd 222,196
963,928 General Property Trust Units 1,412,116
3,521,031 Goodman Fielder Ltd 4,130,565
189,707 Hardie (James) Industries Ltd 375,617
22,301 Harvey Norman Holdings 104,646
110,400 Incitec Ltd 269,763
175,000 Jupiters Ltd 245,352
62,800 Leighton Holdings 192,265
101,000 Lend Lease Corp Ltd 1,910,199
62,300 Macquarie Bank Ltd 452,770
274,100 Mayne Nickless Ltd 1,424,859
2,529,079 MIM Holdings Ltd 1,013,086
274,788 Mirvac Ltd 235,871
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Australia - continued
11,594 Mount Leyshon Gold Mines* 7,895
521,470 National Australia Bank Ltd* 6,452,546
407,000 National Food Ltd 592,978
1,005,700 National Mutual Holdings 1,594,168
1,134,650 National Mutual Property Trust 818,122
4,096,807 News Corp Ltd 25,061,613
2,504,111 Normandy Mining Ltd 1,447,307
303,639 North Broken Hill Peko Ltd 526,832
933,460 Pacific Dunlop Ltd 1,627,089
391,800 Pasminco Ltd 255,597
1,494,217 Pioneer International Ltd 2,736,210
260,621 PMP Communications Ltd 384,782
1,279,379 Qantas Airways Ltd 1,720,493
305,100 QBE Insurance Group Ltd 975,628
147,607 Rothmans Holdings Ltd 878,468
1,504,692 Santos Ltd 3,401,187
1,416,639 Schroders Property 1,978,039
216,469 Sea World Property Trust 94,142
75,300 Seven Network Ltd 219,761
166,740 Simsmetal Ltd 558,189
172,500 Southcorp Holdings Ltd 412,621
484,400 Sydney Harbour Casinos Preferred* 263,338
103,800 Tabcorp Holdings 529,844
1,509,600 Telstra Corp Ltd Installment Receipts 3,913,325
23,084 Ticor Ltd* 8,718
18,199 W H Soul Pattison & Co Ltd 255,673
66,448 Walker Corp 23,575
231,800 Westfarmers Ltd 1,518,814
2,653,400 Westfield America Trust 2,444,637
444,500 Westfield Holdings Ltd 1,793,274
2,299,508 Westfield Trust Units 4,079,270
1,302,391 Westpac Banking Corp 6,931,227
4,700 Westpac Property Trust 4,303
457,000 Woodside Petroleum Ltd 2,065,994
--------------
142,155,068
--------------
Austria - 2.8%
3,588 Allgemeine Baugesellschaft AG Preferred 196,622
8,883 Austria Tabakwerke AG 519,001
51,518 Austrian Airlines 1,799,775
25,000 Bank Austria AG Rights 7/13/98* 7,555
14,949 Bank Austria AG (Participating Certificate) 764,991
31,561 Boehler Uddeholm (Bearer) 1,506,096
72,063 Brau Union AG 3,861,928
17,086 EA-Generali AG 3,580,008
94,960 Erste Bank Der Oesterreichischen Sparkassen AG 5,253,533
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Austria - continued
7,750 Interunfall Versicherung AG 949,326
1,118 Jenbacher Werke AG 47,301
9,192 Leykam-Muerztaler Papier und Zellstoff AG* 240,749
4,000 Mayr-Melnhof Karton AG (Bearer) 204,049
28,811 Oesterreichische Brau Beteiligungs AG 1,574,194
117,947 Oesterreichische Elektrizitaetswirtschafts AG 19,865,678
324,871 Oesterreichische Laenderbank AG 17,802,872
33,562 OMV AG 3,462,278
210,876 Radex-Heraklith AG 7,715,307
549,744 Voest-Alpine Stahl AG 17,100,863
--------------
86,452,126
--------------
Belgium - 0.7%
15,350 Almanij NV 1,145,806
4,750 Arbed SA 398,315
11,250 CBR Cimenteries NPV 1,048,540
112,000 Cockerill Sambre SA 643,572
26,600 Compagnie Benelux Paribas SA 1,744,226
300 Compagnie Maritime Belge SA 18,146
12,100 Credit Commercial Dexia 1,806,417
23,625 Electrabel SA 7,697,027
10,600 Electrafina NPV 1,305,620
2,400 Glaverbel NPV 285,054
6,100 Groupe Bruxelles Lambert NPV 1,130,375
8,540 Petrofina SA Bruxelles 3,210,835
7,530 Solvay Et Cie 476,163
8,050 Union Miniere NPV 396,170
--------------
21,306,266
--------------
Canada - 4.0%
224,119 Abitibi Consolidated Inc 1,755,239
251,800 Agrium Inc* 2,141,061
243,500 Anderson Exploration Ltd* 2,140,540
80,900 BC Telecom Inc 1,913,691
384,304 BCE Inc 12,432,172
78,000 Biochem Pharma Inc 1,221,750
519,300 Bombardier Inc Class B* 5,544,423
75,000 Canadian Hotel Inc 3,394,815
11,500 Canadian Pacific Ltd 218,729
190,100 Canadian Tire Corp Ltd Class A 3,889,141
1,510 Clinichem Development Inc Class A* 5,792
225,911 Cominco Ltd 2,094,243
476,200 Dofasco Inc 4,718,921
473,918 Domtar Inc 2,120,913
214,600 Donohue Inc Class A 3,670,076
30,500 Edperbrascan Corp Class A Ltd (Voting Shares) 386,088
282,200 Falconbridge Ltd 2,165,010
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Canada - continued
188,507 Fletcher Challenge Ltd Class A 1,868,017
3,400 Four Seasons Hotel Inc 80,427
699,902 Gulf Canada Resources Ltd 2,103,084
37,400 Hollinger Inc 376,594
130,210 Hudsons Bay Co 1,789,800
342,500 Imasco Ltd 5,518,013
161,521 Imperial Oil Ltd 2,271,817
254,400 Inco Ltd 2,155,036
37,600 Ipsco Inc 748,803
162,835 Laidlaw Inc 1,415,821
327,819 Macmillan Bloedel Ltd 2,514,994
39,000 Magna International Class A 2,338,778
427,400 Methanex Corp* 2,500,214
108,400 Molson Co Ltd Class A 1,458,824
276,300 Moore Corporation Ltd 2,667,346
157,600 Newbridge Networks Corp* 2,967,311
114,400 Noranda Inc 1,261,644
112,201 Nova Corp 1,309,123
152,700 Nova Scotia Power Inc 1,483,899
279,400 Placer Dome Inc 2,223,911
56,300 Potash Corp of Saskatchewan 2,879,519
112,500 Quebecor Inc Class B 2,085,797
166,600 Rogers Cantel Mobile Communications Class B* 1,331,394
143,000 Seagram Ltd 4,479,749
37,500 Southam Inc 635,329
202,506 Teck Corp Class B 1,197,571
172,600 Telus Corp 3,420,772
57,400 Thomson Corp 1,212,844
560,004 Trans Canada Pipelines Ltd * 7,625,922
290,500 Transalta Corp 3,528,754
119,601 United Dominion Industries Ltd 2,924,744
1 Westaim Corp * 4
208,200 Westcoast Energy Inc 3,687,076
--------------
123,875,535
--------------
Finland - 0.6%
61,300 Amer Group Class A 925,197
16,400 Cultor OY Class 1 229,189
923,500 Enso OY Class R 7,795,137
66,000 Finnair Class A 461,173
44,938 Instrumentarium OY Class A 2,301,851
137,600 Kesko OY 1,846,033
3,850 Kone Corp Class B 466,297
38,100 Metra AB Class A 1,029,394
129,200 Partek OY 1,709,265
194,257 Rautaruukki OY 1,371,843
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Finland - continued
47,900 Stockmann AB Class A 1,169,218
9,800 Stockmann AB Class B 189,910
34,700 Valmet OY 465,533
-------------
19,960,040
-------------
France - 10.0%
34,109 Accor SA 7,866,424
18,270 Air Liquide L Shares 2,451,457
50,481 Alcatel Alsthom Cie Generale
d'Electricite SA 8,123,085
30,000 Assurances Generales De France (Bearer) 1,638,579
7,000 Axa SA 797,124
257,513 Banque Nationale de Paris 16,832,026
96,158 Banque Paribas A Shares* 8,070,113
22,370 BIC SA 1,250,979
4,027 Bongrain 2,037,349
8,810 Bouygues 1,687,465
16,472 Christian Dior 1,588,670
4,320 Clarins 368,406
4,252 Club Mediterranee SA* 316,993
11,168 Compagnie Generale d'Industrie et de
Participations 5,376,135
67,909 Credit Commercial de France 4,731,798
36,937 Credit Local de France SA 4,806,185
111,933 Credit Lyonnais* 10,037,985
100,860 Elf Aquitaine SA 10,034,802
51,147 Elf Sanofi SA 5,659,922
74,158 Eridania Beghin-Say SA 13,300,758
7,400 Essilor International 2,932,453
156,900 Euro Disney SCA (Bearer)* 244,244
1,096,728 Eurotunnel SA Warrants 12/31/01 & 10/31/03* 128,044
964 Fromageries Bel SA 846,558
87,497 Generale Des Eaux 17,292,131
24,647 Generale Des Eaux Warrants 5/2/2001* 40,870
113,120 Groupe Danone 30,165,333
240,584 Lafarge Coppee SA 20,476,100
63,835 Lyonnaise Des Eaux 10,412,342
9,570 Michelin SA Class B 414,700
105,105 Pernod Ricard 7,307,554
79,857 Peugeot SA 13,295,988
98,941 Remy Cointreau SA 1,565,310
102,460 Renault SA 4,507,547
448,068 Rhone Poulenc SA Class A 21,607,340
79,366 Saint-Gobain 11,522,171
101,660 Seita 4,353,663
15,246 Societe Eurafrance 8,641,980
186,970 Societe Generale Paris 32,268,934
106,861 SPIE Batignolles 6,223,614
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
80,983 Thomson CSF 2,726,839
37,630 Total SA 3,661,125
183,720 Usinor Sacilor 1,946,002
2,762 Vallourec 135,062
178,035 Worms et Compagnie SA* 2,891,939
--------------
312,584,098
--------------
Germany - 6.9%
63,050 Adidas Salomon AG 7,436,575
142,395 AGIV AG 3,714,301
23,250 Allianze AG 6,671,109
18,450 Axa Colonia Konzern AG 2,092,430
466,500 BASF AG 18,649,419
292,500 Bayer AG 10,980,153
29,850 Bayerische Hypotheken und Wechsel - Bank AG* 1,696,042
142,600 Bayerische Vereinsbank 10,875,929
101,840 Berliner Kraft & Licht AG Class A 3,955,792
283,866 Continental AG 7,597,661
138,400 Deutsche Bank AG 8,609,288
451,700 Deutsche Telekom AG 11,961,661
139,000 Douglas Holdings AG 6,802,212
102,600 Dresdner Bank 4,613,655
36,428 FAG Kugelfischer 485,431
29,450 Fresenius Medical Care AG Preferred
(Non Voting) 4,366,983
16,800 Friedrich Krupp AG 2,429,260
86,255 Heidelberg Port-Zement 7,067,677
89,750 Henkel KGAA Preferred 7,175,929
260,063 Klockner Humboldt Deutz* 2,905,155
3,164 Klockner-Werke AG* 189,284
3,050 Linde AG 1,781,401
187,400 Lufthansa AG 4,622,569
9,350 MAN AG 2,754,366
10,675 Munich Reinsurance (Registered) 4,146,513
21,650 Phoenix AG 503,346
5,866 Porsche AG Preferred (Non Voting) 12,640,091
3,100 Preussag AG 1,045,931
151,300 RWE Preferred 5,027,604
79,709 Schering AG 7,683,884
25,950 Schwarz Pharma AG 1,574,511
800 SGL Carbon AG 70,768
247,100 Siemens AG 16,043,635
207,142 SKW Trostberg AG 6,107,958
1,050 Suedzucker AG 541,820
16,000 Thyssen AG 3,003,119
176,400 Veba AG 8,890,520
9,950 Viag AG 6,234,619
16,450 Volkswagen AG 1,182,796
--------------
214,131,397
--------------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Hong Kong - 3.1%
5,240,000 Allied Properties Ltd 175,812
1,939,000 Amoy Properties Ltd 925,812
124,000 Asia Satellite Telecom 130,413
184,000 ASM Pacific Technology 43,690
8,810,000 Cathay Pacific Airways Ltd 6,366,593
500 Century City International 31
206,725 Century City International Warrants 12/31/98 * 267
206,725 Century City International Warrants 12/31/99* 267
2,772,000 Cheung Kong Holdings 10,731,430
1,042,122 Chinese Estates Holdings Ltd 129,102
4,245,500 CLP Holdings Limited 17,969,907
2,370,000 CP Pokphand Co 61,168
994,000 Dairy Farm International 944,300
933,300 Dao Heng Bank 927,374
225 Denway Investment Warrants 11/30/99 * 1
455,766 Dickson Concept International Ltd 274,958
3,771,300 Elec & Eltek International Holdings Ltd 545,070
782,000 Gold Peak Industries Ltd 121,096
293,200 Gold Peak Industries Ltd Warrants 8/6/00 * 5,675
1,278,128 Great Eagle Holdings Ltd 1,030,855
749,901 Great Eagle Holdings Ltd Warrants 11/30/98* 968
1,455,700 Guoco Group 878,206
3,540,700 Hang Lung Development Co Ltd 2,741,470
166,200 Hang Seng Bank 894,356
7,336,000 Henderson Investment Ltd 3,597,378
386,000 Henderson Land Development Co Ltd 1,158,120
1,200,000 Hong Kong Aircraft Engineering Co Ltd 1,254,323
4,699,800 Hong Kong Electric Holdings Ltd 13,949,233
711,700 Hong Kong Ferry Co Ltd 422,472
2,701,600 Hong Kong Telecommunications 4,776,225
1,723,000 Hutchison Whampoa 7,448,575
2,600 Innovative International Holding
Warrants 8/31/99* 6
256,000 Johnson Electric Holdings* 432,767
123,000 K Wah International Holdings Ltd* 4,921
66,800 Kowloon Motor Bus Co Ltd 76,289
1,619,622 Kumagai Gumi Ltd 357,399
323,924 Kumagai Gumi Ltd Warrants 12/31/99* 2,090
642,700 Lai Sun Garment International Ltd 95,378
585,855 Lai Sun Hotel International Warrants 4/30/99* 756
431,322 Leading Spirit Conrowa Electric* 10,520
648,000 Liu Chong Hing Bank Ltd 340,758
1,214,000 Liu Chong Hing Investment Ltd 563,981
3,365,462 Mandarin Oriental 1,581,767
1,334,800 New Asia Realty & Trust A Shares 844,025
1,000 Oriental Press Group 88
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Hong Kong - continued
729,000 Oriental Press Group Warrants 10/2/98* 941
2,920,000 Paul Y- ITC Construction Holdings Ltd 25,623
97,000 Realty Development Corp Ltd Class A 142,699
33,490,371 Regal Hotels International Ltd 3,198,120
33,400 Semi Tech (Global) Co Ltd* 1,164
1,159,000 Shaw Brothers Ltd 508,517
75,000 Shell Co Manufacturing Warrants 11/3/99* 387
262,000 Shell Electric Co Ltd 16,905
5,871,000 Shun Tak Holdings Ltd* 439,423
204,000 Sime Darby (Hong Kong) Ltd 50,018
7,563,000 South China Morning Post Ltd 2,488,728
295,000 Sun Hung Kai Properties Ltd 906,029
1,185,600 Sun Hung Kai Properties Warrants 2/18/00* 1,836
534,000 Swire Pacific Ltd Class A 1,543,592
2,977,500 Swire Pacific Ltd Class B 1,335,210
13,971,000 Tan Chong International Ltd 227,165
4,504,800 Wheelock and Co Ltd 2,354,364
145,304 Wing Lung Bank 270,012
59,150 Winsor Properties Holdings Ltd 22,899
1,000 Yizheng Chemical Fibre Co* 47
1,140,200 Yue Yuen Industrial Holdings 2,059,929
--------------
97,409,500
--------------
Italy - 4.7%
607,315 Alitalia Linee Aeree* 2,090,765
170,000 Alleanza Assicurazioni SPA 2,121,525
491,500 Assicurazioni Generali SPA 16,666,753
1,344,222 Autostrade Concessioni e Costruzioni
SPA Class B Preferred 6.39% 5,348,813
557,000 Banca Commerciale Italiana SPA 3,739,220
481,000 Banca Intesa SPA 2,274,114
88,800 Banca Popolare di Bergamo Credit 1,885,188
248,000 Banca Popolare di Milano 1,833,480
984,000 Banco Ambrosiano Veneto SPA (Non Convertible) 2,399,518
1,129,000 Banco di Napoli di Risp 1,334,446
235,000 Bulgari SPA 1,057,793
156,300 Burgo (Cartiere) SPA 950,615
1,687,500 Compart SPA* 1,297,444
940,000 Credito Italiano 4,517,027
381,000 Credito Italiano (Non Convertible) 1,426,414
2,151,700 Dalmine SPA* 592,602
94,000 Edison SPA 808,750
26,150 Ericsson SPA 1,323,367
277,600 Falck Acciaierie and Ferriere Lombarde 1,951,172
1,105,200 Fiat SPA 3,443,346
1,250,700 Fiat SPA Preferred 2,303,553
1,234,720 Fiat SPA (Non Convertible) 2,249,325
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Italy - continued
1,101,500 Finmeccanica SPA* 1,025,122
171,000 Fondiaria SPA * 859,489
588,000 Grassetto SPA (c)* 3
2,766,570 HPI SPA 1,717,548
96,900 IFI Istituto Finanziario Preferred 1,562,320
411,000 IFIL Finanziaria di Partecipazioni SPA 1,509,252
837,850 IFIL Finanziaria di Partecipazioni SPA
(Non Convertible) 1,793,144
823,600 Industriali Riunite SPA* 760,821
35,300 Industrie Natuzzi SPA ADR 803,075
546,500 Istituto Bancario San Paolo 8,042,990
300,500 Istituto Mobilaire Italiano 4,612,201
2,508,792 Istituto Nazionale Delle Assicurazioni 6,693,567
220,650 Italcementi Fabbriche Riunite Cemento SPA
(Non Convertible) 820,387
148,000 Italcementi SPA 1,197,349
39,800 Italmobiliare SPA 1,093,852
105,500 Luxottica Group Sponsored ADR 1,147,313
537,440 Magneti Marelli SPA 767,838
2,000 Marzotto & Figli SPA 25,246
309,000 Mediobanca SPA 3,350,891
129,500 Mondadori Editore 1,233,439
4,724,798 Montedison SPA 4,841,776
2,071,400 Montedison SPA (Non Convertible) 1,547,444
884,000 Olivetti and Co SPA* 1,978,139
988,593 Parmalat Finanziaria SPA 1,471,956
591,975 Pirelli & Co 1,029,167
238,000 RAS SPA 2,956,479
227,750 RAS SPA (Non Convertible) 1,966,685
631,000 Seat SPA di Risp 289,641
213,500 Sirti SPA 1,042,479
1,068,872 SMI (Societa Metallurgica Italy)* 619,423
77,500 Sopaf SPA* 57,096
137,000 Sorin Biomedica SPA 546,711
2,632,500 Telecom Italia Mobile SPA 17,279,628
2,293,769 Telecom Italia Mobile SPA (Non Convertible) 8,284,864
1 Telecom Italia SPA 8
550,263 Telecom Italia SPA (Non Convertible) 2,738,923
33,500 Toro Assicurazioni 528,588
--------------
147,810,084
--------------
Japan - 14.4%
449,000 Amada Co Ltd 2,219,718
146,000 Anritsu Corp 1,107,486
1,069,000 Aoki Corp* 431,567
77,100 Aoki International 425,937
35,600 Arabian Oil Co Ltd 466,464
218,000 Asahi Breweries Ltd 2,573,879
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
42,000 Asahi Denka Kogyo 130,590
503,000 Atsugi Nylon Industrial 552,199
36,000 Autobacs Seven 953,609
107,000 Bandai Co 1,417,168
178,000 Banyu Pharmaceutical Co Ltd 2,318,450
78,000 Best Denki Co Ltd 430,909
119,000 Brother Industries Ltd 388,547
277,000 Canon Inc 5,620,830
267,000 Canon Sales Co Inc 3,451,201
154,000 Casio Computer Co 1,079,822
345,100 Chubu Electric Power Co Inc 5,083,986
39,000 Chudenko Corp 685,034
399,000 Chugai Pharmaceutical Co Ltd 2,698,810
115,400 Chugoku Electric Power Co Inc 1,724,584
1,241,000 Cosmo Oil Co Ltd 1,582,123
48,000 Credit Saison Co 941,710
288,900 CSK Corp 5,013,138
792,000 Daicel Chemical Industries Ltd 1,318,224
355,000 Daiei Inc 940,364
188,000 Daiichi Seiyaku Co Ltd 2,330,193
1,000 Daimaru Inc 2,238
280,000 Dainippon Pharmaceutical Co Ltd 813,089
353,000 Dainippon Screen Manufacturing Co Ltd 1,095,078
101,000 Daio Paper Corp 465,692
98,000 Daishowa Paper Manufacturing* 437,283
133,600 Daito Trust Construction Co Ltd 1,069,254
168,000 Denso Corp 2,516,609
686 East Japan Railway Co 3,289,341
241,000 Ebara Corp 1,845,180
63,000 Eisai Co Ltd 749,628
305,000 Ezaki Glico Co Ltd 1,620,157
35,300 Familymart 1,275,090
151,500 Fanuc Co 4,882,251
27,700 Fuji Photo Film Co Ltd 892,662
196,000 Fujisawa Pharmaceutical Co Ltd 1,690,828
870,000 Fujita Corp 412,848
227,000 Fukuyama Transporting Co Ltd 842,468
405,000 Furukawa Co Ltd 447,482
296,000 Gakken Co Ltd 402,521
349,000 General Sekiyu (KK) 1,221,092
186,000 Gunze Ltd 399,164
540,000 Hankyu Corp 1,950,563
63,000 Hanwa Co Ltd 58,007
120,400 Heiwa Corp 980,664
313,000 Hino Motors 722,700
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
38,000 Hitachi Chemical Co 216,658
3,065,300 Hitachi Ltd 15,349,296
78,000 Hitachi Maxell Ltd 1,218,146
630,000 Hitachi Metals Ltd 1,695,588
159,400 Hokkaido Electric Power 2,201,502
154,000 Hokuetsu Paper Mills 570,451
36,200 Hokuriku Electric Power 508,938
237,000 House Foods Corp 2,744,493
55,000 Hoya Corp 1,830,866
176,000 INAX Corp 660,670
157,000 Intec Inc 1,111,977
1,465,000 Itochu Corp 2,511,014
107,000 Itoham Foods Inc 341,030
191,000 Ito-Yokado 8,887,811
110,000 Japan Airport Terminal Co Ltd 512,643
120,000 Japan Aviation Electronics 327,219
454,000 Japan Energy Co Ltd 459,820
296,000 Japan Radio Co 1,090,162
790,000 Japan Synthetic Rubber Co Ltd 3,049,437
68 Japan Telecom Co Ltd 479,212
2,407 Japan Tobacco Inc 16,246,696
131,000 JGC Corp 270,926
216,000 Joshin Denki Co Ltd 449,777
283,000 Kamigumi Co Ltd 1,056,314
196,000 Kandenko Co 1,027,268
448,000 Kaneka Corp 2,303,619
130,000 Kanematsu NNK Corp 455,769
237,000 Kankaku Securities Co Ltd* 167,859
222,300 Kansai Electric Power 3,660,652
72,000 Katokichi Co Ltd 821,021
340,000 Kawasaki Kisen 469,580
985,000 Keio Teito Electric Railway Co Ltd 3,006,835
219,000 Keisei Electric Railway 556,845
21,300 Keyence Corp 2,148,254
399,000 Kikkoman Corp 1,802,975
86,000 Kinden Corp 1,005,029
231,000 Kirin Brewery Co Ltd 1,930,590
166,000 Kissei Pharmaceutical Co Ltd 2,293,831
28,000 Kokusai Denshin Denwa 783,342
226,000 Kokusai Electric 1,392,592
11,000 Kokusai Kogyo Co Ltd 35,916
1,131,000 Komatsu Ltd 4,990,530
460,000 Konica Corp 1,775,622
190,000 Koyo Seiko Co Ltd 861,251
410,000 Kubota Corp 784,050
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
470,000 Kurabo Industries Ltd 539,273
153,000 Kyocera Corp 6,946,172
483,000 Kyowa Hakko Kogyo Co Ltd 1,737,828
311,200 Kyushu Electric Power Co Inc 4,551,512
65,000 Kyushu Matsushita Electric 685,955
50,000 Lintec 407,253
172,000 Lion Corp 573,780
500 Long Term Credit Bank of Japan 177
15,400 Mabuchi Motor Co 1,037,283
299,000 Maeda Corp 722,140
117,000 Maeda Road Construction 593,328
153,000 Makita Corp 1,779,347
1,280,000 Marubeni Corp 2,112,331
144,000 Marudai Food Co Ltd 277,413
35,000 Maruichi Steel Tube 413,485
114,000 Matsushita Communications* 3,835,257
478,000 Matsushita Electric Industrial Co Ltd 6,872,583
126,000 Meidensha Corp 205,255
90,000 Meiji Milk Products 196,331
339,000 Meiji Seika Kaisha Ltd 921,992
252,000 Minolta Co Ltd 1,483,193
2,866,000 Mitsubishi Electric Corp* 5,460,401
212,000 Mitsubishi Gas Chemical Co Inc* 552,560
3,104,000 Mitsubishi Heavy Industries* 11,300,064
1,171,000 Mitsubishi Oil Co Ltd* 1,360,181
155,000 Mitsubishi Paper Mills Ltd* 261,279
310,000 Mitsubishi Steel Manufacturing 230,540
145,000 Mitsui Marine & Fire Insurance Co 577,166
249,000 Mitsui Petrochemical Industries Ltd 590,800
33,000 Mori Seiki Co Ltd 359,707
33,000 MOS Food Services 376,535
71,000 Nagase & Co 259,480
382,000 Nagoya Railroad Co Ltd 1,079,524
49,200 Namco Ltd 1,066,308
64,000 National House Industrial 432,439
187,000 Navix Line Ltd * 103,308
626,000 NEC Corp 4,615,525
156,000 New Japan Securities Co Ltd* 125,958
584,000 New Oji Paper Co Ltd 2,063,999
105,000 Nichicon Corp 1,278,384
753,000 Nichii Co Ltd 4,687,917
491,000 Nichimen Corp 514,682
575,000 Nichirei 940,754
745,000 Nikon Corp 4,231,815
92,800 Nintendo Co Ltd 8,603,669
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
85,000 Nippon Chemical 181,812
46,000 Nippon Chemi-Con Corp 159,643
87,000 Nippon Flour Mills Co Ltd 178,079
77,000 Nippon Hodo Co 291,770
126,000 Nippon Kayaku Co Ltd 444,422
137,000 Nippon Light Metal 121,290
268,000 Nippon Meat Packers Inc 2,926,950
1,932,000 Nippon Oil Co Ltd 5,021,914
88,000 Nippon Paint Co 131,511
551,000 Nippon Paper Industries 1,787,365
290,000 Nippon Suisan Kaisha Ltd* 306,042
2,575 Nippon Telegraph & Telephone 19,514,484
9,000 Nippon Television Network 2,607,125
692,000 Nissan Motor Co 1,842,850
329,000 Nisshin Oil Mills Ltd 626,822
937,000 Nisshinbo Industries Inc 2,933,310
1,766,000 Nissho Iwai Corp 2,564,133
90,000 Nissin Food Products Co Ltd 1,351,370
90,000 Nitto Denko Corp 1,209,222
84,000 NOF Corp 126,128
1,115,000 Oki Electric Industry 2,456,017
279,000 Okumura Corp 897,132
425,000 Omron Corp 4,635,597
84,000 Ono Pharmaceutical Co Ltd 2,028,756
318,000 Onward Kashiyama Co Ltd 3,898,704
105,000 Promise Co 4,387,705
245,000 Q.P. Corp 1,409,023
920,000 Renown Inc* 566,896
78,800 Rinnai Corp 1,227,849
180,000 Royal Co Ltd 2,371,273
69,000 Ryosan Co 1,084,921
335,000 Sagami Railway Co Ltd 711,807
97,000 Sanden Corp 612,133
200,000 Sankyo Co Ltd 4,348,750
98,000 Santen Pharmaceutical Co 1,284,085
128,000 Sanwa Shutter Corp 486,833
271,000 Sapporo Breweries Ltd 834,939
72,500 Secom Co Ltd 4,179,829
586,000 Seino Transportation Co Ltd 2,946,809
102,000 Seiyu 255,018
304,900 Shikoku Electric Power 4,319,003
90,000 Shin-Etsu Chemical Co Ltd 1,271,691
572,000 Shionogi and Co Ltd 3,115,433
80,000 Shiseido Co Ltd 764,360
17,500 Sho Bond Construction Co 329,078
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
26,000 Shochiku Co 86,734
1,585,000 Showa Denko 1,335,895
489,000 Showa Shell Sekiyu 2,026,100
190,000 Skylark Co Ltd 1,764,218
426,000 Snow Brand Milk Products Co Ltd 1,176,712
253,000 Stanley Electric Co Ltd 826,071
206,000 Sumitomo Bakelite Co Ltd 1,140,959
1,839,000 Sumitomo Corp 7,567,526
560,000 Sumitomo Heavy Industries Ltd 892,414
155,000 Taisho Pharmaceutical Co Ltd 3,156,208
190,000 Taiyo Yuden Co Ltd 2,057,582
142,000 Takara Standard Co 858,899
221,000 Takuma Corp 1,347,695
473,000 Tanabe Seiyaku Co Ltd 2,144,061
142,200 TDK Corp 9,860,033
1,193,000 Teikoku Oil Co Ltd 3,067,207
576,000 Toei Co Ltd 1,391,147
325,700 Tohoku Electric Power Co Inc 4,694,380
642,000 Tokio Marine & Fire Insurance Co 5,283,689
135,000 Tokuyama Corp 344,217
126,000 Tokyo Broadcasting System Inc 1,195,835
352,000 Tokyo Construction Co Ltd 229,365
196,000 Tokyo Dome Corp 857,908
396,000 Tokyo Electric Co Ltd 956,413
161,000 Tokyo Electron 3,705,999
182,000 Tokyo Ink Manufacturing Co Ltd 372,533
358,300 Tokyo Steel Manufacturing Co 1,502,327
75,000 Tokyo Style Co Ltd 650,719
216,000 Tokyu Corp 501,792
108,000 Tokyu Department Store Co Ltd 110,914
320,000 Tomen Corp 233,444
1,799,000 Toshiba Corp 6,460,040
175,000 Toyo Suisan Kaisha 958,106
1,264,000 Toyobo Co Ltd 1,298,109
158,000 Toyota Motor Corp 3,368,369
152,000 Tsumura and Co 629,790
51,000 Uniden Corp 435,265
187,000 Ushio Inc 1,562,859
129,000 Victor Co of Japan Ltd 901,785
129,000 Wacoal Corp 1,115,582
304,000 Yakult Honsha Co Ltd 1,464,126
208,000 Yamaha Corp 1,651,448
23,000 Yamaha Motor Co 158,014
158,000 Yamanouchi Pharmaceutical Co Ltd 3,424,322
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
543,000 Yamato Transport Co Ltd 5,884,199
224,000 Yamazaki Baking Co Ltd 1,951,413
134,200 Yoshitomi Pharmaceutical Industries Ltd 1,074,056
-----------
447,423,752
-----------
Malaysia - 1.3%
535,000 Aluminum Co of Malaysia 76,059
711,000 Amalgamated Steel Mills Berhad* 42,471
1,100,000 AMMB Holdings Berhad 381,100
11,000 Arab Malaysian Development Berhad 723
1,427,000 Arab Malaysian Finance (Foreign Registered) 207,985
8,000 Ayer Hitam Tin Dredging* 554
832,000 Berjaya Group Berhad 53,674
982,000 Berjaya Leisure Berhad 351,950
1,148,300 Berjaya Sports Toto 746,282
307,000 Carlsberg Brew Malaysia 564,817
971,000 Cement Industries of Malaysia Berhad 301,607
1,173,800 Edaran Otomobil Berhad 1,009,660
301,000 Ekran Berhad* 26,610
348,200 Esso Berhad 181,369
121,400 Faber Group Berhad* 6,526
506,000 Genting Berhad 930,936
2,766,000 Golden Hope Plantations Berhad 1,586,142
345,000 Guinness Anchor Berhad 205,257
1,600,000 Highlands and Lowlands Berhad 730,183
397,400 Hong Leong Industries Berhad 235,482
3,160,000 Hong Leong Properties Berhad 237,835
214,600 IGB Corp Berhad 30,765
483,000 IJM Corp Berhad Class A 78,476
448,000 Innovest Berhad* 29,437
2,981,000 IOI Corporation Berhad 1,039,904
762,000 Jaya Tiasa Holdings Berhad 493,404
1,071,000 Kedah Cement Berhad 481,090
799,000 Kuala Lumpur Kepong Berhad (Malaysia) 794,180
1,414,058 Kuala Lumpur Kepong Berhad (Singapore) 1,433,167
2,851,000 Kumpulan Guthrie Berhad 1,151,231
295,000 Landmark Berhad 22,908
1,412,000 Leader Universal Holdings 140,011
2,019,000 Magnum Corp Berhad 395,575
2,015,750 Malayan Cement Berhad 563,509
1,628,000 Malayan United Industries Berhad* 120,585
457,500 Malayawata Steel 66,134
367,000 Malaysia Mining Berhad 52,613
975,000 Malaysia Mining Corp Berhad 139,992
1,090,000 Malaysian Airline Systems 401,075
3,010,600 Malaysian International Shipping (Foreign Registered)* 2,963,663
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Malaysia - continued
619,000 Malaysian International Shipping* 627,098
229,000 Malaysian Oxygen Berhad* 269,203
597,000 Malaysian Pacific Industries* 556,311
2,213,333 Malaysian Resources Corp* 296,151
83,710 Matsushita Electric Co (Malaysia) Berhad 177,011
5,610,000 MBF Capital Berhad 489,254
511,000 MBF Holdings Berhad 18,314
1,184,000 Multi Purpose Holdings 130,133
182,000 Naluri Berhad 12,394
269,000 Nestle Malaysia 835,553
743,000 New Straits Times 213,034
2,218,600 Oriental Holdings Berhad 2,131,001
114,000 OYL Industries Berhad 133,469
2,221,600 Pan Malaysia Cement 334,414
879,500 Perlis Plantations 731,297
1,997,000 Pernas International Hotel & Property 314,920
3,695,000 Perusahaan Otomobil Nasional Berhad 1,783,382
103,000 Petaling Garden Berhad 52,420
662,600 Petronas Dagangan Berhad 300,804
2,196,000 Petronas Gas Berhad 2,623,499
1,944,000 Pilecon Engineering Berhad 213,665
751,000 Promet Berhad * 52,038
1,121,000 Rashid Hussain Berhad 380,340
4,384,000 Renong Berhad* 356,146
868,000 Resorts World Berhad 667,812
1,564,000 RHB Capital Berhad 340,061
1,161,000 RJ Reynolds Berhad 832,208
347,000 Rothmans of Pall Mall Berhad 1,575,294
1,715,000 Sarawak Enterprises Corp 290,938
846,400 Shell Refinery Co 719,953
36,540 Silverstone * 8,731
1,182,000 Sime Darby Berhad 480,115
48,000 Sime UEP Properties Berhad 15,827
1,900,000 TA Enterprise Berhad 238,337
4,657,000 Tan Chong Motor Holdings Berhad 595,304
1,143,000 Telekom Malaysia Berhad 1,474,751
2,104,000 Tenaga Nasional 1,095,925
1,464,000 Time Engineering Berhad* 99,693
1,517,000 UMW Holdings Berhad 366,088
220,000 Uniphone Telecommunications 23,917
234,000 Westmont Industries Berhad* 49,760
925,500 YTL Corp 552,834
----------
40,734,340
----------
New Zealand - 0.0%
158,900 Brierley Investment Ltd* 54,558
205,200 Fletcher Challenge Energy* 387,505
----------
442,063
----------
16 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------------------------
<C> <S> <C>
Norway - 0.4%
387,440 Norsk Hydro AS 13,827,812
----------
Portugal - 0.8%
116,323 Banco Commercial Portugues (Registered) 3,230,872
65,422 Banco Espirito Santo e Commercial de Lisboa (Registered) 1,938,792
58,995 BPI-SGPS SA (Registered) 1,911,630
63,384 Cimpor Cimentos De Portugal SA (Registered) 1,912,433
268,133 Electricidade De Portugal 6,249,460
20,972 Est Jeronimo Martins Filho Admin 826,666
68,348 Portucel Industrial Empresa 446,496
140,976 Portugal Telecom SA 6,438,864
29,602 Sonae Investimentos 1,341,210
----------
24,296,423
----------
Singapore - 2.6%
101,959 Asia Food & Properties Ltd Warrants 7/12/02* 4,078
621,461 Asia Food & Properties Ltd* 65,253
528,000 Cerebos Pacific Ltd 386,486
292,000 Chuan Hup Holdings Ltd 53,435
457,000 City Developments 802,838
2,152,000 Comfort Group 315,045
477,950 Creative Technology Ltd* 4,655,707
484,000 Cycle & Carriage Ltd 643,153
1,543,096 DBS Land Ltd 877,549
2,513,700 Development Bank of Singapore (Foreign Registered) 8,704,535
804,309 First Capital Corp Ltd 147,185
108,000 Fraser & Neave 172,095
3,477,037 Hai Sun Hup Group Ltd 391,558
1,216,203 Haw Par Brothers International Ltd 814,911
139,475 Haw Par Brothers International Ltd Warrants 7/18/2001* 7,853
781,000 Highlands and Lowlands Berhad 329,814
1,304,104 Hotel Properties Ltd 231,302
2,686,221 Jardine Matheson Holdings Ltd 4,781,473
5,753,911 Jardine Strategic Holdings Ltd 6,732,076
1,405,200 Lum Chang Holdings Ltd 102,858
72,000 Marco Polo Developments Ltd 30,203
876,600 Metro Holdings Ltd 224,579
1,744,000 Natsteel Ltd 1,080,180
2,999,556 Neptune Orient Lines Ltd* 599,573
2,324,000 Overseas Chinese Banking (Foreign Registered) 5,993,198
2,390,000 Overseas Union Bank Ltd (Foreign Registered) 3,162,444
341,508 Prima Ltd 278,821
730,308 Robinson and Co Ltd 1,644,838
447,699 Shangri-La Hotel Ltd 365,520
4,703,000 Singapore Airlines Ltd (Foreign Registered) 20,125,450
1,065,112 Singapore Press Holdings 7,496,565
</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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Singapore - continued
5,660,000 Singapore Telecom 8,254,167
2,516,168 Straits Trading Co Ltd 963,398
662,000 Times Publishing Ltd 708,221
226,000 United Engineers 62,354
4,147,960 United Industrial Corp Ltd 945,903
546,900 Wearne Brothers Ltd 184,764
-----------
82,339,382
-----------
Spain - 3.4%
257,750 Acerinox SA* 5,016,801
11,300 Azucarera Ebro Agricolas SA 331,987
926,811 Banco Bilbao Vizcaya SA 12,253,102
162,000 Banco Popular Espanol 10,914,299
9,940 Cristaleria Espanola SA 728,750
145,700 Dragados & Construcciones SA 3,594,708
743,056 FENOSA SA 8,757,012
79,400 Fomento de Construcciones y Contratas SA 3,552,098
652,000 Repsol SA 29,386,038
800,343 Telefonica de Espana SA 29,926,357
-----------
104,461,152
-----------
Sweden - 3.0%
220,811 Assi Doman 5,105,109
538,400 Avesta Sheffield AB 1,704,071
368,000 Bilspedition AB Class B 1,728,917
48,224 Celsius Industrier AB Class B 930,102
806,400 Electrolux AB Class B 12,861,244
57,888 Esselte AB Class A 966,196
41,400 Esselte AB Class B 737,065
22,400 Foreningssparbanken AB Class A 506,806
86,996 Indstrivarden AB Class A 1,279,938
70,300 Kinnevik Investment Class B 2,225,041
430,800 Mo Och Domsjo AB Class B 8,468,677
75,800 Nordbanken Holdings AB 451,709
9,000 Perstorp AB Class B 129,075
25,200 Scancem AB Class A 841,215
33,400 Skandia Forsakrings AB 468,689
39,500 Skandinaviska Enskilda Banken Class A 495,685
337,446 Skanska AB Class B 13,642,526
144,600 SKF AB Class B 2,216,832
113,100 Ssab Swedish Steel Class A 1,230,518
293,837 Stena Line AB Class B 497,702
931,350 Stora Kopparberg Bergslags Class A 11,284,485
208,250 Stora Kopparberg Bergslags Class B 2,523,213
550,672 Svenska Cellulosa Ser B Free 11,710,197
13,800 Svenska Handelsbanken Class A* 535,737
3,800 Svenska Handelsbanken Class B* 137,186
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Sweden - continued
119,000 Svenska Kullagerfabriken AB 1,839,076
352,800 Trelleborg AB Class B 3,184,155
77,700 Volvo AB Class A 2,074,997
155,150 Volvo AB Class B 4,277,592
-----------
94,053,755
-----------
Switzerland - 6.0%
1,600 ABB Ltd (Bearer) 1,864,067
2,700 Adecco SA (Bearer) 1,258,245
2,130 Alusuisse Lonza Group AG (Registered) * 2,157,540
60,780 CIBA Specialty Chemicals Holdings (Registered) 5,883,427
5,370 Clariant Namen AG 2,606,472
226,400 CS Holdings (Registered) 39,682,224
4,370 Holderbank Financiere Glarus AG (Bearer) 4,453,696
920 Jelmoli (Bearer) 1,090,922
4,980 Merkur Holding AG (Registered) 1,360,091
26,835 Nestle AG (Registered) 49,762,477
840 Novartis AG (Bearer) 1,298,652
22,367 Novartis AG (Registered) 34,780,739
7,600 Oerlikon-Buhrle (Registered) 1,186,268
3,860 Rieter Holdings AG (Registered) 2,279,223
639 Roche Holdings (Participating Certificate) 6,611,792
14,250 Sairgroup Zuerich (Registered) * 3,542,056
1,280 Saurer Group Holdings (Registered)* 1,028,390
1,800 Sika Finanz AG (Bearer) 570,006
11,820 Swiss Reinsurance (Bearer) 26,160,423
-----------
187,576,710
-----------
United Kingdom - 25.0%
654,300 Abbey National 12,271,004
576,400 Allied Domecq Plc* 4,922,427
1,060,680 AMEC * 2,446,590
43,556 Amstrad Plc* 21,151
340,313 Anglian Water Plc 4,952,032
546,630 Arcadia Group 2,910,756
1,850,000 Arjo Wiggins Appleton Plc 4,151,086
2,618,295 ASDA Group 7,453,369
983,346 Associated British Foods 8,834,078
1,191,135 Bank of Scotland* 12,146,843
1,047,430 Barratt Development* 2,841,353
641,200 BAT Industries * 6,324,031
238,900 BBA Group* 1,516,144
788,200 Beazer Holmes Plc * 1,728,992
3,034,392 BG Plc 18,698,409
695,200 Blue Circle Industries 3,294,438
167,100 Boots Co 2,791,738
2,428,703 British Airways Plc 18,300,884
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
656,500 British Energy Plc 6,211,097
380,700 British Land Co 3,276,658
1,137,100 British Steel Plc 2,046,880
2,999,283 British Telecom Plc 40,429,510
3,415,882 BTR Plc 7,650,359
181,100 Christian Salvesen Plc 285,057
3,525,993 Coats Viyella 3,365,437
970,840 Compass Group Plc 8,811,140
1,403,453 Dawson International 423,015
281,400 Electrocomponents Plc 1,790,576
1,173,394 Elementis Plc 1,925,551
1,398,282 English China Clays Plc 3,500,428
292,363 Enterprise Oil 1,845,648
2,311,000 Eurotunnel SA Units (Registered)* 2,244,466
2,311,000 Eurotunnel SA Warrants 12/31/01 & 10/31/03* 193,488
707,750 Express Dairies Plc 1,552,517
121,050 GKN 1,351,997
335,610 Granada Group 4,299,139
511,600 Great Portland Estates Plc 1,799,016
983,235 Greenalls Group Plc 6,042,387
871,352 Guardian Royal Exchange 3,749,833
1,438,635 Halifax Plc 16,862,960
462,600 Hammerson Plc 3,137,226
3,322,923 Hillsdown Holdings 7,817,750
287,685 Hyder Plc 4,595,690
232,000 IMI Plc 1,146,028
461,700 Kingfisher Plc 3,788,272
2,875,159 Ladbroke Group 11,554,689
65,146 Laing (John) 379,623
584,700 Land Securities 8,224,273
1,791,450 Lasmo Plc 4,763,056
798,925 Legal & General Group 9,525,135
1,032,211 Lonrho Africa Plc 846,934
1,220,811 Lonrho Plc 4,538,231
500,060 Meggitt 1,348,134
590,817 MEPC Plc 4,719,071
715,200 MEPC Plc Class B* 1,113,770
454,600 Meyer International 1,925,906
1,765,280 Mirror Group Plc 5,217,272
294,400 National Grid Group Plc 2,119,783
2,530,790 National Power 21,019,527
2,224,800 Northern Foods Plc 6,519,498
965,600 Orange Plc* 11,479,970
771,200 Peninsular & Oriental Steam Navigation Co 8,897,570
251,200 PIC International Group Plc 656,190
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
3,953,932 Pilkington 5,230,479
968,974 Powergen 11,990,622
428,746 Provident Financial Plc 6,396,802
1,040,550 Prudential Corp 14,740,712
545,900 Racal Electronics 2,989,138
151,125 Railtrack Group Plc 3,580,782
1,560,663 Rentokil Plc 9,407,989
1,339,800 Reuters Holdings Plc 11,284,780
434,880 RMC Group 5,886,749
925,435 Royal Bank of Scotland Group 13,016,984
1,079,700 Safeway Plc 5,586,589
260,600 Sainsbury (J) 2,260,421
867,438 Scottish Hydro-Electric Plc 8,010,675
930,098 Scottish Power Plc 8,986,481
758,390 Sears Plc* 2,476,352
318,000 Securicor Plc 2,758,303
1,786,900 Sedgwick Group 6,343,388
758,390 Selfridges Plc * 3,009,720
96,045 Severn Trent Plc 1,625,965
5,777,224 Signet Group Plc 2,902,188
759,867 Simon Engineering 518,502
724,400 Slough Estates 3,699,674
185,100 Smith (WH) Group Plc 1,431,969
3,585,388 Smithkline Beecham Plc 42,326,312
890,600 Smiths Industries Plc 9,663,687
472,645 Southern Electric Plc 4,436,044
172,000 St James's Place Capital 904,364
946,147 Storehouse Plc 3,453,824
5,438,930 Tarmac 7,103,841
570,000 Tate & Lyle 4,161,467
2,019,325 Taylor Woodrow Plc 4,598,649
529,400 Telewest Communications Plc * 1,391,774
328,075 Thames Water Plc 5,889,156
357,900 Thames Water Plc Class B 455,471
1,732,100 TI Group Plc 11,694,709
398,500 Unigate 3,336,441
4,040,140 Unilever Plc 37,682,244
2,137,400 United Biscuits Plc 6,692,873
2,404,575 United Biscuits Plc Class B 1,006,615
2,001,450 United Utilities 29,492,567
175,510 Viglen Technology Plc* 49,962
4,836,936 Vodafone Group Plc 67,387,419
628,100 Waste Management International* 3,418,199
351,979 Wessex Water Plc 3,465,606
541,505 Whitbread Plc Class A 6,936,638
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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares
Par Value($) Description Value ($)
- ------------------------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom - continued
2,659,300 Wimpey (George) 4,319,408
1,079,432 Yorkshire Water 8,617,299
317,900 Zeneca 12,435,078
---------------
775,650,993
---------------
United States - 0.0%
44,812 Homestake Mining Co 397,477
---------------
TOTAL STOCK AND EQUIVALENTS (Cost $3,424,679,110) 2,936,887,973
---------------
INVESTMENT FUNDS - 0.1%
Australia - 0.1%
1,854,700 Advance Property Fund 1,517,733
179,700 Franked Income Fund 431,900
---------------
1,949,633
---------------
TOTAL INVESTMENT FUNDS (Cost $2,521,316) 1,949,633
---------------
SHORT-TERM INVESTMENTS - 11.1%
Cash Equivalents - 8.5%
182,666,048 The Boston Global Investment Trust (b) 182,666,048
$ 82,400,000 Wachovia Bank Time Deposit, 5.70% due 9/1/98 82,400,000
---------------
265,066,048
---------------
U.S. Government - 2.6%
$ 82,300,000 U.S. Treasury Bill, 5.39% due 1/7/99 (a) 80,912,971
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $345,897,232) 345,979,019
---------------
TOTAL INVESTMENTS - 105.4%
(Cost $3,773,097,658) 3,284,816,625
Other Assets and Liabilities (net) - (5.5%) (170,987,068)
---------------
TOTAL NET ASSETS - 100.0% $ 3,113,829,557
===============
</TABLE>
Notes to the Schedule of Investments
(a) All or a portion of this security is held as collateral for
open futures contracts (Note 5).
(b) Represents investment of security lending collateral
(Note 1).
(c) Bankrupt issuer.
* Non-income producing security.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the Fund's equity
investments was as follows:
Industry Sector
Banking 10.5 %
Consumer Goods 8.7
Utilities 8.5
Telecommunications 8.4
Services 5.3
Chemicals 4.9
Insurance 4.1
Conglomerates 4.0
Electronic Equipment 4.0
Construction 4.0
Health Care 3.9
Transportation 3.5
Oil and Gas 3.5
Retail Trade 2.9
Machinery 2.9
Paper and Allied Products 2.5
Food and Beverage 2.5
Metals and Mining 2.4
Real Estate 2.2
Automotive 1.9
Communications 1.7
Financial Services 1.4
Textiles 0.7
Aerospace 0.4
Computers 0.3
Miscellaneous 4.9
---------
100.0 %
=========
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $3,773,097,658) (Note 1) $ 3,284,816,625
Foreign currency, at value (cost $2,536,493) (Note 1) 2,516,506
Cash 67,026
Receivable for Fund shares sold 28,978
Receivable for investments sold 7,262
Dividends and interest receivable 6,127,693
Foreign withholding taxes receivable 3,684,171
Receivable for open forward foreign currency contracts (Notes 1 and 5) 38,170,205
Receivable for expenses waived or borne by Manager (Note 2) 760,355
----------------
Total assets 3,336,178,821
----------------
Liabilities:
Payable upon return of securities loaned (Note 1) 182,666,048
Payable for investments purchased 31,394
Payable for variation margin on open futures contracts (Notes 1 and 5) 11,028,400
Payable for open forward foreign currency contracts (Notes 1 and 5) 24,873,369
Payable for Fund shares repurchased 31,212
Payable to affiliate for (Note 2):
Management fee 2,175,511
Shareholder service fee 406,947
Accrued expenses 1,136,383
----------------
Total liabilities 222,349,264
----------------
Net assets $ 3,113,829,557
================
Net assets consist of:
Paid-in capital $ 3,252,962,993
Accumulated undistributed net investment income 31,949,617
Accumulated undistributed net realized gain 329,421,791
Net unrealized depreciation (500,504,844)
----------------
$ 3,113,829,557
================
Net assets attributable to:
Class II Shares $ 15,205,689
================
Class III Shares $ 2,392,700,565
================
Class IV Shares $ 705,923,303
================
Shares outstanding:
Class II 737,454
================
Class III 115,810,341
================
Class IV 34,174,818
================
Net asset value per share:
Class II $ 20.62
================
Class III $ 20.66
================
Class IV $ 20.66
================
</TABLE>
24 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment income:
Dividends (net of foreign tax expense of $6,115,276) $ 52,240,718
Interest (including securities lending income of $477,341) 6,332,655
---------------
Total income 58,573,373
---------------
Expenses:
Management fee (Note 2) 14,221,802
Custodian fees 1,164,168
Legal fees 45,448
Audit fees 37,444
Transfer agent fees 30,820
Trustees fees (Note 2) 15,824
Registration fees 2,019
Miscellaneous 14,260
Fees waived or borne by Manager (Note 2) (5,292,088)
---------------
10,239,697
Shareholder service fee (Note 2)
Class II 17,998
Class III 2,232,732
Class IV 369,367
---------------
Net expenses 12,859,794
---------------
Net investment income 45,713,579
---------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 239,721,178
Closed futures contracts 118,066,432
Closed swap contracts 56,985,438
Foreign currency, forward contracts and foreign
currency related transactions (21,134,543)
---------------
Net realized gain 393,638,505
---------------
Change in net unrealized appreciation (depreciation) on:
Investments (672,246,079)
Open futures contracts (40,591,199)
Open swap contracts (38,660,933)
Foreign currency, forward contracts and foreign
currency related transactions 64,138,379
---------------
Net unrealized loss (687,359,832)
---------------
Net realized and unrealized loss (293,721,327)
---------------
Net decrease in net assets resulting from operations $ (248,007,748)
===============
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, 1998 Year Ended
(Unaudited) February 28, 1998
------------------ ------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 45,713,579 $ 87,907,070
Net realized gain 393,638,505 442,745,155
Change in net unrealized appreciation (depreciation) (687,359,832) (97,965,526)
------------------ ------------------
Net increase (decrease) in net assets resulting from
operations (248,007,748) 432,686,699
------------------ ------------------
Distributions to shareholders from:
Net investment income
Class I - (104,457)
Class II - (1,185,156)
Class III - (115,540,157)
Class IV (99,475) -
------------------ ------------------
Total distributions from net investment income (99,475) (116,829,770)
------------------ ------------------
Net realized gains
Class I - (411,274)
Class II (614,045) (4,695,006)
Class III (100,159,724) (446,289,351)
Class IV (28,383,617) -
------------------ ------------------
Total distributions from net realized gains (129,157,386) (451,395,631)
------------------ ------------------
Net share transactions: (Note 4)
Class I - 261,289
Class II 4,953,317 (8,131,121)
Class III (375,813,912) (974,400,627)
Class IV 119,992,499 601,324,132
------------------ ------------------
Decrease in net assets from net fund share transactions (250,868,096) (380,946,327)
------------------ ------------------
Total decrease in net assets (628,132,705) (516,485,029)
Net assets:
Beginning of period 3,741,962,262 4,258,447,291
------------------ ------------------
End of period (including accumulated undistributed
net investment income of $31,949,617 and
distributions in excess of net investment income
of $13,664,487, respectively) $ 3,113,829,557 $ 3,741,962,262
================== ==================
</TABLE>
26 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from September 10, 1996
Period from March 1, 1997 (commencement of operations)
to January 9, 1998 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 0.47 (c) 0.14
Net realized and unrealized gain (loss) (0.58) 1.38
--------- ---------
Total from investment operations (0.11) 1.52
--------- ---------
Less distributions to shareholders from:
Net investment income (0.74) (0.26)
Net realized gains (2.92) (1.07)
--------- ---------
Total distributions (3.66) (1.33)
--------- ---------
Net asset value, end of period $ 20.59 (d) $ 24.36
========= =========
Total Return (a) (0.83%) 6.38%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ -- $ 208
Net expenses to average
daily net assets 0.82%* 0.85%*(b)
Net investment income to average
daily net assets 2.22%* 1.12%*
Portfolio turnover rate 68% 97%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.06 0.04(b)
</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 approximate 03% of average daily net assets.
(c) Computed using average shares outstanding throughout the period.
(d) All Class I shares of the fund were exchanged for Class II shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
See accompanying notes to the financial statement. 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, 1998 Year Ended (commencement of operations)
(Unaudited) February 28, 1998 to February 28, 1997
---------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 23.16 $ 24.36 $ 24.60
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.28(c) 0.52(c) 0.14
Net realized and unrealized gain (loss) (1.96) 1.94 0.96
---------- ---------- ----------
Total from investment operations (1.68) 2.46 1.10
---------- ---------- ----------
Less distributions to shareholders:
From net investment income -- (0.74) (0.27)
From net realized gains (0.86) (2.92) (1.07)
---------- ---------- ----------
Total distributions (0.86) (3.66) (1.34)
---------- ---------- ----------
Net asset value, end of period $ 20.62 $ 23.16 $ 24.36
========== ========== ==========
Total Return (a) (7.78%) 11.60% 4.51%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 15,206 $ 12,500 $ 25,302
Net expenses to average daily net assets 0.76% 0.76% 0.80%*(b)
Net investment income to average daily net assets 2.33% 2.14% 0.98%
Portfolio turnover rate 34% 68% 97%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.03 $ 0.07 $ 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.
(c) 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, 1998 ----------------------------------------------
(Unaudited) 1998 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 23.20 $ 24.37 $ 24.62 $ 22.32
----------- ---------- ----------- -----------
Income (loss) from investment operations:
Net investment income 0.29 (c) 0.54 (c) 0.59 0.36
Net realized and unrealized gain (loss) (1.97) 1.96 1.02 3.09
----------- ---------- ----------- -----------
Total from investment operations (1.68) 2.50 1.61 3.45
----------- ---------- ----------- -----------
Less distributions to shareholders:
From net investment income - (0.75) (0.33) (0.39)
From net realized gains (0.86) (2.92) (1.53) (0.76)
----------- ---------- ----------- -----------
Total distributions (0.86) (3.67) (1.86) (1.15)
----------- ---------- ----------- -----------
Net asset value, end of period $ 20.66 $ 23.20 $ 24.37 $ 24.62
=========== ========== =========== ===========
Total Return (a) (7.77%) 11.71% 6.72% 15.72%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,392,701 $ 3,046,510 $ 4,232,937 $ 4,538,036
Net expenses to average
daily net assets 0.69%* 0.69%* 0.71%(b) 0.71%(b)
Net investment income to average
daily net assets 2.41% 2.19% 2.34% 1.93%
Portfolio turnover rate 34% 68% 97% 14%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.03 $ 0.07 $ 0.06 $ 0.03
<CAPTION>
Year Ended February 28/29
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 25.56 $ 18.51
----------- ----------
Income (loss) from investment operations:
Net investment income 0.27 0.29
Net realized and unrealized gain (loss) (1.57) 7.44
----------- ----------
Total from investment operations (1.30) 7.73
----------- ----------
Less distributions to shareholders:
From net investment income (0.35) (0.27)
From net realized gains (1.59) (0.41)
----------- ----------
Total distributions (1.94) (0.68)
----------- ----------
Net asset value, end of period $ 22.32 $ 25.56
=========== ==========
Total Return (a) (5.31%) 42.10%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,591,646 $ 2,286,431
Net expenses to average
daily net assets 0.70% 0.71% (b)
Net investment income to average
daily net assets 1.48% 1.48%
Portfolio turnover rate 53% 23%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share 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) 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)
Financial Highlights
(For a Class IV share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 9, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
--------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 23.19 $ 20.61
------ -----
Income (loss) from investment operations:
Net investment income 0.30 (b) 0.02 (b)
Net realized and unrealized gain (loss) (1.97) 2.56
------ -----
Total from investment operations (1.67) 2.58
------ -----
Less distributions to shareholders:
From net investment income (0.00)(c) --
From net realized gains (0.86) --
------ -----
Total distributions (0.86) --
------ -----
Net asset value, end of period $ 20.66 $ 23.19
====== =====
Total Return (a) (7.72%) 12.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 705,923 $ 682,952
Net expenses to average
daily net assets 0.63%* 0.63%*
Net investment income to average
daily net assets 2.43%* 0.68%*
Portfolio turnover rate 34% 68%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.03 $ 0.01
</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) Computed using average shares outstanding throughout the period.
(c) The per share distribution from net investment income was $0.003.
30 See accompanying notes to the financial statements.
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non- U.S. issuers.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II, and Class III. Effective January 9, 1998, Class I shares
ceased operations and all shares were exchanged for Class II shares, and
Class IV shares commenced operations. The principal economic difference
among the classes of shares is the level of shareholder service fee borne
by the classes. Eligibility for and automatic conversion between the
various classes of shares is generally based on the total amount of assets
invested with GMO, as more fully described in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
31
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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 market. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon entering into a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is subsequently settled. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 5 for
all open futures contracts as of August 31, 1998.
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
32
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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,
1998.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into total return swap agreements
which involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Total return swaps are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. Entering into
these agreements involves, to varying degrees, elements of credit and
market risk in excess of the amounts recognized on the Statement of Assets
and Liabilities. Such risks involve the possibility that there 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, 1998, there were no open swap agreements.
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, 1998, the Fund loaned securities having a market
value of $154,360,184 collateralized by cash in the amount of $182,666,048
which was invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are
to be treated, to the extent allowable under the Code, as if received and
paid by the shareholders of the Fund.
33
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. The Fund declares separate dividends from net
investment income on each class of shares.
Income 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 of shares of the Fund based on the relative net
assets of each class. Shareholder service fees, which are directly
attributable to a class of shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .60% of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. These fees are allocated relative to each class' net
assets on the share transaction date. Purchase premiums are included as
part of each class' "shares sold" as summarized in Note 4. For the six
months ended August 31, 1998, the Fund received $1,030,325 in purchase
premiums. There is no premium for cash redemptions or reinvested
distributions. Normally, no purchase premium is charged with respect to
in-kind purchases of Fund shares. A purchase premium of up to .10% may be
charged on certain in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments 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
34
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares, and .09% for Class IV
shares.
GMO has 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $15,824. 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, 1998,
aggregated $1,183,020,096 and $1,402,008,638, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$ 3,773,097,658 $ 288,327,281 $ 776,608,314 $ 488,281,033
</TABLE>
35
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997 to January 9,
1998
-------------------------------------------
Class I: Shares Amount
-------------------- --------------------
<S> <C> <C>
Shares sold 129,549 $ 3,082,734
Shares issued to
shareholders in
reinvestment of
distributions 23,945 515,731
Shares repurchased (162,048) (3,337,176)
-------------------- --------------------
Net increase/
(decrease) (8,554) $ 261,289
==================== ===================
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
-------------------------------------------- ----------------------------------------
Class II: Shares Amount Shares Amount
-------------------- -------------------- ------------------- ------------------
Shares sold 177,854 $ 4,477,692 763,855 $ 18,068,147
Shares issued to
shareholders in
reinvestment of
distributions 20,216 483,970 274,162 5,880,162
Shares repurchased (340) (8,345) (1,537,107) (32,079,430)
--------------------- -------------------- -------------------- ------------------
Net increase/
(decrease) 197,730 $ 4,953,317 (499,090) $ (8,131,121)
===================== ==================== ==================== ==================
</TABLE>
36
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1989 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
-------------------------------------------- ------------------------------------------
Class III: Shares Amount Shares Amount
-------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 6,633,715 $ 164,846,434 19,930,602 $ 489,010,908
Shares issued to
shareholders in
reinvestment of
distributions 4,100,415 98,327,944 23,749,073 513,606,936
Shares repurchased (26,254,946) (638,988,290) (86,021,674) (1,977,018,471)
--------------------- -------------------- -------------------- --------------------
Net decrease (15,520,816) $ (375,813,912) (42,341,999) $ (974,400,627)
===================== ==================== ==================== ====================
<CAPTION>
Period from January 9, 1998
Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
------------------------------------------- ---------------------------------------
Class IV: Shares Amount Shares Amount
-------------------- -------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Shares sold 6,658,423 $ 166,345,118 32,918,242 $ 678,472,578
Shares issued to
shareholders in
reinvestment of
distributions 1,186,863 28,460,985 _ _
Shares repurchased (3,120,256) (74,813,604) (3,468,454) (77,148,446)
--------------------- -------------------- -------------------- ------------------
Net increase 4,725,030 $ 119,992,499 29,449,788 $ 601,324,132
===================== ==================== ==================== ==================
</TABLE>
37
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is
as follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
------------------ ------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Buys
11/20/98 ATS 776,603,622 $ 62,866,256 $ 1,590,084
12/11/98 AUD 795,665 455,530 (26,643)
11/20/98 BEF 5,362,385,600 148,126,811 3,729,386
12/11/98 CAD 11,562,426 7,385,298 (228,189)
11/20/98 CHF 39,737,515 27,720,563 1,209,268
11/20/98 DEM 112,222,000 63,936,491 663,580
11/20/98 ESP 25,221,250,522 168,837,751 3,872,836
11/20/98 FIM 504,412,637 94,397,483 2,421,903
11/20/98 FRF 1,424,476,828 242,141,423 4,856,213
11/20/98 GBP 32,563,220 54,301,123 1,301,123
12/11/98 HKD 100,942,400 12,697,548 (146,631)
11/20/98 IEP 90,083,920 127,853,706 3,084,165
11/20/98 NLG 363,346,037 183,487,712 4,328,909
11/20/98 NOK 1,400,321,421 177,320,220 (4,906,337)
11/20/98 SEK 17,396,022 2,193,666 (9,093)
------------------
$ 21,740,574
===================
Sales
12/11/98 AUD 261,696,322 149,824,925 $ 8,627,311
11/20/98 BEF 3,440,243,890 95,030,905 (1,626,345)
11/20/98 CHF 170,917,566 119,230,686 (5,653,261)
11/20/98 DEM 45,957,956 26,183,729 (443,340)
11/20/98 ESP 6,438,820,100 43,103,172 (1,082,238)
11/20/98 FIM 54,812,000 10,257,703 (257,703)
11/20/98 FRF 500,111,975 85,012,141 (1,287,141)
11/20/98 GBP 158,339,797 264,041,112 (4,138,693)
12/11/98 HKD 812,863,657 102,250,145 1,115,842
11/20/98 IEP 10,025,063 14,228,304 (273,417)
11/20/98 ITL 51,591,131,410 29,534,166 (779,452)
12/11/98 JPY 21,546,498,960 154,847,396 (3,426,036)
11/20/98 NLG 58,988,476 29,788,850 (588,850)
11/20/98 NOK 387,017,107 49,007,290 1,209,133
11/20/98 SEK 198,784,684 24,646,284 160,452
------------------
$ (8,443,738)
===================
</TABLE>
38
<PAGE>
GMO International Core Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 NLG Netherlands Guilder
DEM German Mark NOK Norwegian Kroner
ESP Spanish Peseta SEK Swedish Krona
FIM Finnish Markka
FRF French Franc
GBP British Pound
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------------ ------------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Buys
830 DAX September 1998 $ 227,138,078 $ (38,291,122)
843 MIB 30 September 1998 151,665,995 (14,423,783)
56 MATIF CAC 40 September 1998 1,734,010 (244,550)
------------------
$ (52,959,455)
===================
Sales
156 ALL ORDS September 1998 $ 5,510,256 $ 285,994
1,007 FTSE 100 September 1998 88,610,968 9,583,180
279 HANG SENG September 1998 12,601,301 1,379,326
19 IBEX 35 September 1998 1,048,860 55,989
11 TSE 35 September 1998 1,021,833 225,113
135 OMX September 1998 1,108,268 25,123
2,406 TOPIX September 1998 187,960,762 15,789,947
------------------
$ 27,344,672
===================
</TABLE>
At August 31, 1998, 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 Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Subsequent Event
Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities during
that holding period must be held in Malaysian ringgits (or re-invested in
Malaysian securities) until the end of the holding period, at the earliest
September 1, 1999. The Manager has assessed the risks inherent to these
controls and has taken action to limit those risks. Under fair value
procedures adopted by the Board of Trustees, Malaysian securities are
valued at their exchange-traded prices, and that value is converted into
U.S. dollars at a discounted foreign exchange rate to reflect the currency
and inflation risk of holding ringgit.
40
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 97.7%
Automotive - 1.5%
10,000 Autobacs Seven 264,891
213,000 Mazda Motor Corp* 707,536
399,000 Nissan Motor Co 1,062,568
---------
2,034,995
---------
Chemicals - 3.0%
329,000 Daicel Chemical Industries Ltd 547,595
7,000 Hitachi Chemical Co 39,911
236,000 Japan Synthetic Rubber Co Ltd 910,971
40,000 Kureha Chemical Industry Co Ltd 78,193
236,000 Mitsubishi Gas Chemical Co Inc* 615,114
301,000 Mitsui Petrochemical Industries Ltd 714,179
11,000 Nagase & Co 40,201
79,000 Nichimen Corp 82,810
20,000 Nippon Paint Co 29,889
26,000 Shin-Etsu Chemical Co Ltd 367,377
344,000 Showa Denko 289,936
6,000 Sumitomo Bakelite Co Ltd 33,232
31,000 Tokuyama Corp 79,042
45,000 Tokyo Ink Manufacturing Co Ltd 92,110
---------
3,920,560
---------
Computers and Office Equipment - 0.6%
62,000 NCR Japan Ltd 270,501
7,000 Nihon Unisys Ltd 48,091
44,000 Ricoh Co Ltd 421,333
---------
739,925
---------
Conglomerates - 1.1%
258,000 Mitsubishi Corp* 1,394,249
---------
Construction - 2.7%
560,000 Aoki Corp* 226,078
18,000 Chudenko Corp 316,170
238,000 Haseko Corp* 94,398
59,000 INAX Corp 221,475
205,000 Maeda Corp 495,113
49,000 Marubeni Corp 80,863
405,000 Mitsui Engineering & Shipbuilding* 295,453
53,000 National House Industrial 358,113
54,000 Okumura Corp 173,638
110,000 Penta Ocean Construction 218,925
262,000 Sato Kogyo Co Ltd 183,710
131,000 Shokusan Jutaku Sogo Co Ltd* 55,670
See accompanying notes to financial statements. 1
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Construction - continued
59,000 Takara Standard Co 356,867
29,000 Takuma Corp 176,847
162,000 Tokyo Construction Co Ltd 105,560
24,000 Toyo Exterior Co Ltd 211,800
---------
3,570,680
---------
Consumer Goods - 6.8%
19,000 Bandai Co 251,647
53,000 Citizen Watch Co 377,258
81,000 Ezaki Glico Co Ltd 430,271
32,300 Fuji Photo Film Co Ltd 1,040,902
10,000 Hitachi Maxell Ltd 156,173
8,000 Konica Corp 30,880
69,000 Minolta Co Ltd 406,112
49,000 Nikon Corp 278,334
35,400 Nintendo Co Ltd 3,282,003
40,000 Olympus Optical Co Ltd 430,625
25,800 Sega Enterprises 392,875
110,000 Ushio Inc 919,329
44,000 Victor Co of Japan Ltd 307,586
39,000 Yakult Honsha Co Ltd 187,832
58,000 Yamaha Corp 460,500
---------
8,952,327
---------
Electric - 2.9%
31,000 Kinden Corp 362,278
42,000 Kokusai Electric 258,800
829,000 Mitsubishi Electric Corp* 1,579,439
426,000 Oki Electric Industry 938,353
75,000 Showa Electric Wire & Cable 98,803
73,000 Stanley Electric Co Ltd 238,353
42,000 Sumitomo Electric 352,504
---------
3,828,530
---------
Electronics - 10.0%
9,000 Advantest Corp 385,651
2,000 Aiwa Co 64,311
9,000 Brother Industries Ltd 29,386
78,000 Canon Inc 1,582,761
69,500 Fanuc Co 2,239,712
80,000 Hosiden Corp* 1,076,564
86,000 Japan Aviation Electronics 234,507
104,000 Japan Radio Co 383,030
45,000 Kyocera Corp 2,042,992
3,000 Matsushita Kotubuki* 70,118
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronics - continued
33,000 Nichicon Corp 401,778
25,000 Ryosan Co 393,087
141,000 Sharp Corp 832,878
16,000 Tokyo Electron 368,298
801,000 Toshiba Corp 2,876,316
43,000 Yokogawa Electric Corp 199,483
----------
13,180,872
----------
Financial Services - 1.2%
9,000 Credit Saison Co 176,571
143,000 New Japan Securities Co Ltd* 115,461
360,000 Nikko Securities 1,132,092
3,000 Promise Co 125,363
----------
1,549,487
----------
Food and Beverage - 7.0%
6,000 Denny's Japan Co Ltd 139,812
109,000 House Foods Corp 1,262,235
68,000 Itoham Foods Inc 216,729
33,000 Ito-Yokado 1,535,590
25,000 Katokichi Co Ltd 285,077
92,000 Kikkoman Corp 415,723
222,000 Kirin Brewery Co Ltd 1,855,372
10,000 Marudai Food Co Ltd 19,265
48,000 Meiji Seika Kaisha Ltd 130,547
56,000 Mercian Corp 176,500
54,000 Nichirei 88,349
128,000 Nippon Meat Packers Inc 1,397,946
154,000 Nippon Suisan Kaisha Ltd* 162,519
70,000 Nisshin Oil Mills Ltd 133,366
16,000 Nissin Food Products Co Ltd 240,244
103,700 Q.P. Corp 596,391
105,000 Snow Brand Milk Products Co Ltd 290,035
43,000 Takara Shuzo Co Ltd 164,459
34,000 Toyo Suisan Kaisha 186,146
----------
9,296,305
----------
Health Care - 2.2%
4,000 Hoya Corp 133,154
108,000 Kyowa Hakko Kogyo Co Ltd 388,583
109,000 Lion Corp 363,616
61,000 Sankyo Co Ltd 1,326,369
80,000 Shiseido Co Ltd 764,360
----------
2,976,082
----------
Insurance - 1.1%
183,000 Tokio Marine & Fire Insurance Co 1,506,098
----------
See accompanying notes to the financial statements. 3
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Leisure - 0.2%
29,000 Heiwa Corp 236,207
---------
Machinery - 5.0%
3,000 Aida Engineering 11,006
94,000 Amada Co Ltd 464,707
162,000 Furukawa Co Ltd 178,993
304,000 Komatsu Ltd 1,341,398
861,000 Mitsubishi Heavy Industries* 3,134,457
11,000 Mori Seiki Co Ltd 119,902
28,000 Okuma Corp 111,056
17,000 Rinnai Corp 264,891
54,000 Sanden Corp 340,775
64,000 Sumitomo Heavy Industries Ltd 101,990
100,000 Toshiba Tungaloy Co Ltd 279,765
95,000 Tsubakimoto Chain 242,227
---------
6,591,167
---------
Manufacturing - 0.3%
5,500 Mabuchi Motor Co 370,458
7,000 Toyo Seikan Kaisha 87,952
---------
458,410
---------
Metals and Mining - 2.0%
155,000 Hitachi Metals Ltd 417,168
100,000 Japan Metals & Chemicals* 137,404
9,000 Maruichi Steel Tube 106,325
138,000 Nachi Fujikoshi Co 171,046
65,000 Nippon Sheet Glass Co Ltd 99,440
82,000 Nitto Denko Corp 1,101,735
36,000 NTN Corp 99,695
234,000 Tomen Corp 170,706
100,000 Yodogawa Steel Works 396,629
---------
2,700,148
---------
Oil and Gas - 4.2%
404,000 Cosmo Oil Co Ltd 515,051
64,000 General Sekiyu (KK) 223,925
525,000 Mitsubishi Oil Co Ltd* 609,817
1,367,000 Nippon Oil Co Ltd 3,553,290
120,600 Showa Shell Sekiyu 499,685
60,000 Teikoku Oil Co Ltd 154,260
---------
5,556,028
---------
Paper and Allied Products - 1.5%
31,000 Daio Paper Corp 142,935
170,000 Hokuetsu Paper Mills 629,719
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Paper and Allied Products - continued
309,000 Nippon Paper Industries 1,002,351
52,000 Sumitomo Forestry Co Ltd 246,760
----------
2,021,765
----------
Pharmaceuticals - 6.4%
245,000 Chugai Pharmaceutical Co Ltd 1,657,164
55,000 Daiichi Seiyaku Co Ltd 681,706
49,000 Dainippon Pharmaceutical Co Ltd 142,291
197,000 Fujisawa Pharmaceutical Co Ltd 1,699,455
82,000 Kaken Pharmaceutical Co Ltd 203,272
15,000 Kissei Pharmaceutical Co Ltd 207,274
5,000 Nippon Kayaku Co Ltd 17,636
7,000 Taisho Pharmaceutical Co Ltd 142,538
109,000 Tanabe Seiyaku Co Ltd 494,086
114,000 Yamanouchi Pharmaceutical Co Ltd 2,470,713
101,000 Yoshitomi Pharmaceutical Industries Ltd 808,343
----------
8,524,478
----------
Retail Trade - 1.7%
7,000 Aoki International 38,671
18,000 Aoyama Trading 432,184
26,000 Best Denki Co Ltd 143,636
48,000 Hankyu Department Stores Inc 251,576
52,000 Joshin Denki Co Ltd 108,280
69,000 Nichii Co Ltd 429,570
69,000 Sanrio Co Ltd* 784,857
----------
2,188,774
----------
Services - 5.9%
107,000 Canon Sales Co Inc 1,383,065
93,200 CSK Corp 1,617,253
108,000 Kamigumi Co Ltd 403,116
11,000 Kyodo Printing Co Ltd 56,484
771,000 Nissho Iwai Corp 1,119,449
31,000 Secom Co Ltd 1,787,237
301,000 Sumitomo Corp 1,238,622
51,000 Sumitomo Warehouse Co Ltd 195,418
----------
7,800,644
----------
Technology - 8.0%
168,000 Dainippon Screen Manufacturing Co Ltd 521,170
1,242,000 Hitachi Ltd 6,219,236
1,600 Keyence Corp 161,371
300 Murata Manufacturing Co Ltd 9,902
107,000 NEC Corp 788,916
42,400 TDK Corp 2,939,982
----------
10,640,577
----------
See accompanying notes to the financial statements. 5
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Telecommunications - 2.3%
109,000 Gakken Co Ltd 148,226
65,000 Matsushita Communications* 2,186,770
52,000 Nitsuko Corp 154,685
60,000 Tokyo Broadcasting System Inc 569,445
---------
3,059,126
---------
Textiles - 3.1%
106,000 Gunze Ltd 227,481
146,000 Kurabo Industries Ltd 167,519
270,000 Nisshinbo Industries Inc 845,244
110,000 Onward Kashiyama Co Ltd 1,348,608
339,000 Renown Inc* 208,889
49,000 Tokyo Style Co Ltd 425,136
258,000 Toyobo Co Ltd 264,962
70,000 Wacoal Corp 605,354
---------
4,093,193
---------
Tobacco - 3.3%
648 Japan Tobacco Inc 4,373,851
---------
Transportation - 4.8%
37,000 Fujita Kanko Inc 282,761
76,000 Fukuyama Transporting Co Ltd 282,060
176,000 Hankyu Corp 635,739
27,000 Japan Airport Terminal Co Ltd 125,830
484,000 Kawasaki Kisen 668,461
145,000 Keio Teito Electric Railway Co Ltd 442,631
161,000 Keisei Electric Railway 409,370
138,000 Nagoya Railroad Co Ltd 389,985
48,000 Nankai Electric Railway Co Ltd 191,062
72,000 Royal Co Ltd 948,509
144,000 Sagami Railway Co Ltd 305,971
80,000 Seino Transportation Co Ltd 402,295
73,000 Skylark Co Ltd 677,831
41,000 Toei Co Ltd 99,023
23,000 Tokyu Corp 53,432
46,000 Yamato Transport Co Ltd 498,477
---------
6,413,437
---------
Utilities - 8.9%
50,600 Chubu Electric Power Co Inc 745,435
45,400 Chugoku Electric Power Co Inc 678,476
62,900 Hokkaido Electric Power 868,723
21,800 Hokuriku Electric Power 306,488
146,500 Kansai Electric Power 2,412,441
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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
Utilities - continued
7,000 Kokusai Denshin Denwa 195,835
128,200 Kyushu Electric Power Co Inc 1,875,012
261 Nippon Telegraph & Telephone 1,977,973
104,400 Shikoku Electric Power 1,478,858
81,300 Tohoku Electric Power Co Inc 1,171,793
---------------------
11,711,034
---------------------
TOTAL STOCK AND EQUIVALENTS (Cost $167,504,122) 129,318,949
---------------------
SHORT-TERM INVESTMENTS - 0.2%
Cash Equivalents - 0.2%
300,000 First National Bank of Chicago Time Deposit, 5.75% due 9/1/98 300,000
---------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $300,000) 300,000
---------------------
TOTAL INVESTMENTS - 97.9%
(Cost $167,804,122) 129,618,949
Other Assets and Liabilities (net) - 2.1% 2,823,633
---------------------
TOTAL NET ASSETS - 100.0% $ 132,442,582
=====================
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
See accompanying notes to the financial statements. 7
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $167,804,122) (Note 1) $ 129,618,949
Foreign currency, at value (cost $3,015,073) (Note 1) 3,085,568
Cash 4,136
Dividends and interest receivable 45,032
Receivable for expenses waived or borne by Manager (Note 2) 45,425
------------------
Total assets 132,799,110
------------------
Liabilities:
Payable for variation margin on closed futures contracts (Note 1) 133,461
Payable to affiliate for (Note 2):
Management fee 88,015
Shareholder service fee 17,677
Accrued expenses 117,375
------------------
Total liabilities 356,528
------------------
Net assets $ 132,442,582
==================
Net assets consist of:
Paid-in capital $ 226,384,922
Distributions in excess of net investment income (246,470)
Accumulated net realized loss (55,581,405)
Net unrealized depreciation (38,114,465)
------------------
$ 132,442,582
==================
Net assets attributable to Class III Shares $ 132,442,582
==================
Shares outstanding - Class III 25,634,396
==================
Net asset value per share - Class III $ 5.17
==================
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $123,796) $ 701,297
Interest 16,904
--------------------
Total income 718,201
--------------------
Expenses:
Management fee (Note 2) 565,925
Custodian fees 115,644
Audit fees 23,092
Transfer agent fees 13,524
Legal fees 1,380
Registration fees 858
Trustees fees (Note 2) 650
Miscellaneous 552
Fees waived or borne by Manager (Note 2) (314,153)
--------------------
407,472
Shareholder service fee - Class III (Note 2) 113,185
--------------------
Net expenses 520,657
--------------------
Net investment income 197,544
--------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (16,798,030)
Closed futures contracts (878,892)
Foreign currency and foreign currency related
transactions (1,334,926)
--------------------
Net realized loss (19,011,848)
--------------------
Change in net unrealized appreciation (depreciation) on:
Investments (12,075,818)
Open futures contracts 20,206
Foreign currency and foreign currency related transactions 181,253
--------------------
Net unrealized loss (11,874,359)
--------------------
Net realized and unrealized loss (30,886,207)
--------------------
Net decrease in net assets resulting from operations $ (30,688,663)
====================
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
-------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 197,544 $ 439,226
Net realized loss (19,011,848) (37,355,312)
Change in net unrealized appreciation (depreciation) (11,874,359) 22,020,921
-------------------- --------------------
Net decrease in net assets resulting from operations (30,688,663) (14,895,165)
-------------------- --------------------
Net share transactions - Class III (Note 5) 13,978,752 (54,749,266)
-------------------- --------------------
Total decrease in net assets (16,709,911) (69,644,431)
Net assets:
Beginning of period 149,152,493 218,796,924
-------------------- --------------------
End of period (including distributions in excess of
net investment income of $246,470 and $444,014,
respectively) $ 132,442,582 $ 149,152,493
==================== ====================
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Japan 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, 1998 ---------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.36 $ 7.02 $ 8.52 $ 9.12 $ 11.13 $ 7.37
---------- ----------- ----------- ----------- ----------- ---------
Income (loss) from investment operations:
Net investment income (loss) 0.01 0.01 - (c) (0.01)(c) - (c) -
Net realized and unrealized gain (loss) (1.20) (0.67) (1.50) 0.79 (1.08) 3.94
---------- ----------- ----------- ----------- ----------- --------
Total from investment operations (1.19) (0.66) (1.50) 0.78 (1.08) 3.94
---------- ----------- ----------- ----------- ----------- --------
Less distributions to shareholders:
From net investment income - - - - - -
In excess of net investment income - - (0.00) - - (0.01)
From net realized gains - - - (1.38) (0.93) (0.17)
---------- ----------- ----------- ----------- ----------- ---------
Total distributions - - (0.00) (1.38) (0.93) (0.18)
---------- ----------- ----------- ----------- ----------- --------
Net asset value, end of period $ 5.17 $ 6.36 $ 7.02 $ 8.52 $ 9.12 $ 11.13
========== =========== =========== =========== =========== ========
Total Return (a) (18.71%) (9.40%) (17.69%) 8.29% (10.62%) 53.95%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 132,443 $ 149,152 $ 218,797 $ 126,107 $ 60,123 $ 450,351
Net expenses to average
daily net assets 0.69%* 0.69% 0.70%(d) 0.92% 0.83% 0.87%
Net investment income (loss) to average
daily net assets 0.26%* 0.21% 0.01% (0.13%) (0.02%) (0.01%)
Portfolio turnover rate 71% 128% 4% 23% 60% 8%
Fees and expenses voluntarily waived or
borne by the Manager consisted
of the following per share amounts: $ 0.01 $ 0.02 $ 0.03 $ 0.01 (b) $ 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) Fees and expenses waived or borne by the Manager were less than $.01 per
share.
(c) Based on average month end shares outstanding.
(d) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .01% of average daily net assets.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Japan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks maximum total return through investment in Japanese
securities, primarily in common stocks of Japanese companies.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, 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 or other persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
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.
12
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 market. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon entering into a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government 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. At August 31, 1998,
there were no open futures contracts.
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, 1998, the Fund had no securities out on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States. At February 28, 1998, the Fund had a capital loss carryforward
available to offset future capital gains, if any, of $43,013 and
$22,345,866, expiring in 2005 and 2006, respectively.
13
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. 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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .40% of the amount
invested. In the case of cash redemptions, the fee is .61% of the amount
redeemed. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold" and redemption fees are included as part of "shares
repurchased", respectively, as summarized in Note 5. For the six months
ended August 31, 1998, the Fund received $50,986 in purchase premiums and
$28,869 in redemption fees. There is no premium for reinvested
distributions. Normally, no purchase premium is charged with respect to
in-kind purchases of Fund shares. A purchase premium of up to .10% may be
charged on certain in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
14
<PAGE>
GMO Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $650. 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, 1998,
aggregated $112,209,877 and $99,430,562, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$167,804,122 $867,067 $39,052,240 $38,185,173
</TABLE>
4. Principal shareholders
At August 31, 1998, 35% 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 Japan Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
-------------------------------------------- -------------------------------------------
Shares Amount Shares Amount
--------------------- ---------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Shares sold 4,790,010 $ 28,887,703 4,316,975 $ 32,950,333
Shares issued to
shareholders in
reinvestment of
distributions - - - -
Shares repurchased (2,601,780) (14,908,951) (12,050,534) (87,699,599)
--------------------- -------------------- -------------------- --------------------
Net increase/
(decrease) 2,188,230 $ 13,978,752 (7,733,559) $ (54,749,266)
===================== ==================== ==================== ====================
</TABLE>
16
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 94.1%
Austria - 2.2%
777 Allgemeine Baugesellschaft AG 68,691
19,193 Austrian Airlines 670,505
5,902 Bank Austria AG (Participating Certificate) 302,025
1,781 Bau Holdings AG 93,293
63 Bau Holdings AG Preferred (Non Voting) 3,046
16,380 Boehler Uddeholm (Bearer) 781,656
7,039 Brau Union AG 377,227
2,150 BWT AG 346,528
9 EA-Generali AG 1,886
8 EA-Generali AG Preferred 6.00% 1,264
3,199 Interunfall Versicherung AG 391,857
1,834 Jenbacher Werke AG 77,594
507 Mayr-Melnhof Karton AG (Bearer) 25,863
1,243 Oesterreichische Brau Beteiligungs AG 67,916
3,054 Oesterreichische Laenderbank AG 167,359
12,678 Radex-Heraklith AG 463,849
3,285 Universale Bau AG 102,981
226 Wiener Allianz Versicherungs AG 31,326
2,600 Wolford AG 136,403
-------------
4,111,269
-------------
Canada - 5.4%
34,600 Air Canada Inc* 147,102
13,500 Alberta Energy Ltd* 244,254
27,100 Anderson Exploration Ltd* 238,228
23,200 BCE Mobile Communications* 548,055
23,100 CAE Industries Inc 131,439
15,900 Cameco Corp 287,169
16,000 Canadian Natural Resources* 189,240
17,600 Canadian Tire Corp Ltd Class A 360,068
11,400 Cominco Ltd 105,680
28,300 Cott Corp* 150,171
20,600 Dofasco Inc 204,136
39,100 Domtar Inc 174,983
22,700 Donohue Inc Class A 388,214
80,400 Echo Bay Mines Ltd* 123,878
3,500 Edperbrascan Corp Class A Ltd (Voting Shares) 44,305
17,500 Gulf Canada Resources Ltd 52,584
11,300 International Comfort Products Corp* 92,472
See accompanying notes to the financial statements. 1
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Canada - continued
5,400 IPL Energy Inc 200,237
26,250 Ipsco Inc 522,768
12,000 Loewen Group Inc 138,094
20,200 Mackenzie Financial Corp 181,447
30,300 Macmillan Bloedel Ltd 232,459
33,900 Methanex Corp* 198,309
23,900 Mitel Corp* 229,198
14,800 Molson Co Ltd Class A 199,175
2,500 Molson Co Ltd Class B 33,644
19,300 Moore Corporation Ltd 186,318
37,700 National Bank of Canada Montreal 489,282
37,700 Noranda Forest Inc 163,897
19,000 Nova Scotia Power Inc 184,637
113,600 Numac Energy Inc* 269,447
12,600 Oshawa Group Ltd Class A 195,346
23,800 Power Corp of Canada Ltd 426,046
7,100 Quebecor Inc Class B 131,637
23,356 Ranger Oil Ltd* 129,909
13,000 Rio Algom Ltd 150,018
9,000 Rogers Communications Class B * 56,101
14,600 Sears Canada Inc 182,016
29,500 Stelco Inc Class A 133,907
10,100 Suncor Energy Inc 283,147
8,500 Teck Corp Class B 50,267
22,600 Telus Corp 447,911
12,600 Torstar Corp Class B 137,346
25,100 Transalta Corp 304,894
300 TVA Group Inc Class B * 2,254
58,300 TVX Gold Inc* 65,227
7,400 United Dominion Industries Ltd 180,961
21,100 Westcoast Energy Inc 373,666
8,400 Weston (George) Ltd 244,081
---------------
10,205,624
---------------
Denmark - 0.0%
800 Hafnia Holdings (Registered) Class A (c)* 1
---------------
France - 9.3%
1,650 Accor SA 380,533
7,900 BIC SA 441,785
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
France - continued
5,620 Castorama Dubois Investment 938,569
6,990 Club Mediterranee SA* 521,116
1,620 Compagnie Generale d'Industrie et de Participations 779,848
3,400 Compagnie Parisienne de Reescompte 253,130
1,440 Comptoirs Modernes 779,695
12,540 Credit Commercial de France 873,769
1,380 Credit Local de France SA 179,563
14,910 Credit Lyonnais* 1,337,107
2,090 Eridania Beghin-Say SA 374,856
2,310 Essilor International 915,401
4,120 Gaz Et Eaux 211,228
760 Groupe Andre* 81,015
2,620 Hermes International 156,092
4,490 Imetal 508,259
9,775 Lagardere Groupe 367,348
11,600 Moulinex* 226,112
1,190 Pathe SA 231,557
10,010 Pechiney SA Class A 326,722
5,830 Pernod Ricard 405,338
2,900 Primagaz 227,682
279 Sagem Applic Gen D Electric 201,343
2,290 Seb SA 237,137
18,800 Seita 805,124
3,680 Simco Union Habit (Registered) 276,778
790 Societe Eurafrance 447,800
5,330 Sodexho Alliance 937,034
4,820 Synthelabo 734,826
5,330 Technip SA (Compagnie Francaise) 491,514
12,700 Thomson CSF 413,878
5,760 TV Francaise 851,817
1,809 Unibail (Bearer) 215,794
26,700 Usinor Sacilor 282,812
4,050 Valeo 302,414
39,780 Worms et Compagnie SA* 646,173
-------------
17,361,169
-------------
Germany - 11.2%
6,300 Adidas Salomon AG 743,068
4,450 Altana AG 282,620
1,250 Ava Allgemeine Handelsgesellschaft der Verbraucher AG* 443,011
See accompanying notes to the financial statements. 3
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Germany - continued
7,200 Axa Colonia Konzern AG 816,558
300 Axel Springer Verlag AG 183,726
23,700 Bankgesellschaft Berlin AG 399,144
7,950 Beiersdorf AG Bearer 423,760
16,850 Berliner Kraft & Licht AG Class A 654,508
24,400 BHF Bank AG 885,511
5,650 Bilfinger & Berger 131,999
1,000 Buderus AG 453,643
23,400 Continental AG 626,300
887 DBV-Winterthur Holding AG 336,995
12,950 Degussa AG 642,543
4,450 Douglas Holdings AG 217,769
10,150 FAG Kugelfischer 135,257
2,750 Fresenius Medical Care AG 135,668
4,450 Fresenius Medical Care AG Preferred (Non Voting) 659,867
500 Friedrich Grohe AG Preferred (Non Voting) 144,599
4,350 Friedrich Krupp AG 629,005
4,500 GEA AG Preferred 3.13% 127,587
8,200 Gehe AG 503,578
5,000 Hamburgische Electricitaets-Werke AG* 140,346
7,305 Heidelberg Port-Zement 598,567
3,950 Henkel KGAA Preferred 315,821
7,250 Henkel KGAA (Bearer) 499,504
4,900 Hochtief AG 187,553
650 Holzmann (Philipp)* 114,261
300 ISAR Amperwerke AG 119,081
15,000 IWKA AG 290,048
900 Karstadt AG 398,072
10,150 Lahmeyer AG 460,448
600 Linde AG 350,439
14,600 Lufthansa AG 360,136
1,800 MAN AG 530,252
750 MAN AG Preferred 157,783
4,400 Merck KGAA 169,164
13,300 Metallgesellschaft 220,598
300 Porsche AG Preferred (Non Voting) 646,442
1,850 Preussag AG 624,185
2,900 SAP AG Preferred 1,644,457
6,700 Schering AG 645,875
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Germany - continued
800 Schmalbach-Lubeca 126,793
3,650 Schwarz Pharma AG 221,463
2,300 SGL Carbon AG 203,459
14,100 SKW Trostberg AG 415,764
750 Suedzucker AG 387,014
750 Thyssen AG 140,771
800 Vereins Und Westbank 229,090
17,500 Volkswagen AG Preferred* 871,279
350 Wella AG 268,925
-----------------
20,914,306
-----------------
Hong Kong - 0.6%
1,000 Asia Financial Holdings 155
136,000 Associated International Hotels 30,888
68,000 Cross Harbour Tunnel Co Ltd 51,334
666 Dickson Concept International Ltd 402
6,000 Grand Hotel Holdings Ltd Class A 929
79,900 Hong Kong Aircraft Engineering Co Ltd 83,517
13,000 IMC Holdings 1,342
154,000 Lai Sun Garment International Ltd 22,854
212,000 Liu Chong Hing Investment Ltd 98,488
200 Mingly Corp 14
500 New Asia Realty & Trust A Shares 316
30,100 Realty Development Corp Ltd Class A 44,281
776,000 South China Morning Post Ltd 255,355
882,000 Tan Chong International Ltd 14,341
309,101 Tsim Sha Tsui Properties Ltd 448,741
152,000 Wing On Co 38,249
18,000 Wing On International Holdings Ltd 11,614
130,500 Winsor Properties Holdings Ltd 50,521
-----------------
1,153,341
-----------------
Italy - 1.6%
742,200 Bca Naz Agricol Di Risp (Non-Cv) 621,747
314,500 Finmeccanica SPA (Non Convertible)* 244,512
102,000 Fornara SPA (c)* 4,214
213,400 Grassetto SPA (c)* 1
3,500 Recordati Industria Chimica e Farmaceutica SPA 31,730
53,000 Recordati Industria Chimica e Farmaceutica SPA
(Non Convertible) 270,649
47,000 Rinascente (La) Priv 179,333
320,000 Snia BPD SPA (Non Convertible) 310,296
351,774 Unicem Di Risp 1,374,519
-----------------
3,037,001
-----------------
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - 21.0%
21,000 Alps Electric Co Ltd 258,800
101,000 Amada Co Ltd 499,313
27,000 Amano Corp 221,829
3,000 Anritsu Corp 22,757
253,000 Aoki Corp* 102,139
10,000 Aoki International 55,245
23,800 Aoyama Trading 571,443
95,000 Atsugi Nylon Industrial 104,292
14,000 Bandai Co 185,424
6,000 Brother Industries Ltd 19,591
53,000 Canon Sales Co Inc 685,070
13,000 Casio Computer Co 91,154
2,000 Chudenko Corp 35,130
23,000 Chugai Pharmaceutical Co Ltd 155,571
109,000 Citizen Watch Co 775,869
230,000 Cosmo Oil Co Ltd 293,222
27,700 CSK Corp 480,664
50,000 Daicel Chemical Industries Ltd 83,221
103,000 Daido Steel Co Ltd 132,042
36,000 Dainippon Ink & Chemicals Inc 87,202
20,000 Dainippon Pharmaceutical Co Ltd 58,078
4,000 Dainippon Screen Manufacturing Co Ltd 12,409
25,000 Daio Paper Corp 115,270
53,900 Daito Trust Construction Co Ltd 431,383
107,000 Denki Kagaku Kogyo 148,537
3,000 Denny's Japan Co Ltd 69,906
44,000 Ezaki Glico Co Ltd 233,728
198,000 Fuji Heavy Industries Ltd 1,047,567
102,000 Fujisawa Pharmaceutical Co Ltd 879,921
26,000 Fujitec Co 142,715
49,000 Fujiya Co Ltd* 120,426
70,000 Fukuyama Transporting Co Ltd 259,792
52,000 Furukawa Co Ltd 57,454
44,000 Furukawa Electric Co Ltd 120,915
127,000 Gakken Co Ltd 172,703
101,000 General Sekiyu (KK) 353,382
32,000 Godo Shusei Co Ltd 55,075
7,000 Gunze Ltd 15,022
51,000 Hankyu Department Stores Inc 267,299
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
199,000 Hanwa Co Ltd 183,228
189,000 Haseko Corp* 74,963
1,000 Heiwa Corp 8,145
600 Hitachi Ltd 3,004
34,000 Hitachi Maxell Ltd 530,987
109,000 Hitachi Metals Ltd 293,364
31,000 Hokuetsu Paper Mills 114,831
18,000 House Foods Corp 208,443
25,000 Hyogo Bank Ltd (c)* 2
75,000 INAX Corp 281,536
40,000 Intec Inc 283,306
11,000 Ishihara Sangyo Kaisha* 14,413
13,000 Itoham Foods Inc 41,434
32,000 Izumiya Co Ltd 202,394
25,000 Japan Airport Terminal Co Ltd 116,510
3,000 Japan Radio Co 11,049
73,000 Japan Steel Works Ltd* 74,970
114,000 Japan Synthetic Rubber Co Ltd 440,045
53,000 JGC Corp 109,611
38,000 Joshin Denki Co Ltd 79,127
29,000 Kamigumi Co Ltd 108,244
39,000 Kandenko Co 204,405
104,000 Kaneka Corp 534,769
11,000 Katokichi Co Ltd 125,434
178,000 Keihin Electric Express Railway Co Ltd 442,510
245,000 Keio Teito Electric Railway Co Ltd 747,893
23,000 Kikkoman Corp 103,931
8,000 Kinden Corp 93,491
17,000 Kissei Pharmaceutical Co Ltd 234,910
6,000 Koito Manufacturing Co Ltd 23,458
45,000 Kokusai Kogyo Co Ltd 146,930
5,000 Kokuyo Co Ltd 73,305
25,000 Komori Corp 458,602
25,000 Konica Corp 96,501
55,000 Koyo Seiko Co Ltd 249,309
44,000 Kumagai Gumi Co Ltd* 26,177
124,000 Kurabo Industries Ltd 142,276
109,000 Kuraray Co 954,204
237,000 Kureha Chemical Industry Co Ltd 463,291
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
11,000 Kyowa Exeo Corp 55,004
15,000 Kyowa Hakko Kogyo Co Ltd 53,970
7,000 Kyudenko Corp 42,241
79,000 Lion Corp 263,538
2,100 Mabuchi Motor Co 141,448
63,000 Maeda Corp 152,157
40,000 Maeda Road Construction 202,847
58,000 Makino Milling Machine Co Ltd 340,959
52,000 Makita Corp 604,745
2,000 Maruichi Steel Tube 23,628
29,000 Matsushita Refrigeration Co* 94,483
174,000 Mitsubishi Gas Chemical Co Inc* 453,517
200 Mitsubishi Kasei Corp 367
87,000 Mitsubishi Oil Co Ltd* 101,055
10,000 Mitsubishi Paper Mills Ltd* 16,857
8,000 Mitsubishi Warehouse & Transportation Co Ltd* 59,834
58,000 Mitsuboshi Belting 135,562
30,000 Mitsui Petrochemical Industries Ltd 71,181
3,000 Mizuno Corporation 9,030
31,000 Mori Seiki Co Ltd 337,906
13,000 Nagase & Co 47,510
57,000 Nagoya Railroad Co Ltd 161,081
2,000 Namco Ltd 43,346
39,000 Nankai Electric Railway Co Ltd 155,238
25,000 NGK Spark Plug Co 216,021
11,000 NHK Spring Co Ltd 26,177
26,000 Nichicon Corp 316,552
118,000 Nichiei Co Ltd 111,155
7,000 Nichirei 11,453
83,000 Nihon Cement Co Ltd 186,940
3,000 Nihon Unisys Ltd 20,611
116,000 Nippon Chemi-Con Corp 402,578
7,000 Nippon Comsys 68,964
37,000 Nippon Hodo Co 140,201
13,000 Nippon Kayaku Co Ltd 45,853
72,000 Nippon Meat Packers Inc 786,345
25,000 Nippon Paint Co 37,361
133,000 Nippon Sheet Glass Co Ltd 203,471
25,000 Nippon Shokubai Corp 112,437
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
62,000 Nippon Suisan Kaisha Ltd* 65,430
22,000 Nippon Zeon Ltd 65,132
29,000 Nishimatsu Construction 133,508
53,000 Nissan Fire & Marine Insurance Co Ltd 159,912
35,000 Nisshin Oil Mills Ltd 66,683
295,000 Nisshin Steel Co Ltd 344,748
46,000 Nisshinbo Industries Inc 144,005
67,000 Nissho Iwai Corp 97,280
4,000 Nissin Food Products Co Ltd 60,061
63,000 Nitto Boseki Co Ltd 128,508
57,000 Nitto Denko Corp 765,840
35,000 NSK Ltd 126,921
40,000 Okamoto Industries Inc 78,476
8,000 Okumura Corp 25,724
87,000 Olympus Optical Co Ltd 936,610
192,000 Onoda Cement Co Ltd 356,286
58,000 Onward Kashiyama Co Ltd 711,084
2,000 Oyo Corp 26,900
6,000 Pioneer Electronics Corp 98,803
25,000 Q.P. Corp 143,778
312,000 Renown Inc* 192,252
5,000 Rinnai Corp 77,909
52,000 Royal Co Ltd 685,034
5,000 Ryosan Co 78,617
23,000 Sanden Corp 145,145
79,000 Sankyo Aluminum Industry Co Ltd 68,263
33,000 Sanrio Co Ltd* 375,367
11,000 Sanwa Shutter Corp 41,837
145,000 Sanyo Securities Co Ltd* 1,027
13,000 Sapporo Breweries Ltd 40,052
54,000 Seino Transportation Co Ltd 271,549
7,000 Shimachu Co 112,543
10,000 Shimadzu Corp 30,951
4,000 Shimano Inc 90,091
134,000 Shionogi and Co Ltd 729,839
372,000 Showa Denko 313,535
37,000 Showa Electric Wire & Cable 48,743
142,000 Showa Shell Sekiyu 588,356
5,000 Skylark Co Ltd 46,427
See accompanying notes to the financial statements. 9
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Japan - continued
10,000 Snow Brand Milk Products Co Ltd 27,622
70,000 Stanley Electric Co Ltd 228,557
67,000 Sumitomo Bakelite Co Ltd 371,089
39,000 Sumitomo Osaka Cement Co Ltd 54,140
40,000 Taiyo Yuden Co Ltd 433,175
13,000 Takara Shuzo Co Ltd 49,720
31,895 Takara Standard Co 192,920
72,000 Tanabe Seiyaku Co Ltd 326,369
79,000 Teikoku Oil Co Ltd 203,109
61,000 Tobu Railway Co Ltd 140,846
108,000 Toda Corp 375,579
800 Toho Co Ltd 76,493
60,000 Tokai Carbon Co Ltd 107,090
49,000 Tokuyama Corp 124,938
17,000 Tokyo Broadcasting System Inc 161,343
122,000 Tokyo Construction Co Ltd 79,496
87,000 Tokyo Electric Co Ltd 210,121
100,000 Tokyo Ink Manufacturing Co Ltd 204,689
43,000 Tokyo Rope Manufacturing Co Ltd 44,465
8,000 Tokyo Steel Manufacturing Co 33,543
34,000 Tokyo Style Co Ltd 294,993
16,000 Tokyu Department Store Co Ltd 16,432
13,000 Toshiba Ceramics Co Ltd 37,290
28,000 Toshiba Tungaloy Co Ltd 78,334
19,000 Toyo Engineering Corp 21,397
11,000 Toyo Suisan Kaisha 60,224
41,000 Tsubakimoto Chain 104,540
4,000 Uniden Corp 34,138
185,000 Victor Co of Japan Ltd 1,293,257
56,000 Wacoal Corp 484,284
4,000 Yakult Honsha Co Ltd 19,265
9,000 Yamaha Corp 71,457
11,000 Yamatake Honeywell 104,788
6,000 Yamazaki Baking Co Ltd 52,270
71,000 Yodogawa Steel Works 281,606
21,000 Yokogawa Electric Corp 97,422
101,000 Yokohama Rubber Co 213,174
18,000 Yoshitomi Pharmaceutical Industries Ltd 144,061
---------------
39,303,647
---------------
Luxembourg - 0.0%
370 TAG Heuer International SA 30,699
---------------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Malaysia - 0.7%
23,000 Aluminum Co of Malaysia 3,270
17,000 Ayer Hitam Tin Dredging* 1,178
33,000 Carlsberg Brew Malaysia 60,713
52,000 Cement Industries of Malaysia Berhad 16,152
13,000 DMIB Berhad 1,988
44,000 Edaran Otomobil Berhad 37,847
42,000 Esso Berhad 21,877
31,000 Faber Group Berhad* 1,667
56,000 Golden Plus Holdings 7,092
183,000 Guinness Anchor Berhad 108,875
36,000 Highlands and Lowlands Berhad 16,429
53,000 Hong Leong Industries Berhad 31,406
208,000 IJM Corp Berhad Class A 33,795
132,000 Innovest Berhad* 8,673
308,000 IOI Corporation Berhad 107,456
73,000 Johan Holdings Berhad 4,448
53,000 Kedah Cement Berhad 23,807
123,000 Kemayan Corporation Berhad 5,290
70,000 Kian Joo Can Factory 49,674
133,000 Malayan Cement Berhad 37,181
128,000 Malayan United Industries Berhad* 9,481
23,000 Malayawata Steel 3,325
129,000 Malaysia Mining Berhad 18,494
11,000 Malaysian Airline Systems 4,048
66,000 Malaysian Mosaics* 11,118
3,000 Malaysian Oxygen Berhad* 3,527
72,000 Malaysian Pacific Industries* 67,093
99,000 Malaysian Plantations* 7,451
4,200 Matsushita Electric Co (Malaysia) Berhad 8,881
503,000 Metroplex Berhad 40,863
636,000 Mulpha International 40,270
369,000 Multi Purpose Holdings 40,557
420,000 Naluri Berhad 28,600
53,000 New Straits Times 15,196
62,000 Oriental Holdings Berhad 59,552
28,000 OYL Industries Berhad 32,782
16,000 Palmco Holdings Berhad 1,950
40,000 Pan Malaysia Cement 6,021
146,000 Pernas International Hotel & Property 23,024
See accompanying notes to the financial statements. 11
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Malaysia - continued
22,000 Perusahaan Otomobil Nasional Berhad 10,618
103,000 Petronas Dagangan Berhad 46,759
357,000 Promet Berhad* 24,737
312,000 Rekapacific Berhad* 12,673
94,000 RJ Reynolds Berhad 67,379
23,000 Sarawak Enterprises Corp 3,902
8,000 Sime Darby 1,961
9,000 Sistem Television Malaysia 1,193
246,000 Sungei Way Holdings 30,564
294,000 Tan Chong Motor Holdings Berhad 37,582
90,000 Technology Resources Industries 12,687
28,000 Tractors Holdings Berhad 5,754
73,000 UMW Holdings Berhad 17,617
32,000 United Engineers* 6,728
------------
1,281,205
------------
Singapore - 0.2%
1,833,000 Chuan Hup Holdings Ltd 335,431
1,650 Haw Par Brothers International Ltd Warrants 7/18/2001* 93
61,000 Prima Ltd 49,803
------------
385,327
------------
Spain - 0.1%
49,795 Sarrio SA* 182,868
------------
Sweden - 5.6%
14,400 AGA AB Class A 200,289
15,100 AGA AB Class B 206,292
10,700 Atlas Copco AB 210,341
6,600 Atlas Copco AB Class B 130,559
32,800 Avesta Sheffield AB 103,814
17,222 Celsius Industrier AB Class B 332,163
20,900 Enator AB 550,388
200 Esselte AB Class A 3,338
19,970 Gambro AB Class A 218,506
11,560 Gambro AB Class B 126,486
35,264 Indstrivarden AB Class A 518,825
16,800 Kinnevik Investment Class B 531,731
26,600 Mo Och Domsjo AB Class B 522,903
2,100 Modern Times Group AB* 28,560
6,600 Sandivik AB Class B 134,231
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Sweden - continued
14,200 Scancem AB Class A 474,018
9,600 Scania AB Class A 216,016
8,200 Scania AB Class B 184,513
9,800 Securitas AB 501,613
40,200 Skandia Forsakrings AB 564,111
12,200 SKF AB Class B 187,036
18,000 Ssab Swedish Steel Class A 195,838
241,534 Stena Line AB Class B 409,111
10,297 Svedala Industries 161,680
30,200 Svenska Handelsbanken Class B* 1,090,266
14,025 Svenska Kullagerfabriken AB 216,748
53,597 Sydkraft AB Class A 1,457,827
41,958 Sydkraft AB Class C 853,343
8,398 Trygg Hansa Holdings AB Class B* 249,190
---------------
10,579,736
---------------
Switzerland - 3.1%
600 Adecco SA (Bearer) 279,610
80 Ares-Serono SA Class B (Bearer) 97,352
50 Ascom Holding AG (Bearer) 82,279
280 Ascom Holding AG (Registered) 79,375
210 Baloise Holdings 160,299
130 Banca del Gottardo 91,682
280 Banque Cantonale Vaudoise (Bearer) 99,509
1,970 BK Vision AG (Bearer)* 404,543
60 Bobst AG (Registered) 43,974
40 Bobst SA (Bearer) 63,611
1,300 Clariant Namen AG 630,989
350 Danzas Holding AG 94,379
50 Ems-Chemie Holding AG (Bearer)* 283,655
90 Fischer (George) AG (Registered)* 27,069
200 Forbo Holdings AG (Registered) 89,885
220 Helvetia Patria Holding 228,168
60 Hero AG (Bearer) 36,507
300 Hero Lenzburg AG (Registered) 46,152
290 Hilti AG (Participating Certificate) 196,501
190 Intershop Holdings AG (Bearer) 118,890
60 Jelmoli (Bearer) 71,147
200 Jelmoli (Registered) 47,017
40 Julius Baer Holdings (Bearer) 110,627
See accompanying notes to the financial statements. 13
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Switzerland - continued
45 Kuoni Reisen Holdings AG (Registered) 152,458
50 Motor-Columbus (Bearer) 87,119
140 Movenpick Holdings (Bearer) 67,759
1,600 Oerlikon-Buhrle (Registered) 249,741
90 Pargesa Holdings SA (Bearer) 130,678
200 Pharma Vision* 125,147
310 Rieter Holdings AG (Registered) 183,046
1,390 Sairgroup Zuerich (Registered)* 345,506
200 Saurer Group Holdings (Registered)* 160,686
60 Schindler-Holding AG (Participant Certificates) 73,014
100 Schindler-Holding AG (Registered) 127,913
40 SGS Societe Generale de Surveillance
Holding SA (Bearer) 44,527
90 SGS Societe Generale de Surveillance
Holding SA (Registered) 22,651
180 SIG Schweizerische Industrie-Gesellschaft
Holding AG (Registered) 124,456
330 Sika Finanz AG (Bearer) 104,501
380 Sulzer Gebrueder AG (Registered) 208,352
80 Swatch Group AG (Bearer) 45,081
300 Swatch Group AG (Registered) 41,070
80 Vontobel Holding AG Class B 101,777
60 Zellweger Luwa AG (Bearer) 41,485
---------------
5,820,187
---------------
United Kingdom - 33.1%
145,700 AMEC* 336,075
38,366 Amstrad Plc* 18,631
132,300 Anglian Water Plc 1,925,151
58,165 Arcadia Group 309,723
117,800 Arjo Wiggins Appleton Plc 264,323
1,049,300 ASDA Group 2,986,990
169,600 Associated British Ports* 766,787
144,800 Astec (BSR) 167,303
115,590 Barratt Development* 313,560
128,700 Beazer Holmes Plc* 282,316
90,212 Berisford International* 305,141
225,800 BICC Group* 328,949
143,100 Blue Circle Industries 678,127
71,200 Bowthorpe Holdings 491,205
136,000 BPB Industries Plc* 659,853
134,500 British Land Co 1,157,632
190,600 British Steel Plc 343,097
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
206,135 Bunzl Co 819,786
211,400 Caradon Plc 495,585
23,335 Carlton Communications 172,975
295,100 Centrica Plc* 457,084
24,740 Charter Plc (Registered) 224,535
45,300 Christian Salvesen Plc 71,304
89,100 Coats Viyella 85,043
49,648 Cobham Group Plc 723,280
71,300 Cordiant Communications Group 125,361
89,502 Costain Group Plc* 29,974
41,081 Dawson International 12,382
137,131 Debenhams Plc 740,543
67,700 Delta Plc 154,175
187,000 Electrocomponents Plc 1,189,900
217,180 Elementis Plc 356,395
191,359 English China Clays Plc 479,044
53,842 Express Dairies Plc 118,108
83,500 First Leisure Plc 352,348
92,300 Glynwed International 292,112
82,700 Great Portland Estates Plc 290,810
115,020 Greenalls Group Plc 706,846
36,909 Greycoat Plc 106,921
132,536 Hammerson Plc 898,823
106,020 Hazlewood Foods 307,128
95,000 Hepworth Plc 244,979
391,176 Hillsdown Holdings 920,309
49,183 Hyder Plc 785,685
12,618 Hyder Plc Cumulative Redemption Preferred, 7.87% 26,358
180,744 Inchcape 484,249
113,800 Johnson Matthey 743,177
970,767 Ladbroke Group 3,901,318
30,234 Laing (John) 176,181
9,009 Laing (John) Class A (Non Voting) 52,498
47,800 Laird Group 180,493
6,200 Laporte Plc 58,762
848,517 Lasmo Plc 2,256,012
76,660 Lex Service 543,635
193,546 Lonrho Africa Plc 158,805
179,946 Lonrho Plc 668,929
See accompanying notes to the financial statements. 15
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
145,634 Marley Plc 192,653
52,848 Meyer International 223,890
269,700 MFI Furniture Group 180,645
115,600 Mirror Group Plc 341,655
124,800 Morgan Crucible 594,541
395,800 NFC Plc 845,028
167,497 Norcros Plc 180,906
98,885 Northern Foods Plc 289,770
64,780 Ocean Group 736,810
21,900 Oxford Instruments 78,844
256,700 Pilkington 339,577
116,200 Premeir Farnell Plc 424,178
92,595 Provident Financial Plc 1,381,498
148,100 Racal Electronics 810,939
63,200 Railtrack Group Plc 1,497,472
24,400 Rank Group Plc 115,219
198,400 Rexam Plc 674,408
227,300 Rugby Group 281,654
93,500 Saatchi & Saatchi Plc 159,697
176,600 Scottish Hydro-Electric Plc 1,630,878
33,450 Sears Plc* 109,223
268,497 Securicor Plc 2,328,919
199,700 Sedgwick Group 708,923
33,450 Selfridges Plc* 132,749
28,840 Severn Trent Plc 488,238
364,940 Signet Group Plc 183,328
83,125 Simon Engineering 56,721
61,100 Slough Estates 312,051
122,390 Smith (WH) Group Plc 946,832
145,100 Smith (WH) Group Plc Class B 48,594
83,000 Southern Electric Plc 779,003
39,416 Southwest Water 679,822
189,900 St James's Place Capital 998,481
214,242 Storehouse Plc 782,071
890,364 Tarmac 1,162,913
86,600 Tate & Lyle 632,251
677,180 Taylor Woodrow Plc 1,542,156
295,000 Telewest Communications Plc* 775,545
51,516 Thames Water Plc 924,745
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, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
United Kingdom - continued
56,200 Thames Water Plc Class B 71,521
58,239 Transport Development Group Plc 231,125
111,000 Transport Development Group Plc Class B 63,939
54,500 Unigate 456,301
214,100 United Biscuits Plc 670,415
240,863 United Biscuits Plc Class B 100,831
87,226 Viglen Technology Plc* 24,830
75,100 Waste Management International* 408,704
94,800 Wessex Water Plc 933,406
201,600 Willis Corroon Group Plc 675,158
114,780 Wilson (Connolly) Holdings 217,185
417,035 Wimpey (George) 677,375
5,368 Wolseley 26,966
140,700 Yorkshire Water 1,123,233
---------------
62,000,531
---------------
United States - 0.0%
2,125 Ultramar Diamond Shamrock Corp 49,141
---------------
TOTAL STOCK AND EQUIVALENTS (Cost $208,774,908) 176,416,052
---------------
SHORT-TERM INVESTMENTS - 7.3%
Cash Equivalents - 4.3%
3,145,259 The Boston Global Investment Trust (b) 3,145,259
$5,000,000 Wachovia Bank Time Deposit, 5.70% due 9/1/98 5,000,000
---------------
8,145,259
---------------
U.S. Government - 3.0%
$5,650,000 U.S. Treasury Bill, 5.39% due 1/7/99 (a) 5,554,779
---------------
TOTAL SHORT-TERM INVESTMENTS (Cost $13,694,561) 13,700,038
---------------
TOTAL INVESTMENTS - 101.4%
(Cost $222,469,469) 190,116,090
Other Assets and Liabilities (net) - (1.4%) (2,593,473)
---------------
TOTAL NET ASSETS - 100.0% $ 187,522,617
===============
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
(a) This security is held as collateral for open futures contracts (Note
6).
(b) Represents investment of security lending collateral (Note 1).
(c) Bankrupt issuer.
* Non-income producing security.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification
of the Fund's equity investments was as follows:
Industry Sector
Services 12.9%
Construction 8.4
Consumer Goods 7.9
Machinery 6.9
Retail Trade 6.7
Health Care 4.6
Utilities 4.6
Electronic Equipment 4.1
Conglomerates 3.8
Chemicals 3.8
Transportation 3.7
Banking 3.7
Oil and Gas 3.1
Metals and Mining 3.0
Financial Services 2.6
Insurance 2.3
Paper and Allied Products 2.0
Real Estate 1.9
Textiles 1.7
Automotive 1.7
Communications 1.3
Aerospace 1.2
Food and Beverage 1.1
Telecommunications 1.0
Computers 0.2
Miscellaneous 5.8
--------
100.0%
========
See accompanying notes to the financial statements. 19
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $222,469,469) (Note 1) $ 190,116,090
Foreign currency, at value (cost $850,303) (Note 1) 847,162
Cash 15,071
Dividends and interest receivable 460,848
Receivable for open forward foreign currency contracts (Notes 1 and 6) 2,443,425
Foreign withholding taxes receivable 224,705
Receivable for expenses waived or borne by Manager (Note 2) 131,481
-------------
Total assets 194,238,782
-------------
Liabilities:
Payable for open forward foreign currency contracts (Notes 1 and 6) 2,514,232
Payable upon return of securities loaned (Note 1) 3,145,259
Payable for variation margin on open futures contracts (Notes 1 and 6) 699,388
Payable to affiliate for (Note 2):
Management fee 216,840
Shareholder service fee 26,019
Accrued expenses 114,427
-------------
Total liabilities 6,716,165
-------------
Net assets $ 187,522,617
-------------
Net assets consist of:
Paid-in capital $ 209,927,337
Accumulated undistributed net investment income 1,955,718
Accumulated undistributed net realized gain 9,280,982
Net unrealized depreciation (33,641,420)
-------------
$ 187,522,617
=============
Net assets attributable to Class III Shares $ 187,522,617
=============
Shares outstanding - Class III 17,085,244
=============
Net asset value per share - Class III $ 10.98
=============
</TABLE>
20 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment income:
Dividends (net of foreign tax expense of $405,934) $ 3,186,948
Interest (including securities lending income of $10,279) 310,917
------------
Total income 3,497,865
------------
Expenses:
Management fee (Note 2) 1,461,678
Custodian fees 134,412
Audit fees 26,956
Transfer agent fees 14,812
Registration fees 5,538
Legal fees 2,944
Trustees fees (Note 2) 920
Miscellaneous 920
Fees waived or borne by Manager (Note 2) (946,553)
------------
701,627
Shareholder service fee - Class III (Note 2) 175,401
------------
Net expenses 877,028
------------
Net investment income 2,620,837
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 6,197,170
Closed futures contracts 4,445,206
Closed swap contracts 1,851,520
Foreign currency, forward contracts and foreign
currency related transactions (798,046)
------------
Net realized gain 11,695,850
------------
Change in net unrealized appreciation (depreciation) on:
Investments (30,411,282)
Open futures contracts (2,752,086)
Open swap contracts (1,437,500)
Foreign currency, forward contracts and foreign
currency related transactions 2,362,862
------------
Net unrealized loss (32,238,006)
------------
Net realized and unrealized loss (20,542,156)
------------
Net decrease in net assets resulting from operations $(17,921,319)
============
See accompanying notes to the financial statements. 21
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
----------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,620,837 $ 4,505,291
Net realized gain 11,695,850 29,987,922
Change in net unrealized appreciation (depreciation) (32,238,006) (20,830,611)
------------- -------------
Net increase (decrease) in net assets resulting from operations (17,921,319) 13,662,602
------------- -------------
Distributions to shareholders from:
Net investment income - Class III -- (4,394,112)
Net realized gains - Class III (2,363,457) (28,025,043)
------------- -------------
(2,363,457) (32,419,155)
------------- -------------
Net share transactions - Class III (Note 5) (26,347,164) 17,258,306
------------- -------------
Total decrease in net assets (46,631,940) (1,498,247)
Net assets:
Beginning of period 234,154,557 235,652,804
------------- -------------
End of period (including accumulated undistributed net
investment income of $1,955,718 and distributions in
excess of net investment income of $665,119, respectively) $ 187,522,617 $ 234,154,557
============= =============
</TABLE>
22 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, 1998 -----------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.22 $ 13.46 $ 12.95 $ 11.95 $ 14.45 $ 8.91
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.15 0.27 0.23 0.18 0.18 0.15
Net realized and unrealized gain (loss) (1.26) 0.42 0.55 1.16 (1.52) 5.59
--------- --------- --------- --------- --------- ---------
Total from investment operations (1.11) 0.69 0.78 1.34 (1.34) 5.74
--------- --------- --------- --------- --------- ---------
Less distributions to shareholders from:
Net investment income -- (0.26) (0.07) (0.17) (0.20) (0.12)
In excess of net investment income -- -- -- (0.02) -- --
Net realized gains (0.13) (1.67) (0.20) (0.15) (0.96) (0.08)
In excess of net realized gains -- -- (0.00) -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.13) (1.93) (0.27) (0.34) (1.16) (0.20)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 10.98 $ 12.22 $ 13.46 $ 12.95 $ 11.95 $ 14.45
========= ========= ========= ========= ========= =========
Total Return (a) (9.18%) 6.92% 5.99% 11.43% (9.66%) 64.67%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 187,523 $ 234,155 $ 235,653 $ 218,964 $ 186,185 $ 132,645
Net expenses to average
daily net assets 0.75% * 0.75% 0.76% (b) 0.76% (b) 0.76% (b) 0.75%
Net investment income to average
daily net assets 2.24% * 1.93% 1.75% 1.84% 1.45% 1.50%
Portfolio turnover rate 5% 79% 13% 13% 58% 38%
Fees and expenses voluntarily waived or
borne by the Manager consisted of
the following per share amounts: $ 0.05 $ 0.12 $ 0.10 $ 0.07 $ 0.08 $ 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) 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. 23
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Small Companies Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees
to create an unlimited number of series ("Funds"), each of which issues a
separate series of shares, and to subdivide a series into classes.
The Fund seeks maximum total return through investment primarily in equity
securities of small capitalization foreign companies traded on a major stock
exchange of a foreign country.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees or other
persons acting at their direction.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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.
24
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts in connection with planned
purchases or sales of securities or to hedge the currency exposure associated
with some or all of the Fund's portfolio securities. A forward currency
contract is an agreement between two parties to buy and sell a currency at a
set price on a future date. The market value of a forward currency contract
fluctuates with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded by
the Fund as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt of
the currency or, if a forward currency contract is offset by entering into
another forward currency contract with the same broker, upon settlement of
the net gain or loss. These contracts may involve market risk in excess of
the unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. In addition, the Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value
of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value
of the currencies the Fund has committed to sell is shown under Note 6, and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1998.
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 market. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. Upon entering
into a futures contract, the Fund is required to deposit with its custodian,
in a segregated account in the name of the futures broker, an amount of cash
or U.S. government obligations in accordance with the initial margin
requirements of the broker or exchange. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in value
("variation margin") is recorded by the Fund. The payable or receivable is
subsequently settled. Gains or losses are recognized but not considered
realized until the contracts expire or are closed. Futures contracts involve,
to varying degrees, risk of loss in excess of the variation margin disclosed
in the Statement of Assets and Liabilities. Losses may arise from the changes
in the value of the underlying instrument, if there is an illiquid secondary
market for the contracts or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts as of August 31, 1998.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund enters into swap agreements to manage its exposure to
the equity markets. The Fund enters into total return swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the Fund
will receive a
25
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
payment from or make a payment to the counterparty, respectively. Total
return swaps are marked to market daily based upon quotations from market
makers and the change, if any, is recorded as unrealized gain or loss in the
Statement of Operations. Payments received or made at the end of the
measurement period are recorded as realized gain or loss in the Statement of
Operations. Entering into these agreements involves, to varying degrees,
elements of credit and market risk in excess of the amounts recognized on the
Statement of Assets and Liabilities. Such risks involve the possibility that
there 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, 1998, there were no open swap agreements.
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, 1998, the Fund loaned securities having a market value of
$2,989,905 collateralized by cash in the amount of $3,145,259 which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States. Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be treated,
to the extent allowable under the Code, as if received and paid by the
shareholders of the Fund.
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.
26
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date, if later. Interest income is recorded on the accrual basis
and is adjusted for the accretion of discounts. In determining the net gain
or loss on securities sold, the cost of securities is determined on the
identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees, taking
into consideration, among other things, the nature and type of expense and
the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.00% of the amount invested.
In the case of cash redemptions, the fee is .60% of the amount redeemed. All
purchase premiums and redemption fees are paid to and recorded by the Fund as
paid-in capital. Purchase premiums are included as part of "shares sold" and
redemption fees are included as part of "shares repurchased", respectively,
as summarized in Note 5. For the six months ended August 31, 1998, the Fund
received $45,353 in purchase premiums and $200,656 in redemption fees. There
is no premium for reinvested distributions. Normally, no purchase premium is
charged with respect to in-kind purchases of Fund shares. A purchase premium
of up to .10% may be charged on certain in-kind transactions.
Investment risk
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities. These
risks may involve adverse political and economic developments 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the Shareholder
Service Plan, the shareholder service fee is calculated based on the average
daily net assets at the annual rate of .15% for Class III shares.
GMO has 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.
27
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees
during the six months ended August 31, 1998, was $920. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, for the six months ended August 31, 1998, aggregated $10,926,538
and $30,417,433, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------- -------------------- -------------------- --------------
$222,469,469 $21,953,376 $54,306,755 $32,353,379
4. Principal shareholder
At August 31, 1998, 15.51% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
------------ ------------ ------------ ------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 339,982 $ 4,535,329 2,671,927 $ 37,883,371
Shares issued to shareholders
in reinvestment of
distributions 184,800 2,359,887 2,808,143 30,552,594
Shares repurchased (2,603,348) (33,242,380) (3,825,152) (51,177,659)
------------ ------------ ------------ ------------
Net increase/(decrease) (2,078,566) $(26,347,164) 1,654,918 $ 17,258,306
============ ============ ============ ============
</TABLE>
28
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
Net Unrealized
Settlement Units Appreciation
Date Deliver/Receive of Currency Value (Depreciation)
- ---------- --------------- ---------------- ------------- --------------
Buys
11/20/98 ATS 41,394,034 $ 3,350,857 $ 87,748
12/11/98 AUD 2,991,623 1,712,748 (87,252)
11/20/98 BEF 301,061,320 8,316,309 185,212
11/20/98 DEM 21,068,688 12,003,510 83,112
11/20/98 ESP 2,336,746,718 15,642,803 368,641
11/20/98 FIM 34,271,327 6,413,652 151,384
11/20/98 FRF 151,321,157 25,722,511 678,954
11/20/98 GBP 7,408,207 12,353,630 253,630
11/20/98 IEP 4,698,184 6,668,007 149,799
11/20/98 ITL 3,204,093,500 1,840,445 35,017
11/20/98 NLG 29,150,028 14,720,601 220,267
11/20/98 NOK 88,338,922 11,186,201 (293,229)
11/20/98 SEK 8,326,615 1,032,374 (17,626)
-------------
$ 1,815,657
=============
Sales
11/20/98 ATS 23,269,215 $ 1,883,649 $ (33,649)
11/20/98 BEF 102,206,024 2,823,268 (70,688)
12/11/98 CAD 363,276 232,036 8,226
11/20/98 CHF 745,900 520,334 (27,111)
11/20/98 DEM 24,391,358 13,896,543 (275,455)
11/20/98 ESP 754,017,500 5,047,593 (47,593)
11/20/98 FRF 63,305,468 10,761,057 (256,967)
11/20/98 GBP 26,879,831 44,823,730 (941,076)
12/11/98 JPY 3,074,025,285 22,091,979 (428,344)
11/20/98 NLG 3,832,205 1,935,242 (35,242)
11/20/98 NOK 44,444,903 5,627,979 201,275
11/20/98 SEK 9,516,000 1,179,840 20,160
-------------
$ (1,886,464)
=============
29
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Currency Abbreviations:
ATS Austrian Schilling FRF French Franc
AUD Australian Dollar GBP British Pound
BEF Belgian Franc IEP Irish Pound
CAD Canadian Dollar ITL Italian Lira
CHF Swiss Franc JPY Japanese Yen
DEM German Mark NLG Netherlands Guilder
ESP Spanish Peseta NOK Norwegian Kroner
FIM Finnish Markka SEK Swedish Krona
Futures contracts
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
- ---------- --------------- --------------- -------------- --------------
Buys
200 ALL ORDS September 1998 $ 7,064,430 $ (565,851)
10 CAC40 September 1998 309,645 (59,912)
24 DAX September 1998 6,567,848 (1,207,785)
53 Hang Seng IDX September 1998 2,393,795 (274,124)
82 IBEX35 September 1998 4,526,658 (1,058,735)
11 OMX September 1998 90,303 (6,022)
67 MIB30 September 1998 12,054,118 (1,065,427)
===========
$(4,237,856)
===========
Sells
175 FTSE100 September 1998 $15,399,126 $ 1,721,808
133 TOPIX September 1998 10,390,183 877,153
13 TSE35 September 1998 1,207,621 413,494
===========
$ 3,012,455
===========
At August 31, 1998, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
30
<PAGE>
GMO International Small Companies Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
7. Subsequent Event
Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month holding
period starts on the date of acquisition or September 1, 1998, whichever is
later. The proceeds of any sale of Malaysian securities during that holding
period must be held in Malaysian ringgits (or re-invested in Malaysian
securities) until the end of the holding period, at the earliest September
1, 1999. The Manager has assessed the risks inherent to these controls and
has taken action to limit those risks. Under fair value procedures adopted
by the Board of Trustees, Malaysian securities are valued at their exchange-
traded prices, and that value is converted into U.S. dollars at a discounted
foreign exchange rate to reflect the currency and inflation risk of holding
ringgit.
31
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS - 81.6%
Advertising - 0.1%
7,500 Cordiant Communications Group Plc Sponsored ADR 72,188
10,000 Saatchi & Saatchi Plc ADR 83,125
----------
155,313
----------
Automotive - 1.9%
12,500 Exide Corp 124,219
15,000 General Motors Corp 866,250
72,500 Mascotech Industries Inc 1,268,750
35,000 Michelin SA Class B 1,489,993
----------
3,749,212
----------
Banking and Financial Services - 9.7%
30,000 American Express Co 2,340,000
425,000 Bangkok Bank Public Co Ltd 299,224
15,000 Bank of Tokyo-Mitsubishi Ltd (The) ADR 101,250
100,000 Block (HR) Inc 3,912,475
70,000 Chase Manhattan Corp 3,710,000
32,500 Citicorp 3,514,063
20,000 First Chicago NBD Corp 1,267,500
5,000 NationsBank Corp 285,000
10,000 PNC Bank Corp 430,000
50,000 Travelers Group Inc (The) 2,218,750
2,500 Unibanco S.A. Sponsored GDR 51,375
5,000 Wells Fargo Co 1,409,375
----------
19,539,012
----------
Chemicals - 0.7%
20,000 Albemarle Corp 336,250
10,000 Bayer A G 375,387
7,500 Du Pont (EI) De Nemours & Co Inc 432,656
5,000 NOVA Corp 58,125
10,000 Wellman Inc 114,375
----------
1,316,793
----------
Computer and Office Equipment - 4.3%
120,000 Compaq Computer Corp 3,352,500
5,000 Hewlett-Packard Co 242,813
40,000 IBM Corp 4,505,000
50,000 Intergraph Corp* 315,625
5,000 Seagate Technology* 87,500
10,000 Silicon Graphics Inc* 90,625
----------
8,594,063
----------
Consumer Goods - 2.4%
45,000 Eastman Kodak 3,515,625
25,000 Maytag Corp 1,078,125
50,000 Safety-Kleen Corp* 146,875
12,500 Sunbeam Corp* 93,750
----------
4,834,375
----------
See accompanying notes to the financial statements. 1
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Electronic Equipment - 0.5%
5,000 Advanced Micro Devices Inc* 65,938
125,000 International Rectifier Corp* 531,250
35,000 National Semiconductor Corp* 319,375
---------
916,563
---------
Food and Beverage - 4.0%
75,000 Anheuser-Busch Cos Inc 3,459,375
7,875 Archer Daniels Midland* 118,125
7,500 Coors (Adolph) Co 309,375
40,000 Nestle SA ADR 3,708,664
20,000 RJR Nabisco Holdings Corp 433,750
---------
8,029,289
---------
Health Care - 1.1%
20,000 Baxter International Inc 1,065,000
35,000 Beverly Enterprises Inc* 275,625
50,000 Owens and Minor Holdings Co 590,625
40,000 PhyCor Inc* 277,500
5,000 Quest Diagnostics Inc* 83,125
---------
2,291,875
---------
Insurance - 4.5%
5,000 Aetna Inc 300,938
47,500 Allstate Corp 1,781,250
20,000 Chartwell Re Corp 526,250
15,000 Cigna Corp 872,813
100,000 Reliance Group Holdings Inc 1,262,500
50,000 Sedgwick Group ADR* 831,250
5,000 St. Paul Cos Inc 152,813
130,000 TIG Holdings Inc 1,795,625
50,000 USF & G Corp 653,125
55,000 Willis Corroon Group Plc ADR* 883,438
---------
9,060,002
---------
Machinery - 1.9%
10,000 Baker Hughes Inc 182,500
25,000 Cincinnati Milacron Inc 484,375
5,000 Cummins Engine Inc 203,438
10,000 FMC Corp* 517,500
75,000 Pall Corp 1,537,500
25,000 Stanley Works 984,375
---------
3,909,688
---------
Manufacturing - 6.2%
20,000 American Greetings Corp 732,500
30,000 Clayton Homes Inc 463,125
85,000 Corning Inc 2,093,125
30,000 General Electric Co 2,400,000
50,000 Griffon Corp* 443,750
2,500 Minnesota Mining and Manufacturing Co 171,250
77,500 Owens Corning 2,717,344
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Manufacturing - continued
25,000 Rockwell International Corp 906,250
15,000 Tenneco Inc 475,313
30,000 United Technologies Corp 2,176,875
----------
12,579,532
----------
Metals and Mining - 0.7%
5,000 Alcan Aluminum Ltd 95,000
35,000 Allegheny Teledyne Inc 527,188
62,500 Amcol International Corp 734,375
15,000 Placer Dome Inc 120,938
----------
1,477,501
----------
Oil and Gas - 5.7%
17,500 Amerada Hess Corp 859,688
15,000 Cabot Oil & Gas Corp, Class A 191,250
50,000 EEX Corp* 221,875
40,000 Enron Oil & Gas Co 520,000
150,000 Gulf Canada Resources Ltd 450,000
42,500 Lasmo Plc ADR 329,375
20,000 Mitchell Energy Class A 270,000
50,000 Mitchell Energy Class B 700,000
10,000 Mobil Corp 691,250
105,000 Occidental Petroleum Corp 1,942,500
5,000 Texaco Inc 277,813
10,000 Triton Energy Ltd* 115,000
137,500 Union Pacific Resources Group Inc 1,177,344
40,000 Unocal Corp 1,252,500
65,000 USX - Marathon Group 1,690,000
40,000 Westcoast Energy Inc 707,500
----------
11,396,095
----------
Paper and Allied Products - 1.1%
25,000 Abitibi-Consolidated Inc 193,750
25,000 Fort James Corp 728,125
17,500 Kimberly-Clark Corp 667,188
17,500 Weyerhaeuser Co 657,344
----------
2,246,407
----------
Pharmaceuticals - 1.9%
5,000 Glaxo Wellcome Plc ADR* 277,813
35,000 Lilly (Eli) and Co 2,292,500
25,000 Mylan Laboratories Inc 571,875
22,755 PharMerica Inc* 88,887
10,000 Smithkline Beecham PLC 568,750
----------
3,799,825
----------
Primary Processing - 0.1%
20,000 Intermet Corp 300,000
----------
See accompanying notes to the financial statements. 3
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate - 3.3%
25,000 Boston Properties Inc 714,063
15,000 Crown American Realty Trust 112,500
5,000 Equity Residential Properties Trust 199,688
132,500 JP Realty Inc 2,666,563
75,000 Summit Properties Inc 1,256,250
75,000 United Dominion Realty Trust Inc 871,875
35,000 Walden Residential Properties Inc 791,875
----------
6,612,814
----------
Refining - 0.0%
5,000 Quaker State Corp 62,813
----------
Retail Trade - 5.7%
5,000 Costco Co Inc* 235,313
67,500 Federated Department Stores* 2,940,469
62,500 Saks Holdings Inc* 1,308,594
60,000 Sears Roebuck & Co 2,726,250
85,000 Toys R Us Inc* 1,577,813
47,500 Wal-Mart Stores Inc 2,790,625
----------
11,579,064
----------
Services - 5.9%
75,000 Browning-Ferris Industries Inc 2,437,500
15,000 Hilton Hotels Corp 311,250
50,000 Manpower Inc 1,018,750
5,000 News Corp Ltd ADR* 120,313
25,000 Ogden Corp 576,563
2,500 Time Warner Inc 200,938
157,500 Waste Management Inc* 6,949,688
25,000 Waste Management International Plc* 264,063
----------
11,879,065
----------
Technology - 4.1%
17,500 Avnet Inc 826,875
50,000 Data General Corp* 375,000
30,000 Electronic Data Systems Corp 1,005,000
20,000 Electronics for Imaging Inc* 292,500
5,000 GTECH Holdings Corp* 131,250
87,500 Information Resources Inc* 853,125
15,000 Intel Corp 1,067,813
125,000 Storage Technology Corp* 2,718,750
12,500 Xerox Corp 1,097,656
----------
8,367,969
----------
Telecommunications - 5.9%
7,500 AT&T Corp 375,938
35,000 CBS Corporation 910,000
22,500 Cox Communications Inc* 945,000
85,000 GTE Corp 4,250,000
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, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Telecommunications - continued
65,000 MediaOne Group Inc* 2,665,000
25,000 SBC Communications Inc 950,000
35,000 US WEST Inc 1,820,000
-----------
11,915,938
-----------
Tobacco - 0.4%
40,000 Imperial Tobacco Group Plc 713,336
-----------
Transportation - 3.5%
25,000 Airborne Freight Corp 487,500
17,500 AMR Corp* 953,750
50,000 Canadian Pacific Ltd 946,875
7,500 Delta Air Lines Inc* 765,000
100,000 Ryder System Inc 2,356,250
25,000 Sabre Group Holdings Inc* 800,000
2,500 UAL Corp* 150,781
10,000 US Airways Group Inc* 582,500
-----------
7,042,656
-----------
Utilities - 6.0%
10,000 Calpine Corp* 185,625
32,500 Duke Energy Co 2,027,188
35,000 Houston Industries Inc 1,008,438
100,000 Niagara Mohawk Power Corp* 1,550,000
5,000 Pacific Corp 112,813
100,000 Texas Utilities 4,250,000
25,000 TransCanada Pipeline Ltd 339,063
75,000 Unicom Corp 2,671,875
-----------
12,145,002
-----------
TOTAL COMMON STOCKS (Cost $128,939,791) 164,514,202
-----------
PREFERRED STOCKS - 0.4%
Oil and Gas - 0.1%
5,000 Unocal Corp Convertible Preferred 6.25% 263,125
-----------
Metals and Mining - 0.3%
500 Armco Inc Convertible Preferred $3.625 21,375
25,000 Freeport-McMoran Corp Preferred 445,313
-----------
466,688
-----------
TOTAL PREFERRED STOCKS (Cost $1,181,295) 729,813
-----------
DEBT OBLIGATIONS - 13.5%
Banking and Financial Services - 0.5%
$ 1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 984,070
-----------
Computer and Office Equipment - 1.2%
2,500,000 IBM Corp, 6.50% due 1/15/28 2,444,150
-----------
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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Electronic Equipment - 0.5%
$ 1,500,000 Advanced Micro Devices Inc, 6.00% due 5/15/05 1,080,000
-----------------
Food and Beverage - 0.7%
500,000 Anheuser-Busch Cos Inc, 7.10% due 6/15/07 521,410
130,000 Anheuser-Busch Cos Inc, 8.50% due 3/1/17 134,636
750,000 General Foods Corp, 7.00% due 6/15/11 747,383
-----------------
1,403,429
-----------------
Real Estate - 0.6%
1,250,000 HMH Properties Inc, 9.50% due 5/15/05 1,297,944
-----------------
Technology - 0.9%
1,000,000 Data General Corp, 6.00% due 5/15/04 755,000
1,000,000 VLSI Technology Inc, 8.25% due 10/01/05 992,500
-----------------
1,747,500
-----------------
Transportation - 1.4%
1,000,000 AMR Corp, 9.00% due 8/1/12 1,124,170
500,000 Seariver Maritime Inc Floating Rate Note, 5.65% due 10/1/11 500,000
1,000,000 United Air Lines Inc, 9.13% due 1/15/12 1,140,820
-----------------
2,764,990
-----------------
U.S. Government - 7.7%
6,000,000 U.S. Treasury Bond, 11.13% due 8/15/03 7,584,360
1,250,000 U.S. Treasury Bond, 10.75% due 8/15/05 1,658,988
2,750,000 U.S. Treasury Bond, 7.25% due 5/15/16 3,316,748
1,250,000 U.S. Treasury Note, 7.75% due 2/15/01 1,328,125
1,500,000 U.S. Treasury Note, 6.625% due 5/15/07 1,655,865
-----------------
15,544,086
-----------------
TOTAL DEBT OBLIGATIONS (Cost $26,038,669) 27,266,169
-----------------
SHORT-TERM INVESTMENT - 4.1%
8,320,000 State Street Bank and Trust Co Repurchase Agreement,
dated 8/31/98, due 9/01/98, with a maturity value of
$8,321,156 and an effective yield of 5.00%,
collateralized by a U.S. Treasury Bond, with a rate of
6.75% due 08/15/26 with an aggregate market value of
$8,583,750 (Cost $8,320,000). 8,320,000
-----------------
TOTAL INVESTMENTS - 99.6%
(Cost $164,479,755) 200,830,184
Other Assets and Liabilities (net) - 0.4% 819,079
-----------------
TOTAL NET ASSETS - 100.0% $ 201,649,263
=================
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
Floating Rate Notes - The rates shown on variable rate
notes are the current interest rates at August 31,
1998, 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)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $164,479,755) (Note 1) $ 200,830,184
Cash 1,096
Dividends and interest receivable 630,963
Receivable for investments sold 1,949,817
Receivable for Fund shares sold 44,751
Receivable for expenses waived or borne by Manager (Note 2) 9,252
---------------
Total assets 203,466,063
---------------
Liabilities:
Payable for investments purchased 1,162,113
Payable for Fund shares repurchased 415,531
Payable to affiliate for management fee (Note 2) 171,258
Accrued expenses and other liabilities 67,898
---------------
Total liabilities 1,816,800
---------------
Net Assets (equivalent to $15.27 per share based
on 13,201,773 shares outstanding, unlimited shares authorized) $ 201,649,263
===============
Net Assets consist of:
Paid-in capital $ 148,194,077
Accumulated undistributed net investment income 651,467
Accumulated undistributed net realized gain 16,453,290
Net unrealized appreciation 36,350,429
---------------
Net assets $ 201,649,263
===============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends (net of withholding taxes of $22,026) $ 1,859,651
Interest 1,285,040
---------------
Total income 3,144,691
---------------
Expenses:
Management fee (Note 2) 1,084,528
Custodian and transfer agent fees 80,868
Audit fees 19,044
Registration fees 11,569
Legal fees 3,864
Trustees fees (Note 2) 1,012
Miscellaneous 920
---------------
Total expenses 1,201,805
Less: expenses waived or borne by Manager (Note 2) (57,025)
---------------
Net expenses 1,144,780
---------------
Net investment income 1,999,911
---------------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 17,148,627
Foreign currency and foreign currency related transactions 50,000
---------------
Net realized gain 17,198,627
Change in net unrealized appreciation (depreciation) on:
Investments (42,265,950)
---------------
Net realized and unrealized loss (25,067,323)
---------------
Net decrease in net assets resulting from operations $ (23,067,412)
===============
</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, 1998 Year Ended
(Unaudited) February 28, 1998
----------------------- ------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,999,911 $ 3,875,531
Net realized gain 17,198,627 33,485,867
Change in net unrealized appreciation (depreciation) (42,265,950) 18,746,336
--------------------- ---------------------
Net increase (decrease) in net assets resulting from operations (23,067,412) 56,107,734
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (1,752,825) (4,850,393)
Net realized gains (8,385,345) (30,617,038)
--------------------- ---------------------
(10,138,170) (35,467,431)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 9,498,186 21,012,484
Net asset value of shares issued to shareholders
in payment of distributions declared 9,902,305 33,903,533
Cost of shares repurchased (20,831,456) (46,639,378)
--------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (1,430,965) 8,276,639
--------------------- ---------------------
Total increase (decrease) in net assets (34,636,547) 28,916,942
Net assets:
Beginning of period 236,285,810 207,368,868
--------------------- ---------------------
End of period (including accumulated
undistributed net investment income
of $651,467 and $404,381, respectively) $ 201,649,263 $ 236,285,810
===================== =====================
</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 Year Ended February 28/29,
August 31, 1998 ------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.78 $ 16.31 $ 14.52 $ 11.99 $ 12.08 $ 11.37
----------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.15 0.32 0.33 0.31 0.37 0.29
Net realized and unrealized gain (loss) (1.87) 4.13 2.27 3.04 0.46 1.40
----------- --------- --------- --------- --------- ---------
Total from investment operations (1.72) 4.45 2.60 3.35 0.83 1.69
----------- --------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.14) (0.40) (0.27) (0.29) (0.37) (0.37)
From net realized gains (0.65) (2.58) (0.54) (0.53) (0.55) (0.61)
----------- --------- --------- --------- --------- ---------
Total distributions (0.79) (2.98) (0.81) (0.82) (0.92) (0.98)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 15.27 $ 17.78 $ 16.31 $ 14.52 $ 11.99 $ 12.08
=========== ========= ========= ========= ========= =========
Total Return (a) (10.43)% 28.97% 18.40% 28.54% 7.38% 15.14%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 201,649 $ 236,286 $ 207,369 $ 177,238 $ 117,920 $ 101,165
Net expenses to average
daily net assets 0.95% * 0.95% 0.95% 1.05% 1.10% 1.10%
Net investment income to average
daily net assets 1.66% * 1.77% 2.10% 2.42% 2.51% 2.42%
Portfolio turnover rate 16% 28% 27% 32% 40% 49%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ - $ 0.01 $ 0.01 $ - $ - $ 0.01
</TABLE>
* Annualized.
(a) The total returns would have been lower had certain expenses not been
waived during the periods shown.
See accompanying notes to the financial statements. 11
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
The Pelican Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC ("the Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which will issue a separate series of shares.
The Fund seeks long-term 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.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income are withheld in
accordance with the applicable country's tax treaty with the United States.
12
<PAGE>
Pelican Fund
A Series of GMO Trust
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
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, 1998, was $1,012. 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, 1998, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
Purchases Proceeds
--------- --------
U.S. Government securities -- $ 7,500,000
Investments (non-U.S. Government securities) $34,995,525 43,829,897
13
<PAGE>
Pelican Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
---------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
$164,479,755 $51,661,583 $15,311,154 $36,350,429
</TABLE>
4. Principal shareholder
At August 31, 1998, 39% of the outstanding shares of the Fund were held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
----------------- -----------------
Shares sold 520,241 1,196,670
Shares issued to shareholders in
reinvestment of distributions 539,665 2,012,397
Shares repurchased (1,145,057) (2,636,304)
----------- -----------
Net increase (decrease) (85,151) 572,763
Fund shares:
Beginning of period 13,286,924 12,714,161
----------- -----------
End of period 13,201,773 13,286,924
=========== ===========
14
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 81.2%
Argentina - 0.6%
31,341 Capex SA Class A (Voting) 113,477
1,160,000 Central Costanera Class B (Voting) 2,378,476
150,300 Central Puerto B Shares 270,594
866,658 Garovaglio Y Zorraquin 823,490
533,667 Nobelza Piccardo 1,387,812
42,210 Quimica Estrella Preferred* 45,174
-------------
5,019,023
-------------
Brazil - 8.7%
6,531,000 Acos Villares SA Preferred* 332,959
35,870,000 Alpargatas de Sao Paolo Preferred* 1,128,005
7,600,000 Banco Estado Sao Paulo Preferred 258,306
148,940,000 Banco Nacional Preferred (b) * 1,266
25,040,000 Belgo Mineira Preferred (Registered) 1,085,088
4,400,000 Belgo Mineira (Registered) 219,832
20,525,003 Bombril SA Preferred 68,016
6,800,000 Brasmotor Preferred (Registered) 722,236
21,500,000 Caemi Mineracao e Metalurgica SA Preferred 639,392
104,777,827 Cemig Preferred 1,958,630
246,500,000 Ceval Participacoes Preferred* 565,511
34,000,000 Cia Energetica Perna Class A Preferred 187,781
162,100,000 Cia Energetica de Sao Paolo SA Preferred (Registered) 2,203,756
246,500,000 Cia Hering Preferred (Registered)* 104,724
290,600,000 Companhia Acos Especiais Itabira - Acesita 175,313
3,000,000 Companhia Petroquimica do Sul 99,414
6,202,000 Companhia Siderurgica Nacional SA 97,438
12,689,000 Copene-Petroquimica do Nordeste SA Class A Preferred 2,156,559
79,000 Cosipa PN Class B* 15,439
179,000,000 Electrobras 2,555,187
424,199,710 Electrobras Class B Preferred (Registered) 6,487,887
162,100,000 Elektro Preferred* 3,167,899
2,000,000 Ericsson Telecom 49,265
43,950,000 Ericsson Telecom Preferred 1,383,217
660,000,000 Fertilizantes Fosfatados Preferred 1,850,625
179,000,000 Gerasul ON * 180,992
659,062,710 Gerasul PNB * 666,399
1,050,000 Industrias Klabin de Papel e Celulose SA Preferred 267,652
1,336,261 Iochpe Maxion Preferred* 22,708
262,400,000 Iparanga Brasil De Petroleo Preferred 2,006,628
42,420,000 Mesbla Preferred (Registered) (b) * 360
335,746,000 Olvebra Preferred* 34,234
134,600,000 Petrobras Distrib Preferred 1,314,091
16,014,000 Petroleo Brasileiro SA (Petrobras) Preferred 1,632,832
583,800,000 Siderurgica de Tubarao Preferred 4,166,811
26,700 Telebras Holders Preferred ADR* 1,917,394
268,194,000 Telebras SA* 13,445,022
49,522,000 Telebras SA Preferred Converted* 3,513,542
96,990,000 Telecomunicacoes do Rio de Janeiro SA Preferred 3,502,485
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Brazil - continued
96,990,000 Telerj Celular SA Preferred Class B * 3,378,868
5,830,152 Unipar Preferred 1,089,841
600,740 Usiminas Preferred 2,501,169
581,000 Varig Preferred (Registered) 863,922
19,000,000 Votorantim Celulose e Papel SA Preferred 234,090
-------------
68,252,785
-------------
Chile - 3.7%
1,000 Administradora de Fondos de Pensiones Provida ADR 13,250
166,200 Banco Santiago Sponsored ADR 2,160,600
166,300 Chilectra SA ADR 2,557,694
97,400 Chilquinta Sponsored ADR 767,512
125,200 Chilquinta Sponsored ADR 144A 986,576
198,800 Compania de Telefones de Chile ADR 3,044,125
58,400 Cristalerias de Chile SA ADR* 613,200
22,500 Embotelladora Andina ADR Class A 277,031
566,100 Empresa Natl de Electricidad ADR 5,130,281
165,300 Enersis SA ADR 2,996,063
507,663 Gener SA Sponsored ADR 6,694,806
184,300 Masisa SA Sponsored ADR 875,425
388,590 Quinenco SA ADR 2,015,811
28,800 Soc Quimica Y Minera de Chile Sponsored ADR 619,200
50,500 Telex Chile Sponsored ADR * 34,719
10,300 Vina Concha Y Toro SA Sponsored ADR* 208,575
-------------
28,994,868
-------------
Colombia - 0.1%
24,300 Banco Ganadero SA ADR* 461,700
-------------
Czech Republic - 0.7%
21,000 Alpha Effect* 520,688
30,260 Cez 2* 502,394
21,397 IF Zivnobanka 258,025
84,249 IPS Praha 401,716
1,670 Leciva AS* 126,430
46,000 PF IKS KB Plus* 257,545
27,700 Restitucni IF 766,912
32,362 Skoda Koncern Plzen* 248,785
323,988 SP Vseobecny 568,103
27,366 Spif Cesky* 311,484
187,576 Spif Vynosovy 1,038,659
75,300 SPT Telecom AS * 843,178
-------------
5,843,919
-------------
Egypt - 2.1%
3,000 Al Ahram Beverages Co 173,536
109,700 Al Ahram Beverages Co GDR (Reg S)* 2,890,595
31,000 Ameriyah Cement Co 481,677
160,200 Commercial International Bank GDR (Reg S)* 1,165,455
156,791 Eastern Tobacco Co 3,492,978
8,000 Egypt Gas Co 764,562
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Egypt - continued
22,400 Egyptian International Pharmaceuticals Industries Co 1,119,343
33,580 Helwan Portland Cement Co* 501,091
28,020 Miraco 640,739
145,500 Misr International Bank Sae GDR 144A 1,367,700
44,000 Oriental Weavers Co* 954,559
202,400 Paints & Chemical Industries Co GDR 1,381,380
31,681 Suez Cement Co GDR 144A 429,278
65,000 Suez Cement Co GDR* 880,750
37,250 Torrah Portland Cement 636,122
-------------
16,879,765
-------------
Greece - 0.0%
8,940 Econ Viomihanies* 6,713
3,910 Minoan Lines 77,389
-------------
84,102
-------------
Hong Kong - 0.0%
14,502,000 Tan Chong International Ltd 235,799
-------------
Hungary - 0.0%
28,151 Fotex (Registered) 12,928
-------------
India - 12.3%
271,400 Aptech Ltd 3,615,901
48,420 Arvind Mills Ltd 40,370
98,900 Bajaj Auto Ltd 1,486,291
115,000 Bajaj Auto Ltd GDR 1,897,500
1,900 Bajaj Auto Ltd GDR 144A* 30,400
100 Bank of India 64
450,000 Bausch & Lomb India Ltd * 1,417,098
875,400 Bharat Heavy Electricals Ltd 4,708,466
277,900 Bharat Petrol Corp 1,634,591
256,300 Bombay Dyeing & Manufacturing Co Ltd GDR 243,485
373,211 BSES Ltd 1,391,642
22,400 Ciba Specialty Chemicals 64,008
231,550 Cipla Ltd 4,574,365
586,804 Core Healthcare Ltd* 220,811
130,600 Corporation Bank 326,193
1,460 Escorts 2,644
255,520 Garden Silk Mills Ltd GDR* 255,520
591 Glaxo India Ltd 5,530
118,000 Godfrey Phillips India 860,995
2,258,678 Great Eastern Shipping Co 1,274,803
237,450 HCL Hewlett Packard Ltd 1,237,510
31,400 Hindalco Industries Ltd 316,364
11,200 Hindalco Industry GDR 101,920
793,200 Hindustan Petroleum 5,223,330
176,450 Hoechst Marion Roussel Ltd 1,410,936
6,000 Housing Development Finance Corp Ltd* 380,997
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
India - continued
369,770 India Cements GDR 369,770
90,000 Indo Gulf Fertilizers ADR 144A 54,000
1,265,000 Indo Gulf Fertilizers GDR 759,000
1,824,600 Industrial Credit & Investment Corp of India Ltd 3,003,806
1,600 Industrial Finance Corp of India 843
129,000 Infotech Enterprises Ltd 360,120
438,849 ITC Ltd 6,502,233
234,900 Kirloskar Cummins Ltd 1,458,457
187 Larsen & Toubro 772
410,200 Larsen & Toubro GDR (Reg S) 3,066,245
53,500 Maars Software International Ltd * 293,168
1,081,100 Mahanagar Telephone 5,085,136
226,993 Mahindra & Mahindra 841,614
297,000 Mahindra & Mahindra GDR (Reg S)* 994,950
4,479,200 National Aluminum 1,901,448
409,100 NIIT 15,442,274
65,850 Novartis India 760,403
32,600 Oil & Natural Gas Commission Ltd 137,239
456,200 Pentafour Software 6,743,220
19,069 Reliance Industries 48,088
133,100 Reliance Industries GDR (Registered) 602,278
415,000 Sanghi Polyester Ltd* 39,040
489,500 Satyam Computer Service 5,457,948
146,450 Smithkline Beecham Plc 1,574,028
279,000 Software Solutions Integrated 2,723,072
200 State Bank of India 859
358,828 Sterlite Industries Ltd 1,203,407
388,697 Tata Iron & Steel 831,867
10,500 Uti Masterplus 1991 Unit* 3,951
1,115 Videocon International 1,282
284,400 Zee Telefilms Ltd 3,700,477
95,150 Zuari Argochemicals Ltd 162,238
-------------
96,844,967
-------------
Indonesia - 1.4%
7,635,000 Aneka Tambang 1,022,545
851,000 Astra Agro Lestari 138,667
4,080,500 Astra International* 218,598
5,286,500 Barito Pacific Timber * 129,802
171,000 Ciputra Development * 1,908
18,766,500 Citra Marga Nusaphale Persada 544,564
1,875,000 Dynaplast* 75,335
1,663,000 Gudang Garam 1,262,098
102,100 Gulf Resources Ltd ADR* 721,081
2,116,500 HM Sampoerna* 396,844
226,076 Indah Kiat Pulp & Paper Warrants 4/13/01 * 30,278
140,000 Indosat ADR Class B 840,000
3,072,000 International Nickel 1,206,857
3,097,500 Kalbe Farma* 89,883
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments-continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Indonesia - continued
1,834,000 Pakuwon Jati* $ 4,094
1,979,500 Semen Gresik 1,338,814
5,692,000 Tambang Timah Persero (Foreign Registered) 2,642,714
810,000 Telekomunikasi Indonesia 169,955
128,000 Telekomunikasi Indonesia ADR Class B 424,000
2,478,500 United Tractors * 60,862
-------------
11,318,899
-------------
Israel - 5.5%
1,880,561 Bank Hapoalim * 4,518,936
4,455,950 Bank Leumi Le Israel 7,126,608
303,200 Bezeq Israeli Telecommunication Corp Ltd 909,928
157,100 Blue Square Chain Stores * 2,144,173
41,700 Blue Square Sponsored ADR * 578,588
55,900 ECI Telecommunications Ltd 1,537,250
56,900 Elbit Medical Imaging Ltd (New York) 391,188
319,657 Elbit Medical Imaging Ltd (Tel Aviv) 2,240,370
40,000 Elron Electronics 582,826
60,000 Fibi Holdings 490,080
44,900 Formula Systems Ltd ADR* 1,100,050
124,501 Formula Systems Ltd* 3,339,447
38,710 Koor Industries 3,712,602
21,300 Koor Industries Ltd ADR* 380,738
395,027 Machteshim Agan Industries* 974,219
15,000 Nice Systems Ltd Sponsored ADR* 420,000
27,100 Nice Systems Ltd * 848,281
67,700 Orbotech Ltd * 1,760,200
351,939 Supersol Ltd 967,176
118,460 Supersol Ltd ADR 1,525,173
4,134 Tadiran Ltd 137,353
59,000 Tadiran Ltd ADR 1,891,688
173,000 Teva Pharmaceutical Industries Ltd ADR 6,195,563
-------------
43,772,437
-------------
Korea - 7.1%
286,730 Cheil Industries* 485,137
56,541 Cheil Jedang Corp 979,681
55,900 Dongbu Construction Co Preferred* 26,491
20,700 Dongbu Steel Co 51,961
102,340 Dongbu Steel Co Preferred 81,842
2,378 Hana Bank 7,316
5,080 Hanwha Corp Preferred* 1,956
70,280 Hite Brewery Co Ltd * 333,056
101,175 Housing & Commercial Bank Korea GDR 250,408
84,011 Hyundai Heavy Industries 1,446,337
19,000 Kang Won Industrial 19,543
71,930 Kang Won Industrial Preferred (Non Voting) 18,375
255,345 Kookmin Bank GDR (Registered)* 657,513
9,670 Korea Container Terminal 236,290
267,300 Korean Air Lines* 793,686
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea - continued
12,130 Lotte Chilsung Beverage $ 334,125
37,400 Oriental Brewing Co Ltd Preferred 79,619
28,611 Oriental Brewing Co Ltd * 413,117
10,710 Oriental Chemical Preferred 26,051
26,840 Pang Rim Spinning* 224,578
527,384 Pohang Iron & Steel 20,505,690
3,850 Pohang Iron & Steel ADR 42,831
573 Sam Yang 2,614
89,626 Samsung Display Devices 2,322,777
49,310 Samsung Display Devices Preferred 527,604
57,794 Samsung Electronics 1,921,474
20 Samsung Electronics GDS 144A (Non Voting)* 146
575,263 Samsung Electronics Preferred (Non Voting) 6,645,022
60,976 Samsung Electronics Rights 9/19/98* 704,351
5,212 Shinsegae Department Store 47,663
29,864 SK Telecom 14,449,267
321,944 SK Telecom ADR* 1,931,664
1,170 Sunkyong Industries 2,729
-------------
55,570,914
-------------
Lebanon - 0.9%
121,508 Banque Libanaise GDR Class B 2,150,692
217,164 Banque Libanaise* 3,843,803
139,000 Solidere GDR (Reg S)* 1,459,500
-------------
7,453,995
-------------
Malaysia - 2.8%
243,666 Amsteel Corp Warrants 5/19/00* 3,784
1,782,000 Berjaya Sports Toto 1,158,124
1,623,900 Cold Storage 419,046
376,000 Esso Berhad 195,850
539,000 Faber Group Berhad* 28,977
2,038,700 Genting Berhad 3,750,789
2,824,700 Golden Hope Plantations Berhad 1,619,803
781,000 Highlands and Lowlands Berhad 356,421
3,322,500 IGB Corp Berhad 476,316
6,078,800 IOI Corporation Berhad 2,120,554
724,000 Kemayan Corporation Berhad 31,138
1,182,000 Kumpulan Guthrie Berhad 477,290
522,000 Land & General Berhad 33,675
4,838,100 Magnum Corp Berhad 947,910
1,137,400 Malakoff Berhad 896,821
2,035,000 Malaysian International Shipping (Foreign Registered)* 2,003,273
727,000 Malaysian Tobacco Co Berhad* 225,817
2,164,900 Oriental Holdings Berhad 2,079,421
3,066,600 Resorts World Berhad 2,359,346
86,000 Rothmans of Pall Mall Berhad 390,419
770,000 Sarawak Enterprises Corp 130,625
109,620 Silverstone * 26,192
6,130,700 Tan Chong Motor Holdings Berhad 783,687
</TABLE>
6 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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia - continued
636,700 Tanjong 565,922
169,000 Tiong Nam Transport Holdings Berhad 37,553
375,000 Tractors Holdings Berhad 77,056
133,600 UMW Holding Berhad Warrants 1/26/00* 4,469
3,491,700 Westmont Industries Berhad* 742,516
-------------
21,942,794
-------------
Mexico - 6.7%
6,056,415 Altos Hornos De Mexico* 5,953,445
430,273 Cintra SA CPO Class A (Registered) 323,692
1,131,915 Controladora Coml Mexicana Classes B and C 613,104
4,236,680 Cydsa SA Class A 4,377,131
302,000 Dina (Consorcio Grupo Dina)* 111,476
249,200 Empresas ICA Sociedad Controladora ADR* 1,261,575
76,000 Empresas La Moderna SA de CV Class A* 456,633
1,697,705 Grupo Financiero Banamex Class B* 1,444,058
103,529 Grupo Financiero Banamex Class L* 74,769
18,165,795 Grupo Financiero Bancomer SA Class B 2,277,671
328,963 Grupo Financiero Bancomer SA Class L 32,997
2,363,700 Grupo Financiero Probursa SA de CV* 211,013
139,432 Grupo Financiero Santander Class B* 48,951
225,755 Grupo Financiero Serfin SA de CV Class B* 12,228
25,243,820 Grupo Gigante SA Class B* 6,026,410
3,822,818 Grupo Mexico Class B 6,863,779
38,886 Grupo Mexico Class B Warrants 8/9/01* 81,130
80,200 Grupo Mexico Desarollo Class B ADR* 6,266
6,255,000 Grupo Situr SA de CV Class B* 75,290
3,221,600 Grupo Tribasa SA ADR* 7,852,650
2,336,400 Herdez Class BCP 539,016
973,340 International de Ceramic* 1,009,513
10,000 Ispat International NV Class A (Registered) 108,125
126,000 Telefonos de Mexico ADR Class L* 4,496,625
39,000 Tolmex SA Class B* 164,301
457,700 Transportation Maritima Mexicana SA Class A* 2,414,867
25,000 Transportation Maritima Mexicana SA Class L* 151,713
8,000 TV Azteca SA ADR 39,500
501,370 Vitro SA 629,636
1,476,500 Vitro SA ADR 5,629,156
-------------
53,286,720
-------------
Pakistan - 1.7%
1,002,000 Fauji Fertilizer 1,026,896
10,742,900 Hub Power Co Ltd 2,857,183
735,410 Hub Power Co Ltd GDR 3,677,050
3,000 Japan Power Generation Ltd* 240
961,000 Karachi Electric Supply* 142,207
864,000 Pakistan State Oil 1,364,051
6,174,600 Pakistan Telecom Corp Ltd Class A 2,839,890
6,600 Pakistan Telecom Corp Ltd GDR 231,000
2,456,425 Sui Northern Gas Pipelines* 471,563
2,619,010 Sui Southern Gas Pipelines Ltd* 497,537
-------------
13,107,617
-------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Peru - 0.0%
115,486 Cervecerias 46,363
58 Milpo Minera T Shares* 213
-------------
46,576
-------------
Phillippines - 1.1%
9,353,000 Aboitiz Equity Ventures Inc* 213,539
14,245,000 Belle Corporation* 263,435
8,754,700 Benpres Holdings Corp* 719,564
36,593,600 Cosmos Bottling Corp 2,088,676
22,832,000 Digital Telecommunications* 328,405
9,639,297 DMCI Holdings Inc* 176,060
4,961,500 EEI Corporation* 78,161
8,782,000 Filinvest Land* 204,512
1,996,543 Ionics Circuits Inc 332,757
599,920 Manila Electric Class B 986,170
5,170,000 Petron Corp* 312,797
162,510 Philippine Long Distance Telephone 2,689,949
-------------
8,394,025
-------------
Poland - 0.0%
52,647 Polifarb Cieszyn SA (Bearer) 69,254
-------------
Russia - 2.0%
2,649,789 Chelabinsky Tube Work (c)* 209,863
17,100 Dalmoreproduct* 1,710
422,800 Electrocila* 4,228
29,221 Elisb* 292
672,700 Irkutskelectrosviaz (c)* 145,707
1,511,100 Irkutskenergo ADR* 2,570,683
483 Irkutskenergo RDC (c) 2,540,580
4,931,400 Irkutskenergo (Registered) (c) 129,696
89,030 Kirovsky Plant (c)* 129,298
646,500 Komineft (c) 230,477
100,800 Krasny Red Oct Preferred 144A* 1,008
289,725 Lukoil Holding Co ADR* 4,056,150
384,800 Lukoil Holding Preferred* 615,680
129,200 Lukoil Holding Sponsored ADR Preferred (Foreign Registered)* 419,900
2,339 Moscow City Telephone Network Preferred (c)* 222,439
300 Moscow City Telephone Network (c)* 40,410
2,370,387 Norilsk Nickel (Registered) (c)* 1,963,866
220,000 Norlisk Nickel Preferred (c)* 199,694
30 Rostelecom Preferred (c)* 3
135,000 Russia Petroleum (c)* 246,213
19,700 Seversky Tube Works ADR* 111,709
1,834,100 St Petersburg Telephone Preferred (c)* 375,807
3,035,700 St Petersburg Telephone (c) 1,351,494
37,000 Trade House Gum Sp ADR* 25,900
15,230,200 Unified Energy Systems Preferred (c) 269,575
565,554 Uralmash Zavody 70,694
1,360,200 Uralmash Zavody ADR (Registered) 170,025
-------------
16,103,101
-------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa - 15.5%
2,149,581 AECI Ltd 6,624,132
106,383 Alpha Ltd 1,001,700
1,621,737 Amalgamated Bank of South Africa 4,530,591
125,290 Anglo American Coal Corp* 4,781,309
513,490 Anglo American Corp of South Africa 12,946,637
379,507 Anglo American Industrial Ltd 4,134,546
453,180 Anglo American Platinum Corp 5,677,754
231,846 Anglo Gold Ltd 7,938,385
114,500 Anglovaal Limited 445,508
6,929,404 Consolidated African Mines* 668,648
892,880 De Beers Centenary Link Units 10,797,522
534,750 De Beers Consolidated Mines Ltd ADR* 6,149,625
1,941,500 Del Monte Royal Foods Ltd* 513,684
35,000 Driefontein Ltd Sponsored ADR 118,125
177,219 Goldfields Ltd* 703,332
23,904,095 ISCOR 4,724,828
634,640 Liberty Life Association of Africa Ltd 7,407,961
3,428,710 Malbak Ltd 1,173,987
2,135,615 Mawenzi Resources Ltd 66,476
804,840 Murray & Roberts Holdings Ltd 613,784
574,620 Nedcor Ltd 7,467,534
78,637 Polifin Ltd 55,074
2,461 Randfontein Estates Warrants 7/01/02* 954
725,720 Randfontein Estates* 1,219,840
164,000 Randgold Resources Ltd GDR 144A* 471,500
309,500 Randgold & Exploration Co* 168,593
1,549,270 Rembrandt Group Ltd 6,944,318
3,506,968 Sappi Ltd* 10,943,498
2,073,210 Sasol Ltd 8,711,983
121,460 South Africa Brews 1,710,771
864,580 Standard Bank Investment Corp 1,816,557
14,895,360 Sun International Ltd 2,480,532
18,935 Western Areas Gold Mining Co Ltd* 37,721
-------------
123,047,409
-------------
Sri Lanka - 0.3%
238,891 Aitken Spence & Co 428,263
4,590,170 Blue Diamonds Jewelry Ltd 103,717
54,250 Development Finance Corp 83,355
115,599 Hayleys Ltd 252,495
285,305 John Keells Holdings Ltd 709,126
333,600 Lanka Walltile Ltd 40,202
404,200 Lion Brewery Ceylon Ltd* 155,262
304,000 National Development Bank 440,762
-------------
2,213,182
-------------
Taiwan - 1.6%
1,213,800 Ambassador Hotel* 842,747
299,250 Cheng Loong Co* 91,866
4,502,400 Chia Hsin Food & Synthetic* 1,291,752
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Taiwan - continued
608,400 Chia Hsin Livestock* $ 195,498
6,490,000 China Steel 3,686,759
749,008 China Trust Commercial Bank* 509,295
1,253,000 Chung Shing Textile* 264,225
307,000 Feng An Metal* 85,437
586,360 Formosa Taffeta Co* 274,212
17,840 Formosan Rubber Group* 15,662
411,000 Goldsun Development & Construction* 166,676
1,063,600 International Bills Finance Corp* 360,077
1,871,100 International Commercial Bank Of China* 1,825,202
48,800 Laelae Enterprise Co Ltd* 23,101
713,880 Pacific Construction* 227,344
1,386,000 Taipei Business Bank* 1,272,472
574,342 Taitung Business Bank* 233,988
20,000 Taiwan Pulp and Paper Co* 6,226
504,000 Tuntex Distinct 144,599
450,000 Universal Cement 215,608
637,000 Wan Yu Paper* 105,085
2,995,000 Yieh Loong Co* 687,419
353,600 Yuen Foong Yu Mfg* 116,159
-------------
12,641,409
-------------
Thailand - 5.4%
1,228,500 Advanced Info Service Public Co Ltd (Foreign Registered) 4,984,368
315,000 Ban Pu Coal Public Co Ltd (Foreign Registered) 669,093
2,851,500 Bangchak Petro (Foreign Registered)* 374,302
2,576,900 Bangkok Bank Plc (Foreign Registered) 1,814,285
7,850,800 Bangkok Expressway Plc (Foreign Registered)* 3,606,871
90,800 Bangkok Insurance (Foreign Registered) 212,372
4,921,100 Bangkok Rubber Public Co Ltd (Foreign Registered)* 1,092,273
77,000 BEC World Public Co Ltd (Foreign Registered) 246,253
5,065,500 Cogeneration Public Co (Foreign Registered) 1,599,441
393,700 CP Feedmill Public Co Ltd (Foreign Registered)* 253,697
128,500 Delta Electronics Public Co Ltd (Foreign Registered) 506,026
2,394,760 Electricity Generating Public Co Ltd (Foreign Registered)* 3,314,942
227,600 GFPT Public Co Ltd (Foreign Registered)* 22,271
122,200 Grammy Entertainment Plc (Foreign Registered) 239,150
729,000 Hana Microelectronic Plc (Foreign Registered)* 1,400,585
1,909,000 Industrial Finance (Foreign Registered) 232,360
5,561,778 International Broadcasting Plc (Foreign Registered)* 2,024,275
23,000 International Cosmetics Public Co Ltd (Foreign Registered) 20,310
1,100 Karat Sanitaryware Plc (Foreign Registered)* 84
129,700 KCE Electronics Plc (Foreign Registered)* 61,135
573,000 KR Precision Plc (Foreign Registered)* 252,995
1,559,100 Krisda Mahanakorn Public Co Ltd (Foreign Registered)* 33,489
3,958,600 Land & House Public Co Ltd (Foreign Registered)* 755,819
203,000 Lanna Lignite Plc Ltd (Foreign Registered) 125,967
3,439,600 National Petrochemical (Foreign Registered) 623,068
512,700 NTS Steel Group Plc (Foreign Registered)* 11,013
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand - continued
5,213,450 Padaeng Industry Plc (Foreign Registered)* $ 846,097
1,111,000 Phatra Thanakit (Foreign Registered)* 116,668
75,000 Pranda Jewelry (Foreign Registered)* 14,678
87,200 Prasit Development Public Co Ltd (Foreign Registered)* 5,411
979,900 PTT Exploration and Production Public Co Ltd (Foreign
Registered)* 6,454,711
1,583,000 Regional Container Lines Plc (Foreign Registered) 793,389
1,859,000 Ruang Khao Fund (Foreign Registered)* 115,356
32,400 Saha Pathana International Holdings Plc (Foreign Registered)* 7,037
70,000 Saha Pathanapibul (Foreign Registered) 36,754
2,230,500 Saha Union Public Co Ltd (Foreign Registered) 612,190
676,196 Shinawatra Computer Public Co Ltd (Foreign Registered)* 1,581,556
532,000 Siam City Cement (Foreign Registered)* 685,632
513,000 Siam Pulp & Paper (Foreign Registered)* 287,721
201,512 Singer Plc (Foreign Registered) 86,568
3,108,050 Star Block Co Ltd (Foreign Registered)* 37,089
24,000 Swedish Motor (Foreign Registered)* 458
2,712,700 Thai Airways International (Foreign Registered) 1,974,638
5,230,300 Thai Farmers Bank Plc (Foreign Registered) 2,246,907
1,581,150 Thai German Ceramics Industry (Foreign Registered)* 113,209
10,757,880 Thai Petrochemical (Foreign Registered)* 436,477
352,300 Thai Plastic & Chemical (Foreign Registered) 344,733
378,600 Thai Telephone & Telecommunications (Foreign Registered)* 30,722
70 Thailand International IDR (Foreign Registered)* 266,000
1,028,100 Tipco Asphalt Public Co (Foreign Registered)* 564,351
1,145,000 Total Access Communication* 601,125
-------------
42,735,921
-------------
Turkey - 0.1%
75,300 Sabanaci Holding GDR (Registered) 978,900
-------------
Venezuela - 0.9%
2,534,473 Banco Provincial 2,564,934
218,606 Ceramica Carabobo Class B ADR* 284,188
130,700 Compania Anonima Nacional Telefonos de Venezuela (CANTV)
Sponsored ADR 1,372,350
8,073,944 Electricidad De Caracas 1,942,169
778 International Briquettes 3,793
35,181 Mantex SA Class A Sponsored ADR* 309,593
408,275 Siderurgica Venezolana (Sivensa) Class A 22,800
115,766 Siderurgica Venezolana (Sivensa) Registered ADR Class A 289,415
530 Siderurgica Venezolana (Sivensa) Registered ADR Class B 1,526
723,926 Venepal SA Class B GDR 144A 144,785
733,683 Venezolana de Cementes 176,486
226,157 Venezolana de Cementes Tipo II 52,847
-------------
7,164,886
-------------
TOTAL STOCK AND EQUIVALENTS (Cost $1,306,223,785) 642,477,895
-------------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT FUNDS - 2.4%
Chile - 0.3%
22,000 Chile Fund Inc 210,375
1,186,500 Five Arrows Chile Investment Trust Ltd 1,779,750
-------------
1,990,125
-------------
Czech Republic - 0.0%
10,000 Sporitelni Privatizacni 298,397
-------------
Kazakhstan - 0.2%
450,000 Kazakhstan Investment Fund (d) 1,237,500
-------------
Poland - 0.6%
2,719,111 CHP Investors* 3,032,321
2,060,116 Templeton Emerging European Fund (d) 2,060,116
-------------
5,092,437
-------------
Romania - 0.4%
4,500 Romanian Investment Fund (d) 3,150,000
-------------
Russia - 0.7%
10,000,000 New Century Holdings LP (d) 5,761,000
-------------
Thailand - 0.0%
1,500,000 Ruam Pattana Fund (Registered) 89,499
-------------
Ukraine - 0.1%
25,000 Societe Generale Thalmann Ukrania Fund (d)* 1,125,000
-------------
United States - 0.1%
71,400 Morgan Stanley Emerging Markets Fund 477,488
-------------
TOTAL INVESTMENT FUNDS (Cost $31,133,192) 19,221,446
-------------
EQUITY LINKED SECURITIES - 1.7%
Chile - 1.6%
$ 8,794,292 Citibank-Nassau Chilean Equity Time Deposit, 0.00% due 4/9/99 (d)(e)* 5,065,512
$ 4,040,743 Citibank-Nassau Chilean Equity Time Deposit, 0.00% due 5/3/99 (d)(e)* 2,457,984
$ 6,405,773 Citibank-Nassau Chilean Equity Time Deposit, 0.00% due 6/14/99 (d)(e)* 4,645,466
-------------
12,168,962
-------------
Russia - 0.1%
32,787 Renaissance Sberbank Note (c)(f) 908,124
-------------
TOTAL EQUITY LINKED SECURITIES (Cost $30,117,850) 13,077,086
-------------
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Schedule of Investments - continued
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES - 1.0%
Indonesia - 0.5%
$ 28,000,000 APP Finance (VI) Convertible, 0.00% due 11/18/12 3,255,000
$ 2,470,000 Astra International Convertible, 6.75% due 5/30/2006 518,700
-------------
3,773,700
-------------
Korea - 0.0%
$ 500,000 Daewoo Corp Convertible, Zero Coupon, due 12/31/07 365,000
$ 108,350 Hanbo Steel & General Construction Convertible, 3.375% due 01/31/99 26,877
-------------
391,877
-------------
Poland - 0.0%
$ 25,000 Elektrim SA Convertible, 2.00% due 5/30/04 14,460
-------------
South Africa - 0.1%
$ 1,100,000 Randgold Finance Convertible, 7.00% due 10/03/01 144A 544,500
-------------
Thailand - 0.3%
$ 5,030,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 1,559,300
$ 358,000 Bangkok Land Ltd Convertible, 4.50% due 10/13/03 17,900
$ 1,814,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 117,910
CHF 2,800,000 NTS Steel Group Convertible, 1.00% due 12/17/03 (g) 96,799
$ 534,000 NTS Steel Group Convertible, 4.00% due 12/16/08 (g) 37,380
$ 2,724,000 Sahaviriya Steel Convertible, 3.50% due 7/26/05 272,400
$ 630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 (g) 3,150
-------------
2,104,839
-------------
Venezuela - 0.1%
$ 1,195,000 Global Investment Financial Corp Convertible, 11.00% due 3/19/01(c) 1,171,100
-------------
TOTAL CONVERTIBLE SECURITIES (Cost $19,788,087) 8,000,476
-------------
SHORT-TERM INVESTMENTS - 18.7%
Cash Equivalents - 9.2%
43,315,184 The Boston Global Investment Trust (a) 43,315,184
$ 29,700,000 Wachovia Bank Time Deposit, 5.70% due 9/1/98 29,700,000
-------------
73,015,184
-------------
U.S. Government - 9.5%
$ 53,800,000 U.S. Treasury Bill, 4.88% due 10/15/98 53,486,346
$ 15,500,000 U.S. Treasury Bill, 4.96% due 11/27/98 15,323,571
$ 6,400,000 U.S. Treasury Bill, 4.97% due 11/12/98 6,338,816
-------------
75,148,733
-------------
TOTAL SHORT-TERM INVESTMENTS (Cost $148,160,020) 148,163,917
-------------
TOTAL INVESTMENTS - 105.0%
(Cost $1,535,422,934) 830,940,820
Other Assets and Liabilities (net) - (5.0%) (39,604,872)
-------------
TOTAL NET ASSETS - 100.0% $ 791,335,948
============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR American Depositary Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
RDC Russian Depository Certificate
IDR International Depository Receipt
CHF Swiss Franc
MYR Malaysian Ringgit
(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 $25,502,578, or 3.2% of net
assets.
(e) A derivative security whose price is linked to the return on a
basket of Chilean asset investments.
(f) A derivative security whose price is linked to the return on a
Russian basket of securities.
(g) Security is in default.
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.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, industry sector diversification of the
Fund's equity investments was as follows:
Industry Sector
Banking 16.2%
Telecommunications 10.6
Transportation 10.2
Computers 7.4
Health Care 7.2
Textiles 6.6
Oil and Gas 5.5
Aerospace 5.4
Communications 3.6
Construction 3.6
Conglomerates 3.1
Metals and Mining 2.7
Consumer Goods 2.2
Retail Trade 2.2
Utilities 2.2
Food and Beverage 1.9
Chemicals 1.7
Insurance 1.5
Services 1.3
Electronic Equipment 1.0
Paper and Allied Products 1.0
Machinery 0.6
Financial Services 0.5
Real Estate 0.5
Automotive 0.1
Miscellaneous 1.2
-----
100.0%
=====
See accompanying notes to the financial statements. 15
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $1,535,422,934) (Note 1) $ 830,940,820
Foreign currency, at value (cost $11,664,172) (Note 1) 11,647,646
Cash 966,122
Receivable for investments sold 12,541,622
Receivable for Fund shares sold 9,905
Foreign withholding taxes receivable 1,364,509
Dividends and interest receivable 6,412,791
Receivable for expenses waived or borne by Manager (Note 2) 167,212
---------------
Total assets 864,050,627
---------------
Liabilities:
Payable for investments purchased 1,879,005
Payable for open forward foreign currency contracts (Notes 1 and 5) 372,571
Payable for open swap agreements (Notes 1 and 5) 23,896,282
Payable upon return of securities loaned (Note 1) 43,315,184
Accrued capital gain taxes payable 1,231,028
Payable to affiliate for (Note 2):
Management fee 806,637
Shareholder service fee 102,297
Accrued expenses 1,111,675
---------------
Total liabilities 72,714,679
---------------
Net assets $ 791,335,948
===============
Net assets consist of:
Paid-in capital $ 1,736,527,895
Accumulated undistributed net investment income 40,532,801
Accumulated net realized loss (256,748,379)
Net unrealized depreciation (728,976,369)
---------------
$ 791,335,948
===============
Net assets attributable to:
Class III Shares $ 478,672,613
===============
Class IV Shares $ 312,663,335
===============
Shares outstanding:
Class III 90,583,732
===============
Class IV 59,218,168
===============
Net asset value per share:
Class III $ 5.28
===============
Class IV $ 5.28
===============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income:
Dividends (net of foreign tax expense of $1,852,005) $ 26,229,779
Interest (including security lending income of $517,453) 4,241,221
-------------
Total income 30,471,000
-------------
Expenses:
Management fee (Note 2) 6,958,502
Custodian fees 1,573,936
Registration fee 49,295
Audit fees 31,975
Transfer agent fees 22,356
Legal fees 18,125
Trustees fees (Note 2) 6,532
Miscellaneous 142,221
Fees waived or borne by Manager (Note 2) (1,460,282)
-------------
7,342,660
Shareholder service fee (Note 2)
Class III 591,073
Class IV 315,901
-------------
Net expenses 8,249,634
-------------
Net investment income 22,221,366
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (126,874,846)
Closed futures contracts (39,572)
Closed swap contracts (14,133,914)
Foreign currency, forward contracts and foreign
currency related transactions (10,326,646)
-------------
Net realized loss (151,374,978)
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (518,579,079)
Open swap contracts (20,723,134)
Foreign currency, forward contracts and foreign
currency related transactions 5,493,191
-------------
Net unrealized loss (533,809,022)
-------------
Net realized and unrealized loss (685,184,000)
-------------
Net decrease in net assets resulting from operations $(662,962,634)
=============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 22,221,366 $ 22,024,564
Net realized gain (loss) (151,374,978) 81,402,501
Change in net unrealized appreciation (depreciation) (533,809,022) (341,634,031)
-------------- --------------
Net decrease in net assets
resulting from operations (662,962,634) (238,206,966)
-------------- --------------
Distributions to shareholders from:
Net investment income
Class I -- (129,011)
Class II -- (254,928)
Class III (2,174,915) (35,349,550)
Class IV (1,892,403) --
-------------- --------------
Total distributions from net investment income (4,067,318) (35,733,489)
-------------- --------------
Net realized gains
Class I -- (503,907)
Class II -- (1,133,793)
Class III (10,874,572) (100,204,482)
Class IV (8,060,232) --
-------------- --------------
Total distributions from net realized gains (18,934,804) (101,842,182)
-------------- --------------
In excess of net realized gains
Class I -- (266,871)
Class II -- (600,460)
Class III -- (53,068,677)
Class IV -- --
-------------- --------------
Total distributions in excess of net realized gains -- (53,936,008)
-------------- --------------
(23,002,122) (191,511,679)
-------------- --------------
Net share transactions: (Note 4)
Class I -- 1,328,062
Class II -- 4,693,314
Class III (32,538,875) (324,321,493)
Class IV (75,796,045) 606,255,395
-------------- --------------
Increase (decrease) in net assets resulting from
net share transactions (108,334,920) 287,955,278
-------------- --------------
Total decrease in net assets (794,299,676) (141,763,367)
Net assets:
Beginning of period 1,585,635,624 1,727,398,991
-------------- --------------
End of period (including accumulated undistributed
net investment income of $40,532,801 and
$22,378,753, respectively) $ 791,335,948 $ 1,585,635,624
============== ==============
</TABLE>
18 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from March 1, 1997 Period Ended
to January 9, 1998 February 28, 1997*
------------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period $ 12.48 $ 10.86
--------- ---------
Income (loss) from investment operations:
Net investment income 0.14+ 0.01
Net realized and unrealized gain (loss) (2.69) 1.61
--------- ---------
Total from investment operations (2.55) 1.62
--------- ---------
Less distributions to shareholders from:
Net investment income (0.26) --
Net realized gains (0.71) --
In excess of net realized gains (0.37) --
--------- ---------
Total distributions (1.34) --
--------- ---------
Net asset value, end of period $ 8.59 (d) $ 12.48
========= =========
Total Return (a) (21.66%) 14.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ -- $ 1,748
Net expenses to average
daily net assets 1.41%**(c) 1.45%**(c)
Net investment income to average
daily net assets 1.21%** 0.77%**
Portfolio turnover rate 88% 41%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.02 (b)
</TABLE>
+ Computed using average shares outstanding throughout the period.
* 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 approximate .20% and .04% of average daily net assets for
the periods ended February 28, 1997 and January 9, 1998, respectively.
(d) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
See accompanying notes to the financial statements. 19
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from November 29, 1996
Period from October 31, 1997 (commencement of operations)
to January 9, 1998 to February 4, 1997
---------------------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.40 $ 10.74
------ ------
Income (loss) from investment operations:
Net investment income 0.03+ 0.05
Net realized and unrealized gain (loss) (1.75) 1.10
------ ------
Total from investment operations (1.72) 1.15
------ ------
Less distributions to shareholders from:
Net investment income (0.14) (0.07)
Net realized gains (0.61) 0.00
In excess of net realized gains (0.32) --
------ ------
Total distributions (1.07) (0.07)
------ ------
Net asset value, end of period $ 8.61(e) $ 11.82(d)
====== ======
Total Return (a) (15.72%) 10.73%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ -- $ --
Net expenses to average
daily net assets 1.38%*(b) 1.33%*(b)
Net investment income to average
daily net assets 1.58%* 6.14%*
Portfolio turnover rate 88% 41%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: (c) (c)
</TABLE>
+ Computed using average shares outstanding throughout the period.
* Annualized
(a) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximate .07% and .02% of average daily net assets for
the periods ended February 4, 1997 and January 9, 1998, respectively.
(c) Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.
(d) All Class II shares of the Fund were exchanged for Class III shares on
February 4, 1997. Amount represents ending net asset value per share on
February 4, 1997.
(e) All Class II shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
20 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) 1998 1997 1996 1995 1994*
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.56 $ 12.49 $ 10.54 $ 9.52 $ 12.13 $ 10.00
-------- -------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.15 0.16+ 0.13 0.10 0.05 0.02
Net realized and unrealized gain (loss) (4.29) (1.76) 1.96 1.06 (2.37) 2.11
-------- -------- --------- -------- -------- --------
Total from investment operations (4.14) (1.60) 2.09 1.16 (2.32) 2.13
-------- -------- --------- -------- -------- --------
Less distributions to shareholders from:
Net investment income (0.02) (0.25) (0.14) (0.01) (0.07) (0.00)(b)
Net realized gains (0.12) (0.71) -- (0.13) (0.22) --
In excess of net realized gains -- (0.37) -- -- -- --
-------- -------- --------- -------- -------- --------
Total distributions (0.14) (1.33) (0.14) (0.14) (0.29) (0.00)
-------- -------- --------- -------- -------- --------
Net asset value, end of period $ 5.28 $ 9.56 $ 12.49 $ 10.54 $ 9.52 $ 12.13
======== ======== ========= ======== ======== ========
Total Return (a) (43.59%) (12.94%) 19.98% 12.24% (19.51%) 21.35%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 478,673 $ 913,615 $1,725,651 $ 907,180 $ 384,259 $ 114,409
Net expenses to average
daily net assets 1.20%** 1.24%(d) 1.24%(d) 1.35% 1.58% 1.64%**
Net investment income to average
daily net assets 3.17%** 1.30% 1.40% 1.31% 0.85% 0.87%**
Portfolio turnover rate 33% 88% 41% 35% 50% 2%
Fees and expenses voluntarily waived
or borne by the Manager consisted of
the following per share amounts: $ 0.01 $ 0.03 $ 0.02 (c) -- (c)
</TABLE>
+ Computed using average shares outstanding throughout the period.
* 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) The per share income distribution was $ 0.004.
(c) Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.
(d) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximate .06% and .035% of average daily net assets for
the years ended February 28, 1997 and 1998, respectively.
See accompanying notes to the financial statements. 21
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 9, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.56 $ 8.62
----------------- -------------------
Income (loss) from investment operations:
Net investment income 0.16 0.01+
Net realized and unrealized gain (loss) (4.29) 0.93
----------------- -------------------
Total from investment operations (4.13) 0.94
----------------- -------------------
Less distributions to shareholders from:
Net investment income (0.03) --
Net realized gains (0.12) --
----------------- -------------------
Total distributions (0.15) --
----------------- -------------------
Net asset value, end of period $ 5.28 $ 9.56
================= ===================
Total Return (a) (43.66%) 10.90%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 312,663 $ 672,020
Net expenses to average daily net assets 1.16%* 1.22%* (b)
Net investment income to average daily net assets 3.22%* 0.65%*
Portfolio turnover rate 33% 88%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amount: $ 0.01 (c)
</TABLE>
+ Computed using average shares outstanding throughout the period.
* Annualized
(a) Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
(b) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximates .04% of average daily net assets.
(c) Fees and expenses voluntarily waived or borne by the Manager were less than
$.01 per share.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series into classes.
The 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class I,
Class II, and Class III. Effective January 9, 1998, Class I and Class II
shares ceased operations and all shares were exchanged for Class III shares,
and Class IV shares commenced operations. The principal economic difference
among the classes of shares is the level of shareholder service fee borne by
the classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully described in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent quoted
bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Securities which
are primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
and those values are then translated into U.S. dollars at the current
exchange rate. Short-term investments with a remaining maturity of sixty days
or less are valued at amortized cost which approximates market value. Other
assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Trustees or other
persons acting at their direction.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ from
the value that would have been used had a broader market for the securities
existed and the differences could be material to the financial statements.
23
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent 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. 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, 1998.
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 entering into a futures contract, the Fund is required to deposit with
its custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government 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
24
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Liabilities. Losses may arise from the changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts or if
counterparties do not perform under the contract terms. Futures contracts are
valued at the settlement price established each day by the board of trade or
exchange on which they are traded. As of August 31, 1998, there were no
outstanding futures contracts.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure to
the equity markets. The Fund enters into total return swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the Fund
will receive a payment from or make a payment to the counterparty,
respectively. Total return swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received or
made at the end of the measurement period are recorded as realized gain or
loss in the Statement of Operations. Entering into these agreements involves,
to varying degrees, elements of credit and market risk in excess of the
amounts recognized on the Statement of Assets and Liabilities. Such risks
involve the possibility that there 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, 1998.
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, 1998, the Fund loaned securities having a market value of
$39,869,987 collateralized by cash in the amount of $43,315,184 which was
invested in a short-term instrument.
Taxes
The Fund intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
The Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after giving
effect to any available capital loss carryovers for federal income tax
purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States. Dividends received by shareholders of the Fund which are derived from
foreign source income and foreign taxes paid by the Fund are to be treated,
to the extent allowable under the Code, as if received and paid by the
shareholders of the Fund.
25
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income 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 of shares of the Fund based on the relative net assets of each class.
Shareholder service fees, which are directly attributable to a class of
shares, are charged to that class' operations.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is 1.60% of the amount invested.
In the case of cash redemptions, the fee is .40% of the amount redeemed.
These fees will be reduced by 50% with respect to any portion of a purchase
or redemption that is offset by a corresponding redemption or purchase,
respectively, occurring on the same day. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. These fees are
allocated relative to each class' net assets on the share transaction date.
Purchase premiums are included as part of each class' "shares sold" and
redemption fees are included as part of each class' "shares repurchased",
respectively, as summarized in Note 4. For the six months ended August 31,
1998, the Fund received $1,325,460 in purchase premiums and $419,496 in
redemption fees. There is no premium for reinvested distributions. Normally,
no purchase premium is charged with respect to in-kind purchases of Fund
shares. A purchase premium of up to .20% may be charged on certain in-kind
transactions.
26
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. Investing in equity securities of
Indian and Russian companies includes the risk of loss from those countries'
underdeveloped systems of share registration and transfer. 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the Shareholder
Service Plan, the shareholder service fee is calculated based on the average
daily net assets of each class at the annual rate of .15% for Class III
shares and .105% for Class IV shares.
GMO has 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.
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, 1998, was $6,532. 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, 1998, aggregated
$408,252,212 and $520,253,075, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in the value of investments held
were as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------ ------------------ ----------------- ----------------
$ 1,535,422,934 $ 22,286,235 $ 726,768,349 $ 704,482,114
27
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
Period from March 1, 1997 to
January 9, 1998
------------------------------
Class I: Shares Amount
----------- --------------
Shares sold 654,767 $ 8,075,897
Shares issued to shareholders in
reinvestment of distributions 94,886 892,506
Shares repurchased (889,721) (7,640,341)
----------- --------------
Net increase/(decrease) (140,068) $ 1,328,062
=========== ==============
Period from October 31, 1997 to
January 9, 1998
--------------------------------
Class II: Shares Amount
----------- --------------
Shares sold 1,860,787 $ 20,571,162
Shares issued to shareholders in
reinvestment of distributions 215,746 1,989,181
Shares repurchased (2,076,553) (17,867,029)
----------- --------------
Net increase - $ 4,693,314
=========== ==============
28
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
------------------------------ ----------------------------
Class III: Shares Amount Shares Amount
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 9,199,094 $ 79,331,445 41,704,905 $ 476,637,263
Shares issued
to shareholders
in reinvestment
of distributions 1,727,700 12,232,114 17,410,973 170,165,033
Shares
repurchased (15,882,073) (124,102,434) (101,692,012) (971,123,789)
------------- ------------- ----------- -------------
Net decrease (4,955,279) $ (32,538,875) (42,576,134) $ (324,321,493)
============= ============= =========== =============
<CAPTION>
Period from January 9, 1998
Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
------------------------------ ----------------------------
Class IV: Shares Amount Shares Amount
------------ -------------- ----------- -------------
<S> <C> <C> <C>
Shares sold 1,052,163 $ 11,031,934 73,482,774 $ 636,013,851
Shares issued
to shareholders
in reinvestment
of distributions 1,249,895 8,836,760 _ _
Shares
repurchased (13,386,359) (95,664,739) (3,180,305) (29,758,456)
------------ -------------- ----------- -------------
Net increase/
(decrease) (11,084,301) $ (75,796,045) 70,302,469 $ 606,255,395
============ ============== =========== =============
</TABLE>
29
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as follows:
Forward currency contracts
Net
Units of Unrealized
Settlement Date Deliver Currency Value Depreciation
- --------------- ----------- -------------- --------------- ---------------
Sales
1/19/99 MYR 36,632,250 $ 8,223,394 $ (123,394)
1/22/99 MYR 105,024,750 23,549,177 (249,177)
---------------
$ (372,571)
===============
See Notes to Schedule of Investments for definitions of currency abbreviations.
Swap agreements
Notional Expiration Unrealized
Amount Date Description Depreciation
- ---------- ------------ -------------------------------------- ------------
$10,000,000 10/30/98 Agreement with Swiss Bank Corporation $ (5,655,265)
dated 4/17/98 to receive (pay) the
notional amount multiplied by the
return on the Malaysia KLSE Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
5,726,517 11/03/98 Agreement with Barclays Bank PLC dated (1,191,793)
11/04/97 to receive (pay) the notional
amount multiplied by the return on the
International Finance Corporation
"IFC" Korea Investable Index and to
pay the notional amount multiplied by
6 month LIBOR adjusted by a specified
spread.
30
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
Notional Expiration Unrealized
Amount Date Description Depreciation
- ------------ ------------ ---------------------------------------- ------------
$ 8,282,272 11/11/98 Agreement with Barclays Bank PLC dated $ (4,182,089)
11/12/97 to receive (pay) the notional
amount multiplied by the return on the
International Finance Corporation "IFC"
Thailand Investable Index and to pay the
notional amount multiplied by 6 month
LIBOR adjusted by a specified spread.
5,000,000 11/18/98 Agreement with Indosuez W.I. Carr Ltd. (2,441,630)
dated 5/18/98 to receive (pay) the
notional amount multiplied by the
return on the Malaysia KLSE Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
4,500,000 12/23/98 Agreement with Indosuez W.I. Carr Ltd. (1,694,502)
dated 6/23/98 to receive (pay) the
notional amount multiplied by the
return on the Malaysia KLSE Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
4,500,000 12/31/98 Agreement with Bank of America dated (1,629,091)
6/25/98 to receive (pay) the notional
amount multiplied by the return on the
Malaysia KLSE Index and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
1,800,000 12/31/98 Agreement with Bank of America dated (621,223)
6/26/98 to receive (pay) the notional
amount multiplied by the return on the
Malaysia KLSE Index and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
31
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
- ------------ ------------ ------------------------------------ ---------------
$ 1,271,446 1/18/99 Agreement with Robert Fleming & Co. $ (436,944)
Limited dated 1/16/98 to receive the
notional amount multiplied by the
change in market value of State Bank
of India common stock (including
dividends) and to pay the notional
amount multiplied by 12 month LIBOR
adjusted by a specified spread.
5,530,337 2/03/99 Agreement with Indosuez W.I. Carr Ltd. (1,123,582)
dated 2/03/98 to receive (pay) the
notional amount multiplied by the
return on the Thailand SET Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
5,000,000 5/17/99 Agreement with Indosuez W.I. Carr Ltd. (2,573,198)
dated 5/15/98 to receive (pay) the
notional amount multiplied by the
return on the Malaysia KLSE Index and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
5,000,000 6/10/99 Agreement with Goldman Sachs 312,978
International dated 8/18/98 to receive
(pay) the notional amount multiplied
by the return on the Korea Stock Price
Index and to pay the notional amount
multiplied by 4 month LIBOR adjusted
by a specified spread.
4,200,000 6/23/99 Agreement with Goldman Sachs (980,589)
International dated 6/23/98 to receive
(pay) the notional amount multiplied by
the return on the Thailand SET Index
and to pay the notional amount
multiplied by 3 month LIBOR adjusted
by a specified spread.
32
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
Unrealized
Notional Expiration Appreciation
Amount Date Description (Depreciation)
- ------------ ----------- --------------------------------------- --------------
$ 2,000,000 6/24/99 Agreement with Goldman Sachs $ (423,212)
International dated 6/24/98 to receive
(pay) the notional amount multiplied
by the return on the Thailand SET
Index and to pay the notional amount
multiplied by 3 month LIBOR adjusted
by a specified spread.
3,000,000 6/25/99 Agreement with Goldman Sachs (595,992)
International dated 6/25/98 to receive
(pay) the notional amount multiplied
by the return on the Thailand SET
Index and to pay the notional amount
multiplied by 3 month LIBOR adjusted
by a specified spread.
1,554,699 6/28/99 Agreement with Indosuez W.I. Carr Ltd. 253,201
dated 6/27/98 to receive the notional
amount multiplied by the change in
market value of Pohang Iron & Steel
common stock (including dividends) and
to pay the notional amount multiplied
by 6 month LIBOR adjusted by a
specified spread.
2,495,921 6/28/99 Agreement with Indosuez W.I. Carr Ltd. 103,279
dated 6/27/98 to receive the notional
amount multiplied by the change in
market value of SK Telecom common
stock (including dividends) and to pay
the notional amount multiplied by 6
month LIBOR adjusted by a specified
spread.
5,000,000 6/29/99 Agreement with Lehman Brothers Finance (1,016,630)
S.A. dated 6/29/98 to receive (pay)
the notional amount multiplied by the
return on the Thailand SET Index and
to pay the notional amount multiplied
by 3 month LIBOR adjusted by a
specified spread.
---------------
Net unrealized depreciation $ (23,896,282)
===============
33
<PAGE>
GMO Emerging Markets Fund
(A Series of GMO Trust)
Notes to Financial Statements - continued
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Subsequent event
Effective September 1, 1998, Malaysia's central bank imposed foreign
currency controls prohibiting foreign exchange transactions and the
repatriation of foreign currency for at least a one-year period. Malaysian
securities must be held for at least one year before a foreign exchange
application will be considered by the central bank. The twelve-month
holding period starts on the date of acquisition or September 1, 1998,
whichever is later. The proceeds of any sale of Malaysian securities during
that holding period must be held in Malaysian ringgits (or re-invested in
Malaysian securities) until the end of the holding period, at the earliest
September 1, 1999. The Manager has assessed the risks inherent to these
controls and has taken action to limit those risks. All forward foreign
currency contracts and swap agreements with Malaysian exposure as of August
31, 1998 have been terminated. Under fair value procedures adopted by the
Board of Trustees, Malaysian securities are valued at their exchange-traded
prices, and that value is converted into U.S. dollars at a discounted
foreign exchange rate to reflect the currency and inflation risk of holding
ringgit.
34
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENTS -- 96.3%
Apartments -- 9.2%
146,000 Apartment Investment & Management Co, Class A 5,000,500
83,382 Avalon Bay Communities 2,751,606
90,300 BRE Properties Inc 2,133,338
63,100 Cornerstone Realty Income Trust 674,381
117,825 Equity Residential Properties Trust 4,705,616
25,000 Irvine Apartment Communities 637,500
33,900 Mid America Apartment Community 779,700
43,038 Security Capital Group Inc, Class B Warrants 9/18/98 * 168
43,200 Smith (Charles E) Residential 1,285,200
37,100 Walden Residential Properties Inc 839,388
------------
18,807,397
------------
Diversified -- 7.3%
353,200 Catellus Development Corp * 4,437,075
252,600 First Union Real Estate 1,626,113
146,600 Glenborough Realty Trust Inc 3,188,550
19,672 Reckson Service Industries * 55,328
196,600 The Rouse Company 5,652,250
------------
14,959,316
------------
Hotel/Motel -- 20.8%
37,700 Boykin Lodging Co 586,706
110,400 Felcor Lodging Trust Inc 2,249,400
68,800 Hospitalities Properties Trust 1,892,000
541,200 Host Marriott Corp * 7,576,799
126,400 Innkeepers USA Trust 1,216,600
55,427 Meristar Hospitality Corp * 935,322
316,374 Patriot America Hospitality Inc 4,271,049
609,000 Starwood Lodging Trust 22,228,499
189,400 Sunstone Hotel Investors Inc 1,609,900
------------
42,566,275
------------
Industrial -- 14.0%
16,700 AMB Property Corp 392,450
45,800 Bedford Property Investors 761,425
317,200 Duke Realty Investments 6,581,899
94,650 Eastgroup Properties Inc 1,603,134
140,500 First Industrial Realty Trust 3,292,969
100,900 Liberty Property Trust 2,282,863
See accompanying notes to the financial statements. 1
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- ------------------------------------------------------------------------------
Industrial -- continued
72,900 Meridian Industrial Trust Inc 1,375,988
193,690 Prologis Trust 3,873,800
201,900 Spieker Properties Inc 7,180,068
48,900 Weeks Corp 1,350,863
--------------
28,695,459
--------------
Manufactured Housing -- 1.3%
45,100 Chateau Communities Inc 1,175,419
59,600 Manufactured Home Communities 1,404,325
--------------
2,579,744
--------------
Office -- 25.4%
26,200 Alexandria Real Estate Equities Inc 761,438
195,800 Boston Properties Inc 5,592,538
132,500 Brandywine Realty Trust 2,385,000
6,900 Carramerica Realty Corp 155,250
78,200 Cornerstone Properties Inc 1,124,125
556,400 Crescent Real Estate Equities 12,797,199
289,900 Equity Office Properties 6,577,105
72,000 Highwood Properties Inc 1,831,500
44,600 Kilroy Realty Corp 917,088
58,100 Koger Equity Inc 965,913
127,900 Mack-Cali Realty Corp 3,685,119
118,700 Parkway Properties Inc 3,219,738
68,600 Prentiss Properties Trust 1,534,925
109,600 Reckson Associates Realty 2,349,550
73,800 SL Green Realty Corp 1,420,650
380,300 Trizec Hahn Corporation 6,488,868
--------------
51,806,006
--------------
Regional Malls -- 8.6%
137,100 General Growth Properties 4,944,169
45,300 Macerich Co 1,143,825
40,500 Mills Corp 784,688
199,500 Simon Debartolo Group Inc 5,797,969
65,400 Urban Shopping Centers Inc 2,076,450
174,600 Westfield America Inc 2,771,775
--------------
17,518,876
--------------
Self Storage -- 2.2%
194,300 Public Storage Inc 4,541,763
--------------
2 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Shopping/Power Center -- 7.5%
46,900 Excel Realty Trust Inc 1,096,288
96,900 JDN Realty Corp 1,968,281
15,200 Pan Pacific Retail Properties Inc 279,300
384,016 Vornado Realty Trust 12,048,501
--------------
15,392,370
--------------
TOTAL REAL ESTATE INVESTMENTS (COST
$251,431,756) 196,867,206
--------------
SHORT-TERM INVESTMENTS -- 5.7%
Cash Equivalents -- 2.0%
$3,194,910 BankBoston Eurodollar Time Deposit, 5.8925% due 3,194,910
9/1/98(a)
829,090 Merrimac Cash Fund Premium Class(a) 829,090
--------------
4,024,000
--------------
U.S. Government -- 0.1%
$ 200,000 U.S. Treasury Bill, 4.875%, due 11/12/98(b) 198,076
--------------
Repurchase Agreement -- 3.6%
$7,425,590 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/98, due 9/1/98, with a maturity
value of $7,426,658 and an effective yield of
5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 5.875%, maturity date
of 11/15/99 and market value of $7,574,101. 7,425,590
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $11,647,640) 11,647,666
--------------
TOTAL INVESTMENTS -- 102.0%
(COST $263,079,396) 208,514,872
Other Assets and Liabilities (net)-- (2.0)% (4,123,511)
--------------
TOTAL NET ASSETS-- 100% $ 204,391,361
==============
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. 3
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $263,079,396) (Note 1) $208,514,872
Dividends and interest receivable 243,203
Receivable for expenses waived or borne by Manager (Note 2) 51,914
-------------
Total assets 208,809,989
-------------
Liabilities:
Payable upon return of securities loaned (Note 1) 4,024,000
Payable to affiliate for (Note 2):
Management fee 143,981
Shareholder service fee 27,207
Payable for variation margin on open futures contracts
(Notes 1 and 5) 173,250
Accrued expenses 50,190
-------------
Total liabilities 4,418,628
-------------
Net assets $204,391,361
=============
Net assets consist of:
Paid-in capital $243,443,267
Accumulated undistributed net investment income 6,378,903
Accumulated undistributed net realized gain 9,552,522
Net unrealized depreciation (54,983,331)
=============
$204,391,361
=============
Net assets attributable to:
Class III shares $204,391,361
=============
Shares outstanding:
Class III 21,360,691
=============
Net asset value per share:
Class III $ 9.57
=============
4 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Investment Income:
Dividends $ 7,055,307
Interest (including securities lending income of $11,153) 337,022
------------
Total income 7,392,329
------------
Expenses:
Management fee (Note 2) 1,101,550
Custodian and transfer agent fees 45,345
Registration fees 19,782
Audit fees 18,237
Legal fees 3,811
Trustees fees (Note 2) 1,472
Miscellaneous 1,294
Fees waived or borne by Manager (Note 2) (398,375)
------------
793,116
Shareholder service fee (Note 2)
Class III 220,310
------------
Net expenses 1,013,426
------------
Net investment income 6,378,903
------------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 9,431,553
Closed futures contracts 767,199
------------
Net realized gain 10,198,752
------------
Change in net unrealized appreciation (depreciation) on:
Investments (72,994,366)
Open futures contracts (741,282)
------------
Net unrealized loss (73,735,648)
------------
Net realized and unrealized loss (63,536,896)
------------
Net decrease in net assets resulting from operations $(57,157,993)
============
See accompanying notes to the financial statements. 5
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,378,903 $ 15,107,861
Net realized gain 10,198,752 35,767,659
Change in net unrealized
appreciation (depreciation) (73,735,648) (3,580,972)
------------ -----------
Net increase (decrease) in net
assets resulting from operations (57,157,993) 47,294,548
------------ -----------
Distributions to shareholders from:
Net investment income
Class I -- (4,860)
Class II -- (8,347)
Class III -- (15,852,407)
------------ -----------
Total distributions from net
investment income -- (15,865,614)
------------ -----------
In excess of net investment income
Class I -- (223)
Class II -- (382)
Class III -- (726,208)
------------ -----------
Total distributions in excess
of net investment income -- (726,813)
------------ -----------
Net realized gains
Class I -- (7,273)
Class II -- (26,734)
Class III (15,126,689) (24,529,349)
------------ -----------
Total distributions from net
realized gains (15,126,689) (24,563,356)
------------ -----------
(15,126,689) (41,155,783)
------------ -----------
Net share transactions: (Note 4)
Class I -- (42,863)
Class II -- (218,750)
Class III (98,098,110) 107,926,697
------------ -----------
Increase (decrease) in net assets
resulting from net share
transactions (98,098,110) 107,665,084
------------ -----------
Total increase (decrease) in net (170,382,792) 113,803,849
assets
Net assets:
Beginning of period 374,774,153 260,970,304
------------ -----------
End of period (including
accumulated undistributed net
investment income of $6,378,903
and $0, respectively) $204,391,361 $374,774,153
============ ============
6 See accompanying notes to the financial statements.
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
Period from December 31, 1996
March 1, 1997 (commencement of operations)
to January 9, 1998 to February 28, 1997
-------------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $12.62 $12.58
------- -------
Income from investment operations:
Net investment income 0.47+ 0.03
Net realized and unrealized gain 1.57 0.01
------ ------
Total from investment operations 2.04 0.04
------ ------
Less distributions to shareholders:
From net investment income (0.56) --
In excess of net investment income (0.03) --
From net realized gains (0.89) --
------ ------
Total distributions (1.48) --
------ ------
Net asset value, end of period $13.18/(c)/ $12.62
====== ======
Total Return /(a)/ 16.55% 0.32%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 41
Net expenses to average daily net assets 0.82%* 0.82%*
Net investment income to average daily net assets 3.99%* 3.17%*
Portfolio turnover rate 86% 21%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.03 /(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.
/(c)/ All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
+ Computed using average shares outstanding throughout the period.
* Annualized.
See accompanying notes to the financial statements. 7
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout the period)
- --------------------------------------------------------------------------------
Period from April 30, 1997
(commencement of operations)
to August 4, 1997
---------------------------
Net asset value, beginning of period $12.31
-------
Income from investment operations:
Net investment income 0.14+
Net realized and unrealized gain 1.27
-------
Total from investment operations 1.41
-------
Less distributions to shareholders:
From net investment income (0.05)
In excess of net investment income -- (a)
From net realized gains (0.15)
-------
Total distributions (0.20)
-------
Net asset value, end of period $ 13.52(b)
=======
Total Return /(c)/ 11.46%
Ratios/Supplemental Data:
Net expenses to average daily net assets 0.76%*
Net investment income to average daily net assets 3.96%*
Portfolio turnover rate 86%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
/(a)/ The per share distribution in excess of net investment income was $0.002.
/(b)/ 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.
/(c)/ Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
+ Computed using average shares outstanding throughout the period.
* Annualized.
8 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 Ended
August 31, 1998 Year Ended February 28,
-------------------------
(Unaudited) 1998 1997 *
------------ -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.92 $ 12.62 $ 10.00
-------- ------- -------
Income from investment operations:
Net investment income 0.30 0.53 0.24
Net realized and unrealized gain (loss) (2.90) 1.26 2.60
-------- ------- -------
Total from investment operations (2.60) 1.79 2.84
-------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.57) (0.17)
In excess of net investment income -- (0.03) --
From net realized gains (0.75) (0.89) (0.05)
-------- ------- -------
Total distributions (0.75) (1.49) (0.22)
-------- ------- -------
Net asset value, end of period $ 9.57 $ 12.92 $ 12.62
======== ======= =======
Total Return/(a)/ (21.18)% 14.29% 28.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $204,391 $374,774 $260,929
Net expenses to average daily net assets 0.69%** 0.69% 0.69%**
Net investment income to average daily net
assets 4.34%** 4.10% 4.72%**
Portfolio turnover rate 33% 86% 21%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.02 $ 0.03 $ 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.
* Period from May 31, 1996 (commencement of operations) to February 28,
1997.
** Annualized.
See accompanying notes to the financial statements. 9
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO REIT Fund (the "Fund"), is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks maximum total return through investment primarily in real
estate investment trusts ("REITs").
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II, and Class III. Class I and Class II shares ceased operations
on January 9, 1998 and August 4, 1997, respectively, and all shares were
exchanged for Class III shares. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on 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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
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
10
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
value ("variation margin") is recorded by the Fund. The payable or
receivable is liquidated on the following business day. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 5 for all
open futures contracts as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund loaned securities having a market
value of $3,720,481, collateralized by cash in the amount of $4,024,000,
which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income 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
11
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
tax basis earnings and profits, if any, are reported in the Fund's
financial statements as a return of capital. Differences in the recognition
or classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
The Fund's investments in REIT equity securities may at times result in the
Fund's receipt of cash in excess of its interest in the REIT's earnings.
The excess amount cannot be determined by the Fund at the time of receipt.
If the Fund distributes amounts which are subsequently determined to exceed
REIT earnings, such amounts would constitute a return of capital to Fund
shareholders for federal income tax purposes.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Dividends representing a return
of capital are reflected as a reduction of cost, when the amount of return
of capital is conclusively determined.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases and 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 by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold" and redemption fees are included as part of "shares
repurchased", respectively, as summarized in Note 4. For the six months
ended August 31, 1998, the Fund received $98,645 in purchase premiums and
$437,561 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.
12
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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, 1998 was $1,472. 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, 1998,
aggregated $91,464,498 and $184,341,919, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------------------------------------------------------------------
$263,079,396 $161,477 $54,726,001 $54,564,524
13
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from
Class I: March 1, 1997
to January 9, 1998
------------------------------
Shares Amount
--------------- --------------
<S> <C> <C>
Shares sold 6,339 $ 84,207
Shares issued to shareholders in
reinvestment of distributions 953 12,356
Shares repurchased (10,576) (139,426)
=============== ==============
Net decrease (3,284) $ (42,863)
=============== ==============
<CAPTION>
Period from April 30, 1997
Class II: (commencement of operations)
to August 4, 1997
------------------------------
Shares Amount
--------------- --------------
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>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
----------------------------- ------------------------------
Shares Amount Shares Amount
------------ --------------- ------------- ---------------
Shares sold 1,568,787 $ 19,729,077 12,232,100 $ 161,677,900
Shares issued to
shareholders in
reinvestment of
distributions 1,267,186 14,775,394 2,754,721 35,760,499
Shares repurchased (10,490,882) (132,602,581) (6,643,834) (89,511,702)
------------ --------------- ------------- ---------------
Net increase (decrease) (7,654,909) $ (98,098,110) 8,342,987 $ 107,926,697
============ =============== ============= ===============
</TABLE>
14
<PAGE>
GMO REIT Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Financial instruments
A summary of outstanding futures contracts at August 31, 1998 is as
follows:
Long futures contract
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
------------- --------- ----------------- --------------- =================
9 S & P 500 September 1998 $2,146,500 $ (418,807)
=================
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
15
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Common Stocks -- 92.0%
Aerospace -- 0.2%
5,800 Cordant Technologies Inc 206,625
500 Northrop Grumman Corp 31,688
1,300 Orbital Sciences Corp* 24,375
1,000 Teleflex Inc 31,500
-------------
294,188
-------------
Automotive -- 1.2%
700 Bandag Inc 21,088
200 Borg Warner Automotive Inc 8,100
16,200 Ford Motor Co 712,800
7,000 General Motors Corp, Class H 252,875
5,850 Genuine Parts Co 183,178
800 Goodyear Tire & Rubber Co 39,200
3,900 Harley Davidson Inc 120,169
4,900 Lear Corp* 198,756
-------------
1,536,166
-------------
Banking and Financial Services -- 3.5%
4,400 Ahmanson (HF) & Co 234,575
1,800 Amsouth Bancorp 61,875
1,000 Banc One Corp 38,000
4,796 Bear Stearns Inc 177,152
2,600 City National Corp 72,475
7,200 Comdisco Inc 89,550
8,800 Countrywide Credit Industry Inc 329,450
9,800 Dime Bancorp Inc 186,200
4,200 Donaldson Lufkin & Jenrette 147,000
12,400 Edwards (AG) Inc 336,350
2,300 Golden State Bancorp 36,513
1,200 Golden West Financial Corp 91,350
4,900 Hibernia Corporation, Class A 66,150
3,679 Household International Inc 135,893
450 Liberty Financial Cos 13,275
2,000 MGIC Investment Corp 83,000
9,700 Morgan Stanley Dean Witter & Co 563,206
2,800 National City Corp 164,500
8,550 Northfork Bancorp 162,450
1,950 Paine Webber Group Inc 67,763
1,500 Peoples Heritage Finance Group Inc 23,531
2,600 PMI Group Inc 143,975
See accompanying notes to the financial statements. 1
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
4,550 Raymond James Financial Corp 78,203
2,000 SEI Investments Co 124,500
26,445 Travelers Group Inc 1,173,496
800 Unionbancal Corp 59,900
-------------
4,660,332
-------------
Chemicals -- 1.1%
900 Cabot Corporation 19,575
7,300 Engelhard Corp 134,138
1,500 Lubrizol Corp 34,313
1,900 Millenium Chemicals Inc 41,088
5,200 Monsanto Co 284,375
11,500 Morton International Inc 255,875
7,600 PPG Industries Inc 386,175
8,300 Praxair Inc 297,763
2,600 Wellman Inc 29,738
-------------
1,483,040
-------------
Communications -- 0.0%
600 NTL Inc* 23,963
-------------
Computer and Office Equipment-- 4.5%
5,700 Apple Computer Inc 177,769
29,100 Electronic Data Systems Corp 974,849
28,000 EMC Corp* 1,265,249
14,200 Gateway 2000 Inc* 671,838
38,900 HBO & Co 826,624
20,400 Hewlett Packard Co 990,674
7,300 Lexmark International Group Inc* 442,106
1,700 Quantum Corp* 19,444
3,900 Rational Software Corp* 43,388
2,500 Reynolds & Reynolds Inc, Class A 31,563
8,300 Sterling Software Inc 170,669
2,800 Stratus Computer Inc* 70,350
4,400 Symbol Technologies Inc 180,400
7,400 Unisys Corp* 132,738
-------------
5,997,661
-------------
Construction -- 3.5%
97,100 Home Depot Inc 3,738,349
1,500 Kaufman & Broad Home Corp 32,063
2 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Construction -- continued
26,000 Lowes Co Inc 911,624
900 McDermott International Inc 18,056
--------------
4,700,092
--------------
Consumer Goods -- 1.9%
8,800 Black and Decker Corp 366,300
3,400 Colgate-Palmolive Co 245,225
1,800 Department 56 Inc* 53,100
2,200 Fisher Scientific International Inc 28,738
3,800 Fortune Brands Inc 104,738
6,100 Furniture Brands International Inc* 136,488
4,300 Hasbro Inc 134,644
5,700 Johnson Controls 244,031
3,000 Jones Apparel Group Inc 58,125
2,500 Kohls Corp 113,594
4,500 Lancaster Colony Corp 129,938
3,500 Liz Claiborne Inc 99,750
10,300 Mattel Co 333,463
600 Nine West Group Inc* 9,563
3,400 Reebok International Ltd* 55,038
1,300 Russell Corp 41,113
2,100 Sunbeam Corp 15,750
3,700 Terra Industries Inc 18,500
7,800 VF Corp 295,425
500 Wallace Computer Services 8,094
2,600 Warnaco Group Inc, Class A 70,850
--------------
2,562,467
--------------
Electronic Equipment -- 3.6%
11,200 Amp Inc 399,700
300 Amphenol Corp, Class A 8,944
9,500 Ascend Communications Inc 332,500
3,100 Ciena Corp 87,188
7,300 Emerson Electric Co 416,100
18,500 General Instrument Corp* 367,688
3,500 Hubbell Inc, Class B 125,125
3,200 Litton Industries* 153,600
3,850 Molex Inc 93,363
36,300 Motorola Inc 1,563,168
4,500 Northern Telecom Ltd 214,875
12,600 Raytheon Co, Class B 574,875
See accompanying notes to the financial statements. 3
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Electronic Equipment-- continued
2,600 Read Rite Corp * 14,300
7,400 Texas Instruments 352,888
3,100 Thomas & Betts Corp 105,594
995 Vishay Intertechnology Inc * 10,448
--------------
4,820,356
--------------
Food and Beverage-- 3.5%
30,600 Coca Cola Co 1,992,824
8,100 Coca Cola Enterprises Inc 192,375
5,900 IBP Inc 97,719
14,500 McDonald's Corp 812,905
6,600 Pepsico Inc 182,738
21,500 RJR Nabisco Holdings Corp 466,281
27,300 Sysco Corp 551,119
1,014 Tootsie Roll Industries Inc 34,223
2,600 Universal Corp 81,900
14,800 Whitman Corp 229,400
--------------
4,641,484
--------------
Health Care-- 8.5%
3,500 Bard (CR) 114,625
4,600 Becton Dickinson & Co 153,238
16,800 BioMet Inc 451,500
7,800 Boston Scientific Corp 540,150
2,870 Cardinal Health Inc 251,125
37,600 Columbia HCA Healthcare Corp 848,349
2,700 Express Scripts Inc, Class A * 181,575
6,400 Forest Laboratories Inc 209,600
1,400 Health Care & Retirement * 35,700
10,400 Health Management Associates Inc 187,850
1,700 Hillenbrand Industries Inc 91,056
8,600 Integrated Health Services Inc 166,625
52,800 Johnson & Johnson 3,643,199
11,000 Lincare Holdings Inc 373,313
6,100 Mallinckrodt Inc 139,538
6,500 Mariner Post-Acute Network Inc 46,313
1,400 Marquette Medical Systems, Class A * 33,338
1,500 McKesson Corp 112,500
31,600 Medtronic Inc 1,623,449
5,300 Novacare Corp * 38,756
6,700 Perrigo Co * 56,950
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, 1998 (Unaudited)
Shares Description Value($)
- --------------------------------------------------------------------------------
Health Care-- continued
6,100 Quorum Health Group Inc 115,900
4,600 Safeskin Corp 155,250
1,800 Sofamor Denek Group Inc * 150,188
11,400 Steris Corp 272,175
13,900 United Healthcare Corp 502,138
3,100 United States Surgical Corp 123,806
2,200 Universal Health Services, Class B * 85,250
12,400 Wellpoint Health Network * 661,850
--------------
11,365,306
--------------
Insurance-- 2.6%
5,900 Aetna Life and Casualty Co 355,106
200 AFLAC Corp 5,025
5,000 AMBAC Inc 235,938
1,300 American Bankers Insurance Group 67,438
600 American International Group Inc 46,388
1,100 American National Insurance Co 99,275
2,300 CNA Financial Corp * 84,238
600 Commerce Group Inc 15,750
3,373 Conseco Inc 93,179
6,900 Foundation Health Systems Inc, Class A * 77,194
1,500 Fremont General Corp 64,125
600 Hartford Financial Services Group 26,850
900 Horace Mann Educators Corp 25,088
6,300 Loews Corp 531,563
3,600 MBIA Inc 202,050
800 Mercury General Corp 29,250
1,800 Ohio Casualty Corp 67,500
2,000 Old Republic International Corp 44,625
300 Orion Capital Corp 11,175
4,800 Pacificare Health Systems, Class B * 302,400
1,100 ReliaStar Financial Corp 43,175
2,100 Safeco Corp 85,313
16,200 Saint Paul Cos Inc 495,113
7,900 Torchmark Corp 282,425
100 Transamerica Corp 10,256
2,400 Transatlantic Holding Inc 194,850
1,400 Trigon Healthcare Inc * 38,675
--------------
3,533,964
--------------
See accompanying notes to the financial statements. 5
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Machinery -- 0.3%
4,800 Applied Materials Inc* 117,900
10,700 Brunswick Corp 159,831
600 Donaldson Co Inc 10,650
3,800 Mohawk Industries Inc 100,938
-----------
389,319
-----------
Manufacturing -- 2.0%
4,400 American Greetings Corp 161,150
200 Armstrong World Industries Inc 9,600
2,200 Champion Enterprises Inc* 51,425
8,300 Clayton Homes Inc 128,131
2,200 Crane Co 88,550
12,492 Gillette Co 513,734
15,100 International Game Technology 292,563
5,500 Leggett & Platt Inc 110,344
9,700 Owens Illinois Inc* 302,519
15,000 Rockwell International Corp 543,750
5,900 Trinity Industries Inc* 178,475
5,400 Tyco International Ltd 299,700
-----------
2,679,941
-----------
Metals and Mining -- 0.1%
200 Nacco Industries Inc, Class A 19,050
4,800 Timken Co 87,300
-----------
106,350
-----------
Oil and Gas -- 1.3%
11,800 Atlantic Richfield Co 684,400
2,600 Kerr-McGee Corp 100,425
4,600 Occidental Petroleum Corp 85,100
1,600 Pennzoil Co 57,200
4,700 Phillips Petroleum Co 191,819
4,700 Santa Fe Energy Resources Inc* 35,250
22,200 Union Pacific Resources Group 190,088
12,500 USX - Marathon Group 325,000
1,800 Vastar Resources Inc 68,400
-----------
1,737,682
-----------
Paper and Allied Products -- 0.2%
7,100 Ikon Office Solutions Inc 39,494
11,050 Sonoco Products Co 283,156
-----------
322,650
-----------
See accompanying notes to the financial statements.
6
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Pharmaceuticals -- 8.4%
68,908 Abbott Laboratories 2,652,957
2,800 Alza Corp 100,800
18,000 Amgen Inc * 1,095,749
1,025 Bergen Brunswig Corp, Class A 34,978
1,300 Biogen Inc 60,125
15,750 ICN Pharmaceuticals Inc 242,156
2,300 Immnunex Corp * 116,438
2,730 Mark IV Industries Inc 38,732
5,200 Merck & Co Inc 602,875
10,700 Mylan Laboratories Inc 244,763
5,100 Nu Skin Enterprises Inc 52,913
46,112 Pfizer Inc 4,288,415
5,100 Rexall Sundown Inc 93,075
8,900 Schering Plough Corp 765,400
3,800 Sigma-Aldrich Corp 105,450
14,900 Watson Pharmaceutical Inc * 671,431
-----------
11,166,257
-----------
Primary Materials -- 0.5%
4,700 Crown Cork & Seal Inc 153,925
10,800 Rubbermaid Inc 274,725
1,600 Tupperware Corp 30,200
1,400 Vulcan Materials Co 156,100
-----------
614,950
-----------
Primary Processing -- 0.1%
4,000 Mueller Industries Inc 102,250
-----------
Printing and Publishing -- 0.0%
1,300 Harte Hanks Communications 28,519
-----------
Real Estate -- 0.2%
11,200 Lennar Corp 203,000
-----------
Retail Trade -- 10.2%
19,600 Albertsons Inc 991,024
12,600 Autozone Inc * 326,813
2,900 Barnes & Noble Inc 78,481
8,000 Bed, Bath & Beyond Inc 144,500
See accompanying notes to the financial statements.
7
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade -- continued
6,200 Best Buy Co Inc* 244,125
500 Blair Corp 12,531
1,900 Burlington Coat Factory Warehouse 40,019
1,300 Circuit City Stores Inc 40,138
5,000 Costco Cos Inc* 235,313
900 Dayton Hudson Corp 32,400
8,800 Dillards Department Stores Inc 254,100
4,472 Dollar General Corp 120,185
13,600 Food Products Lion Inc 135,150
28,200 Gap Inc 1,439,962
100 Hannaford Brothers Co 4,156
1,800 Intimate Brands, Inc 33,300
7,100 Kmart Corp* 90,525
22,400 Kroger Co* 1,007,999
1,000 Lands End Inc* 20,500
20,100 Limited Inc 419,588
4,800 Neiman Marcus Group Inc* 116,700
1,800 Nordstrom Inc 53,888
20,000 Office Depot Inc* 510,000
7,000 Outback Steakhouse Inc* 210,438
3,200 Payless ShoeSource Inc* 131,600
2,100 Pier 1 Imports Inc 20,869
800 Proffitts Inc 20,400
1,900 Ross Stores Inc 69,113
20,126 Safeway Inc 792,460
7,500 Staples Inc 203,438
700 Tandy Corp 38,194
25,800 Toys R Us Inc* 478,913
1,100 Value City Department Stores Inc* 10,725
87,500 Wal Mart Stores Inc 5,140,624
2,000 Whole Foods Market Inc* 82,750
800 Williams-Sonoma Inc 20,400
-----------
13,571,321
-----------
Services -- 3.4%
2,600 Cintas Corp 105,950
2,000 Circus Circus Enterprises Inc 20,500
11,600 Clear Channel Communications Inc* 522,000
62,600 Disney Walt Co 1,717,587
2,100 Fleming Cos Inc 25,069
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services -- continued
4,300 Fluor Corp 170,119
13,000 Harrahs Entertainment Inc* 187,688
1,300 Kelly Services 33,313
3,100 Omnicom Group 147,638
9,750 Paychex Inc 370,500
1,375 Servicemaster Company 28,789
12,400 Supervalu Inc 251,875
3,300 Total System Services Inc 53,213
10,600 United Video Satellite Group Inc 161,650
17,960 Waste Management Inc 792,484
-----------
4,588,375
-----------
Technology -- 19.2%
1,300 Acxiom Corp 26,081
12,600 Adobe Systems Inc 330,750
600 Affiliated Computer Services Inc 19,613
27,800 America Online Inc 2,277,862
14,200 Automatic Data Processing Inc 905,249
2,900 Avnet Inc 137,025
1,700 Beckman Coulter Inc 94,138
13,600 BMC Software Inc* 575,450
13,000 Cadence Design Systems Inc* 274,625
5,500 Ceridian Corp* 266,750
42,300 Cisco Systems Inc* 3,463,312
29,461 Compaq Computer Corp 823,066
15,200 Computer Sciences Corp 859,749
22,400 Dell Computer Corp* 2,239,999
3,100 Electronic Arts Inc 118,188
12,600 Fiserv Inc 491,400
7,300 Fore Systems Inc 125,925
7,300 Grainger (WW) Inc 286,069
44,000 Intel Corp 3,132,249
6,200 Intuit Inc* 211,963
73,600 Microsoft Corp* 7,060,999
31,600 Novell Inc* 300,200
8,500 Parametric Technology Corp 87,125
10,800 Peoplesoft Inc 303,750
7,400 Policy Management System Corp 308,950
1,800 Seagate Technology Corp* 31,500
400 Shared Medical Systems Corp 21,350
See accompanying notes to the financial statements. 9
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology-- continued
19,300 Storage Technology Corp * 419,775
6,300 Sungard Data Systems Inc 199,631
4,700 Synopsys Inc * 122,788
3,300 Teradyne Inc * 57,338
-----------
25,572,869
-----------
Telecommunications-- 6.5%
18,800 Airtouch Communications Inc * 1,057,499
8,100 Alltel Corp 365,513
6,900 Ameritech Corp 325,163
26,900 AT & T Corp 1,348,362
6,200 Bell Atlantic Corp 273,575
3,000 Cablevision Systems Corp 101,625
7,350 Century Telephone Enterprises Inc 333,506
22,700 GTE Corp 1,134,999
15,400 MCI Communications Corp 770,000
2,700 Paging Network Inc * 19,575
4,400 Southern New England Telecommunications Corp 285,175
100 Sprint Corp 6,706
1,000 TCA Cable TV Inc 23,000
12,300 US West Inc 639,600
16,600 Viacom Inc, Class B * 823,774
900 Winstar Communications Inc * 16,425
27,900 Worldcom Inc * 1,142,155
-----------
8,666,652
-----------
Textiles-- 0.2%
4,800 Shaw Industries Inc 72,600
6,200 Westpoint Stevens Inc 183,675
-----------
256,275
-----------
Tobacco-- 3.6%
107,884 Philip Morris Cos Inc 4,483,928
10,300 UST Inc 269,088
-----------
4,753,016
-----------
Transportation-- 1.5%
8,800 Burlington Northern Santa Fe Railroad Co 818,949
6,700 Comair Holdings Inc 170,431
13,600 CSX Corp 513,400
1,200 Gatx Corp 39,600
10 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- continued
2,800 Kansas City Southern Industries 92,050
2,100 Ryder System Inc 49,481
14,550 Southwest Airlines Co 259,172
-----------
1,943,083
-----------
Utilities -- 0.2%
8,600 Coastal Corp 223,600
1,400 Nicor Inc 54,338
-----------
277,938
-----------
TOTAL COMMON STOCKS (COST $114,558,448) 122,599,466
-----------
RIGHTS AND WARRANTS -- 0.0%
Banking and Financial Services -- 0.0%
3,000 Golden State Bancorp Warrants, Expires 1/1/01 * 13,500
-----------
Oil and Gas -- 0.0%
100 Petrofina SA Warrants, Expires 8/05/03 431
-----------
TOTAL RIGHTS AND WARRANTS (COST $14,735) 13,931
-----------
SHORT-TERM INVESTMENTS -- 15.7%
Cash Equivalents -- 6.7%
$1,060,544 BankBoston Eurodollar Time Deposit, 5.8925% due 1,060,544
9/1/98/(a)/
1,832,236 Merrimac Cash Fund Premium Class/(a)/ 1,832,236
$6,000,000 Prudential Securities Group Inc, Master Note, 6,000,000
5.94% due 9/1/98(a)
-----------
8,892,780
-----------
U.S. Government -- 0.4%
$600,000 U.S. Treasury Bill, 4.875%, due 11/12/98/(b)/ 594,228
-----------
Repurchase Agreements -- 8.6%
$7,198,272 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/98, due 9/1/98, with a maturity value
of $7,199,308 and an effective yield of 5.18%,
collateralized by a U.S. Treasury Obligation
with a rate of 11.25%, maturity date of 2/15/15
and market value of $7,342,238. 7,198,272
See accompanying notes to the financial statements. 11
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
(August 31, 1998 (Unaudited)
Par Value Description Value ($)
- --------------------------------------------------------------------------------
Repurchase Agreements -- continued
$4,261,456 Prudential Securities Inc. Repurchase
Agreement, dated 8/31/98, due 9/1/98, with a
maturity value of $4,262,068 and an effective
yield of 5.17%, collateralized by a U.S.
Treasury Obligation with a rate of 9.125%,
maturity date of 5/15/18 and market value of
$4,346,720. 4,261,456
-----------
11,459,728
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $20,946,658) 20,946,736
-----------
TOTAL INVESTMENTS -- 107.7%
(COST $135,519,841) 143,560,133
Other Assets and Liabilities (net) -- (7.7)% (10,257,40)
-----------
TOTAL NET ASSETS -- 100% $133,302,725
===========
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.
12 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $135,519,841) (Note 1) $143,560,133
Receivable for investments sold 5,910,192
Dividends and interest receivable 107,717
Receivable for expenses waived or borne by Manager (Note 2) 33,057
------------
Total assets 149,611,099
------------
Liabilities:
Payable for investments purchased 3,820,018
Payable upon return of securities loaned (Note 1) 8,892,780
Payable to affiliate for (Note 2):
Management fee 65,133
Shareholder service fee 19,125
Payable for open swap contracts (Note 1 and 6) 2,637,736
Payable for variation margin on open futures contracts
(Notes 1 and 6) 831,103
Accrued expenses 42,479
------------
Total liabilities 16,308,374
------------
Net assets $133,302,725
============
Net assets consist of:
Paid-in capital $100,562,707
Accumulated undistributed net investment income 157,879
Accumulated undistributed net realized gain 28,885,150
Net unrealized appreciation 3,696,989
============
$133,302,725
============
Net assets attributable to:
Class III shares $133,302,725
============
Shares outstanding:
Class III 36,983,700
============
Net asset value per share:
Class III $ 3.60
============
See accompanying notes to the financial statements. 13
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends $ 653,648
Interest (including securities lending income of $14,154) 432,960
------------
Total income 1,086,608
------------
Expenses:
Management fee (Note 2) 470,834
Custodian and transfer agent fees 40,554
Audit fees 17,669
Legal fees 2,595
Trustees fees (Note 2) 921
Registration fees 171
Miscellaneous 740
Fees waived or borne by Manager (Note 2) (222,734)
------------
310,750
Shareholder service fee (Note 2)
Class III 141,250
------------
Net expenses 452,000
------------
Net investment income 634,608
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 28,391,244
Closed futures contracts 2,446,737
Closed swap contracts (2,586,444)
------------
Net realized gain 28,251,537
------------
Change in net unrealized appreciation (depreciation) on:
Investments (38,620,399)
Open futures contracts (2,037,608)
Open swap contracts (1,421,237)
------------
Net unrealized loss (42,079,244)
------------
Net realized and unrealized loss (13,827,707)
------------
Net decrease in net assets resulting from operations $(13,193,099)
============
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, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 634,608 $ 1,601,374
Net realized gain 28,251,537 40,361,429
Change in net unrealized appreciation (depreciation) (42,079,244) 20,120,094
----------- -----------
Net increase (decrease) in net assets resulting from operations (13,193,099) 62,082,897
----------- -----------
Distributions to shareholders from:
Net investment income
Class III (599,612) (2,146,620)
----------- -----------
Total distributions from net investment income (599,612) (2,146,620)
----------- -----------
Net realized gains
Class III (11,965,665) (80,215,172)
----------- -----------
Total distributions from net realized gains (11,965,665) (80,215,172)
----------- -----------
(12,565,277) (82,361,792)
----------- -----------
Net share transactions: (Note 5)
Class III (43,862,393) (20,981,043)
----------- -----------
Decrease in net assets resulting from net share transactions (43,862,393) (20,981,043)
----------- -----------
Total decrease in net assets (69,620,769) (41,259,938)
Net assets:
Beginning of period 202,923,494 244,183,432
----------- -----------
End of period (including accumulated undistributed net investment
income of $157,879 and $122,883, respectively) $133,302,725 $202,923,494
=========== ===========
</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
August 31, 1998 Year Ended February 28/29,
-------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 4.38 $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55
-------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income 0.02 0.04 0.07 0.08 0.06 0.06
Net realized and unrealized gain (loss) (0.43) 1.41 1.03 1.54 0.38 0.11
-------- ------- ------- ------- ------- --------
Total from investment operations (0.41) 1.45 1.10 1.62 0.44 0.17
-------- ------- ------- ------- ------- --------
Less distributions to shareholders:
From net investment income (0.02) (0.06) (0.08) (0.07) (0.06) (0.06)
From net realized gains (0.35) (2.19) (1.49) (0.35) (0.07) (0.52)
-------- ------- ------- ------- ------- --------
Total distributions (0.37) (2.25) (1.57) (0.42) (0.13) (0.58)
-------- ------- ------- ------- ------- --------
Net asset value, end of period $ 3.60 $ 4.38 $ 5.18 $ 5.65 $ 4.45 $ 4.14
======== ======= ======= ======= ======= ========
Total Return /(a)/ (11.01)% 36.37% 21.64% 37.77% 10.86% 4.13%
Ratios/Supplemental Data:
Net assets, end of period (000's) $133,303 $202,923 $244,183 $391,366 $239,006 $230,698
Net expenses to average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average
daily net assets 0.67%* 0.79% 1.21% 1.54% 1.50% 1.38%
Portfolio turnover rate 32% 60% 100% 76% 139% 57%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.01 $ 0.01 $ 0.01 /(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.
* Annualized.
16 See accompanying notes to the financial statements.
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term growth of capital 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.
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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
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
17
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund loaned securities having a market
value of $8,566,723, collateralized by cash in the amount of $8,892,780,
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. The Fund also enters into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of August 31, 1998.
18
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14 % of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. Purchase premiums are included as part of "shares sold",
as summarized in Note 5. For the six months ended August 31, 1998, the Fund
received $1,259 in purchase premiums. There is no premium for cash
redemptions, reinvested distributions or in-kind transactions.
19
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $921. 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, 1998,
aggregated $53,924,962 and $115,996,669, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------- ------------------ ------------------ -----------------
$135,519,841 $20,199,027 $12,158,735 $8,040,292
4. Principal shareholders
At August 31, 1998, 75.7% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
20
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
----------------------------- ------------------------------
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 198,455 $ 899,125 273,096 $ 1,305,596
Shares issued to shareholders
in reinvestment of 2,853,185 12,508,162 19,976,847 82,093,391
distributions
Shares repurchased (12,409,899) (57,269,680) (21,043,724) (104,380,030)
============= ============== ============= ==============
Net decrease (9,358,259) $ (43,862,393) (793,781) $ (20,981,043)
============= ============== ============= ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
42 S&P 500 September 1998 $ 9,311,300 $ (1,626,214)
1 S&P 500 December 1998 963,800 (79,353)
-----------------
$ (1,705,567)
=================
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
21
<PAGE>
GMO Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------ ----------- ------------------------------------------------ ---------------
<S> <C> <C> <C>
$ 13,923,446/ 9/19/98 Agreement with Morgan Stanley Capital $ (1,866,687)
12,033,843 Services, Inc. dated 9/16/97 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 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
counterparty's notional amount multiplied by
6 month LIBOR adjusted by a specific spread.
10,142,838/ 6/28/99 Agreement with Morgan Stanley Capital (771,049)
9,113,369 Services, Inc. dated 6/23/98 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
counterparty's notional amount multiplied by
6 month LIBOR adjusted by a specified
spread.
===============
$ (2,637,736)
===============
</TABLE>
22
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
DEBT OBLIGATIONS -- 100.8%
Australia -- 7.6%
GBP 2,500,000 Commonwealth Bank Australia Series EMTN, 8.13%, due
12/07/06 4,713,718
-----------
Brazil -- 3.7%
USD 10,000,000 Brazil Discount Bond, Principal Strip, due 4/15/24 2,271,243
-----------
Cayman Islands -- 1.1%
CAD 1,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 682,457
-----------
Sweden -- 2.6%
SEK 12,400,000 Kingdom of Sweden, 6.00%, due 2/09/05 1,639,168
-----------
United States -- 85.8%
Asset Backed Securities -- 66.1%
USD 5,000,000 Anfield Road I Ltd.,
Variable Rate, 6 mo. LIBOR + .25%, 6.00%, due
11/06/06 4,973,438
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR +.25%, 5.90%, due 4/25/03 5,000,000
USD 4,475,000 Brazos Student Loan Finance Corp Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%,
5.22%, due 12/01/02 4,463,813
USD 3,000,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.79%, due
10/16/06 2,999,100
USD 5,000,000 Chyps CBO 97-1, Class A2, 144A, 6.72%, due 1/15/10 5,150,780
USD 10,000,000 MBNA Master Credit Card Trust Series 97-J Class A,
Variable Rate, 1 mo. LIBOR + .12%, 5.76%, due
2/15/07 9,994,999
USD 3,300,000 Northstar CBO Ltd Series 97-2 Class A2, 6.62%, due
7/15/09 3,689,813
USD 1,954,846 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due
6/25/26 1,955,457
USD 2,620,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 6.40%, due
10/25/23 2,620,000
-----------
40,847,400
-----------
U.S. Government -- 3.4%
USD 2,000,000 U.S. Treasury Note, 6.38%, due 8/15/02(a) 2,095,000
-----------
U.S. Government Agency -- 16.3%
USD 4,833,500 Agency for International Development Floater (Support
of C.A.B.E.I.),
Variable Rate, 6 mo. U.S. Treasury Bill + .40%,
5.54%, due 10/01/12 4,809,333
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
U.S. Government Agency -- continued
USD 3,332,933 Agency for International Development Floater (Support
of India), Variable Rate, 3 mo. U.S. Treasury Bill
+ .45%, 5.50%, due 2/01/99 3,324,080
USD 2,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02 1,925,000
-----------
10,058,413
-----------
Total United States 53,000,813
-----------
TOTAL DEBT OBLIGATIONS (COST $61,146,094) 62,307,399
<CAPTION>
Principal
Amount
----------
<C> <C> <S> <C>
CALL OPTIONS PURCHASED -- 0.5%
Cross Currency Options -- 0.0%
DEM 12,000,000 DEM Call/ITL Put, Expires 9/22/98, Strike 993 --
-----------
Options on Bonds -- 0.1%
SEK 28,000,000 Sweden Government Bond, Expires 10/27/98, Strike
105.354 42,269
-----------
Options on Currency -- 0.4%
USD 11,100,000 German Mark, Expires 9/17/98, Strike 1.725 230,880
-----------
TOTAL CALL OPTIONS PURCHASED
(COST $607,314) 273,149
-----------
PUT OPTIONS PURCHASED -- 0.1%
Cross Currency Options -- 0.0%
DEM 12,000,000 DEM Put/ITL Call, Expires 9/22/98, Strike 993 24,497
-----------
Options on Currency -- 0.1%
USD 11,100,000 German Mark, Expires 9/17/98, Strike 1.725 32,190
-----------
TOTAL PUT OPTIONS PURCHASED
(COST $478,115) 56,687
-----------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS -- 3.8%
Cash Equivalents -- 3.3%
USD 1,619,685 BankBoston Eurodollar Time Deposit, 5.8925% due
9/1/98/(b)/ 1,619,685
USD 420,315 Merrimac Cash Fund Premium Class/(b)/ 420,315
-----------
2,040,000
-----------
Repurchase Agreement -- 0.5%
USD 317,920 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $317,966
and an effective yield of 5.18%, collateralized by a
U.S. Treasury Obligation with a rate of 11.25%,
maturity date of 2/15/15 and market value of $324,279. 317,920
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,357,920) 2,357,920
-----------
TOTAL INVESTMENTS -- 105.2%
(Cost $64,589,443) 64,995,155
Other Assets and Liabilities (net) -- (5.2)% (3,199,473)
-----------
TOTAL NET ASSETS -- 100% $61,795,682
===========
Notes to the Schedule of Investments:
EMTN -- Euromarket Medium Term Note
144A -- Securities exempt from registration under Rule
144A of the Securities Act of 1933. These securities
may be resold in transactions exempt from
registration, normally to qualified institutional
buyers.
Variable rates -- The rates shown on variable rate notes
are the current interest rates at August 31, 1998,
which are subject to change based on the terms of the
security, including varying reset dates.
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments - continued
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 has been segregated to
cover margin requirements on open financial futures contracts.
/(b)/ Represents investments of security lending collateral (Note 1).
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $64,589,443) (Note 1) $64,995,155
Interest receivable 616,593
Receivable for open swap contracts (Notes 1 and 6) 349,758
Receivable for variation margin on open futures contracts (Notes 1 and 6) 28,055
Receivable for open forward foreign currency contracts (Notes 1 and 6) 7,133,667
Receivable for expenses waived or borne by Manager (Note 2) 17,501
------------
Total assets 73,140,729
------------
Liabilities:
Payable upon return of securities loaned (Note 1) 2,040,000
Written options outstanding, at value (premiums $1,081,695) (Notes 1 and 6) 2,125,650
Payable to affiliate for (Note 2):
Management fee 20,747
Shareholder service fee 6,289
Payable for open forward foreign currency contracts (Notes 1 and 6) 7,102,850
Accrued expenses 49,511
------------
Total liabilities 11,345,047
------------
Net assets $61,795,682
============
Net assets consist of:
Paid-in capital $52,210,623
Accumulated undistributed net investment income 4,928,318
Accumulated undistributed net realized gain 4,983,092
Net unrealized depreciation (326,351)
============
$61,795,682
============
Net assets attributable to:
Class III shares $61,795,682
============
Shares outstanding:
Class III 6,408,923
============
Net asset value per share:
Class III $ 9.64
============
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $1,021) $9,026,276
Dividends 333,450
-----------
Total income 9,359,726
-----------
Expenses:
Management fee (Note 2) 586,529
Registration fees 66,252
Custodian and transfer agent fees 59,935
Audit fees 20,227
Legal fees 3,534
Trustees fees (Note 2) 1,655
Miscellaneous 1,558
Fees waived or borne by Manager (Note 2) (446,422)
-----------
293,268
Shareholder service fee (Note 2)
Class III 219,946
-----------
Net expenses 513,214
-----------
Net investment income 8,846,512
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 93,294
Closed futures contracts (52,161)
Closed swap contracts 1,162,971
Written options (2,362,505)
Foreign currency, forward contracts and foreign currency 3,341,897
related transactions
-----------
Net realized gain 2,183,496
-----------
Change in net unrealized appreciation (depreciation) on:
Investments (74,609)
Open futures contracts 645,694
Open swap contracts (81,280)
Written options (1,400,775)
Foreign currency, forward contracts and foreign currency (317,968)
related transactions
-----------
Net unrealized loss (1,228,938)
-----------
Net realized and unrealized gain 954,558
-----------
Net increase in net assets resulting from operations $9,801,070
===========
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
Period from
July 29, 1997
Six Months Ended (commencement of
August 31, 1998 operations) to
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 8,846,512 $12,714,986
Net realized gain 2,183,496 1,822,174
Change in net unrealized appreciation (depreciation) (1,228,938) 902,587
------------- ------------
Net increase in net assets resulting from operations 9,801,070 15,439,747
------------- ------------
Distributions to shareholders from:
Net investment income
Class III (5,062,986) (7,602,708)
------------- ------------
Total distributions from net investment income (5,062,986) (7,602,708)
------------- ------------
Net realized gains
Class III (650,769) (2,339,295)
------------- ------------
Total distributions from net realized gains (650,769) (2,339,295)
------------- ------------
(5,713,755) (9,942,003)
------------- ------------
Net share transactions: (Note 5)
Class III (322,896,214) 375,106,837
------------- ------------
Increase (decrease) in net assets resulting from net (322,896,214) 375,106,837
share transactions ------------- ------------
Total increase (decrease) in net assets (318,808,899) 380,604,581
Net assets:
Beginning of period 380,604,581 --
------------- ------------
End of period (including accumulated undistributed net
investment income of $4,928,318 and $1,144,792, $ 61,795,682 $380,604,581
respectively)
============= ============
</TABLE>
See accompanying notes to the financial statement. 7
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------------------------
Six Months Ended Period from July 29, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.14 $ 10.00
-------- ---------
Income from investment operations:
Net investment income 0.31+ 0.35+
Net realized and unrealized gain 0.07 0.06
-------- ---------
Total from investment operations 0.38 0.41
-------- ---------
Less distributions to shareholders:
From net investment income (0.78) (0.21)
From net realized gains (0.10) (0.06)
-------- ---------
Total distributions (0.88) (0.27)
-------- ---------
Net asset value, end of period $ 9.64 $ 10.14
======== =========
Total Return (a) 3.80% 4.15%
Ratios/Supplemental Data:
Net assets, end of period (000's) $61,796 $380,605
Net expenses to average daily net assets 0.35%* 0.35%*
Net investment income to average daily net 6.03%* 5.88%*
assets
Portfolio turnover rate 53% 27%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.02 0.02
per share amounts:
</TABLE>
(a)Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
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
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
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 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 or other persons acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
9
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of August 31, 1998.
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,
10
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
if a forward currency contract is offset by entering into another forward
currency contract with the same broker, upon settlement of the net gain or
loss. These contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities.
In addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1998.
Options
The Fund may write call and put options on securities or currencies 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, 1998.
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 may enter into interest rate, total return and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market linked return based on a notional amount. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
11
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
payment from or make a payment to the counterparty, respectively. Credit
default swaps involve the payment of a specified rate based on the notional
amount. The Fund receives payment upon default of the underlying security.
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, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower fail financially.
The Fund receives compensation for lending its securities. At August 31,
1998, the Fund loaned securities having a market value of $1,999,000,
collateralized by cash in the amount of $2,040,000, which was invested in
short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
12
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
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. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Interest income on U.S.
Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in principal or
face amount of the securities adjusted for inflation is recorded as income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The premium will be reduced by 50% with respect to any portion of
a purchase that is offset by a corresponding redemption occurring on the
same day. In addition, the purchase premium or redemption fee for this Fund
will be reduced by 50% if the purchaser makes an in-kind purchase of Fund
shares or if the purchase or redemption is part of a transfer from or to
another Fund where the Manager is able to transfer securities among the
Funds to effect the transaction. All purchase premiums are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold", as summarized in Note 5. For the six months ended
August 31, 1998, the Fund received $57,283 in purchase premiums. There is
no premium for cash redemptions, reinvested distributions or in-kind
transactions.
13
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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 six months ended August 31, 1998 was $1,655. 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, 1998, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
Purchases Proceeds
-------------- --------------
U.S. Government securities $ 7,726,026 $ 94,074,378
Investments (non-U.S. Government securities) 154,998,044 372,871,784
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
---------------- ------------------ ------------------ ------------------
$64,589,443 $1,422,374 $1,016,662 $405,712
14
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1998, 99.9% of the outstanding shares of the Fund were held
by one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Period from July 29, 1997
Six Months Ended (commencement of operations)
Class III: August 31, 1998 to February 28, 1998
------------------------------ -------------------------------
Shares Amount Shares Amount
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 7,196,449 $ 73,718,298 37,287,695 $ 372,664,834
Shares issued to shareholders
in reinvestment of
distributions 597,673 5,713,755 990,239 9,942,003
Shares repurchased (38,927,117) (402,328,267) (736,016) (7,500,000)
------------- -------------- -------------- ---------------
Net increase (decrease) (31,132,995) $(322,896,214) 37,541,918 $ 375,106,837
============= ============== ============== ===============
</TABLE>
15
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ------------- ----------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Buys
11/06/98 AUD 1,100,000 $ 629,832 $ (29,068)
9/18/98 CAD 56,800,000 36,307,616 (2,438,544)
9/11/98 DEM 1,100,000 624,175 1,749
10/02/98 DEM 40,400,000 22,953,398 333,142
10/29/98 DEM 1,700,000 967,434 23,010
1/04/99 DEM 137,000,000 78,244,221 2,192,000
1/04/99 ESP 1,659,645,000 11,132,244 140,445
10/16/98 GBP 3,200,000 5,345,242 85,782
10/23/98 GBP 6,300,000 10,519,608 266,696
11/06/98 JPY 70,000,000 500,670 3,451
1/04/99 ITL 154,306,485,001 88,764,020 87,976
10/01/98 NZD 11,700,000 5,797,596 (204,504)
------------------
$ 462,135
==================
Sales
11/06/98 AUD 2,600,000 $ 1,488,694 $ 54,271
9/18/98 CAD 60,700,000 38,800,569 2,531,486
10/02/98 DEM 11,900,000 6,761,026 (102,681)
10/23/98 DEM 18,180,596 10,342,448 (89,536)
1/04/99 DEM 175,200,000 100,061,222 (393,380)
10/29/98 DKK 6,494,000 968,756 (24,333)
</TABLE>
16
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
- ------------- ----------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Sales - continued
10/16/98 GBP 8,500,000 $ 14,198,298 $ (506,158)
1/04/99 ITL 135,657,400,002 78,036,229 (1,984,008)
11/06/98 JPY 1,660,000,000 11,873,030 (212,440)
10/01/98 NZD 11,700,000 5,797,596 110,904
9/11/98 SEK 4,919,970 608,515 13,951
------------------
$ (601,924)
==================
<CAPTION>
Forward cross currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
- ------------- ---------------------------- --------------------------- --------------------
<S> <C> <C> <C>
10/30/98 CHF 4,233,561 DEM 5,100,000 $ (44,782)
9/11/98 DEM 54,300,000 SEK 240,569,685 (1,057,261)
10/23/98 DEM 585,890 GBP 200,000 659
1/04/99 DEM 64,000,000 FRF 214,547,200 6,452
1/04/99 FRF 246,110,200 DEM 73,400,000 (16,155)
9/11/98 SEK 280,962,539 DEM 63,500,000 1,281,693
==================
$ 170,606
==================
</TABLE>
17
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
---------- -------------------------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
Buys
1 Swiss Government Bond September 1998 $ 88,398 $ 3,491
3 Swiss Government Bond December 1998 262,331 929
14 MATIF FRF Bond September 1998 1,286,294 43,701
35 MATIF FRF Bond December 1998 3,201,819 (3,282)
6 German Government Bond September 1998 966,515 32,441
22 German Government Bond December 1998 3,507,400 795
27 Canadian Government Bond December 1998 2,103,797 17,387
24 Australian Government Bond 10 yr. September 1998 6,099,308 (31,318)
103 U.S. Treasury Note 5 yr. December 1998 11,545,656 44,448
20 U.S. Treasury Bond 20 yr. December 1998 2,540,000 40,511
----------------
$ 149,103
================
Sales
22 Spanish Government Bond 10 yr. September 1998 $ 1,655,086 $ (29,090)
9 Spanish Government Bond 10 yr. December 1998 678,884 415
5 Japanese Government Bond 10 yr. September 1998 4,798,144 (74,749)
7 Japanese Government Bond 10 yr. December 1998 6,706,495 (12,564)
19 U.K. Gilt December 1998 1,277,295 (35,892)
21 Italian Government Bond 10 yr. September 1998 2,964,111 (60,113)
30 Italian Government Bond 10 yr. December 1998 3,760,392 40
4 U.S. Treasury Note 10 yr. December 1998 468,500 (370)
----------------
$ (212,323)
================
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on these contracts.
18
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Written option transactions
Puts Calls
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period 146,800 $ 3,372,860 81,800 $ 3,437,490
Options expired (65,000) (626,600) -- --
Options sold (70,700) (2,265,630) (70,700) (2,836,425)
----------------- -------------- ----------------- ---------------
Outstanding, end
of period 11,100 $ 480,630 11,100 $ 601,065
================= =============== ================= ===============
</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 11,100 113.65 JPY 09/17/98 $ 2,125,650
Puts
Japanese Yen 11,100 113.65 JPY 09/17/98 --
----------------
$ 2,125,650
================
</TABLE>
19
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net
Expiration Unrealized
Notional Amount Date Description Depreciation
- ---------------------- ---------- --------------------------------------------- -------------
<S> <C> <C> <C>
Credit Default Swaps
49,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (40,175)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Italy, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Italy BTP, 6.00% due
11/01/07.
1,058,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company (32,499)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Belgium, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Kingdom of Belgium,
5.75% due 3/28/08.
Interest Rate Swap
5,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (41,144)
dated 6/09/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
</TABLE>
20
<PAGE>
GMO U.S. Bond/Global Alpha B Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements - continued
<TABLE>
<CAPTION>
Net
Expiration Unrealized
Notional Amount Date Description Appreciation
- ---------------------- ---------- ----------------------------------------------- --------------
<S> <C> <C> <C>
Total Return Swap
25,000,000 USD 11/30/98 Agreement with Morgan Guaranty Trust Company 463,576
dated 12/05/97 to receive (pay) the notional
amount multiplied by the return on the Lehman
Aggregate Index and to pay the notional
amount multiplied by 3 month LIBOR adjusted
by a specified spread. +
--------------
Net unrealized appreciation $ 349,758
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
+ This swap agreement is valued by management (Note 1).
21
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS -- 101.7%
Albania -- 1.3%
USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, due 8/31/25 3,136,245
---------
Argentina -- 0.3%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.75%, due 3/31/23 610,000
---------
Austria -- 1.4%
ITL 5,000,000,000 Osterreich Kontrollbank, 9.50%, due 8/04/03 3,506,326
---------
Bulgaria -- 0.0%
USD 2,000,000 Bulgaria Discount Series B Strips, Basket 2,
0.00%, due 7/28/24 87,000
---------
Denmark -- 1.2%
DKK 17,400,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 3,004,529
---------
Germany -- 0.9%
GBP 2,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 2,143,360
---------
Italy -- 0.6%
GBP 660,000 Republic of Italy, 10.50%, due 4/28/14 1,587,466
---------
Mexico -- 2.6%
FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 5,647,208
USD 1,000,000 Mexico Par Bond Series B, 6.25%, due 12/31/19 722,500
---------
6,369,708
---------
New Zealand -- 2.6%
NZD 13,000,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 6,344,152
---------
Russia -- 0.0%
USD 96,488 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 12/15/15 10,614
---------
Supra National -- 0.6%
AUD 17,700,000 European Bank Recon and Development, Zero Coupon,
due 2/10/28 1,506,389
---------
Sweden -- 2.6%
SEK 47,700,000 Kingdom of Sweden, 6.00%, due 2/09/05 6,305,508
---------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States -- 87.6%
Asset Backed Securities -- 71.4%
USD 3,341,442 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 3,339,353
USD 1,707,150 Americredit Automobile Receivables Trust Series 96-B Class A,
6.50%, due 1/12/02 1,714,352
USD 1,000,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 1,009,531
USD 20,500,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.90%, due 4/25/03 20,500,001
USD 17,515,000 Brazos Student Loan Finance Corp Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.22%, due
12/01/02 17,471,213
USD 9,000,000 Chevy Chase Master Credit Card Trust 95-C Class A,
Variable Rate, 1 mo. LIBOR + .26%, 5.90%, due 5/15/06 9,031,500
USD 10,000,000 CIT RV Trust Series 98-A Class A4, 6.09%, due 2/15/12 10,115,000
USD 5,000,000 CS First Boston Mortgage Securities Corp, Series 98-C1 Class
A1B, 6.48%, due 5/17/08 5,092,500
USD 6,450,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.99%, due 10/16/04 6,495,150
USD 6,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.88%, due 10/15/06 6,002,813
USD 5,000,000 First Chicago Master Trust II 95-0 Class A,
Variable Rate, 1 mo. LIBOR + .23%, 5.87%, due 2/15/04 5,020,000
USD 5,000,000 First Chicago Master Trust II 96-S Class A,
Variable Rate, 1 mo. LIBOR + .13%, 5.77%, due 8/15/04 5,002,500
USD 10,000,000 First North American National Bank 97-2 Class A,
Variable Rate, 1 mo. LIBOR +.21%, 5.85%, due 3/15/06 10,015,000
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 5,016,406
USD 5,946,158 Keystone Auto Grantor Trust Series 1996-A Class A, 144A,
6.60%, due 12/15/02 5,990,754
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due 10/15/02 5,019,000
USD 10,000,000 Navistar Financial Dealer Note Master Trust 90-A Class A3,
Variable Rate, 1 mo. LIBOR + .90%, 6.58%, due 1/25/03 10,000,000
USD 9,500,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + .30%, 5.98%, due 8/25/07 9,572,734
USD 5,000,000 Northstar CBO Ltd Series 97-2 Class A2, 6.62%, due 7/15/09 5,590,625
USD 5,000,000 Prime Credit Card Master Trust Series 92-2 Class A2, 7.45%,
due 11/15/02 5,082,500
USD 3,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 9/15/09 3,275,625
</TABLE>
2 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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
United States -- continued
Asset Backed Securities -- continued
USD 10,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due
6/15/10 10,120,000
USD 5,913,340 Signet Student Loan Trust Series 96-A Class A-1,
Variable Rate, 1 mo. LIBOR + .09%, 5.74%, due 1/25/05 5,907,426
USD 5,366,073 Society Student Loan Trust 94-A Class A2,
Variable Rate, 1 mo. LIBOR +.33%, 5.98%, due 12/29/03 5,366,073
USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A,
Variable Rate, 6 mo. LIBOR + .19% 144A, 5.94%, due
7/30/11 2,959,219
------------
174,709,275
------------
Structured Notes -- 1.2%
USD 3,000,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 1/07/05 3,000,000
------------
U.S. Government -- 13.0%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/10 5,340,375
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/12 4,707,547
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/12 4,562,359
USD 10,000,000 U.S. Treasury Bond, 6.25%, due 8/15/23(a) 11,078,130
USD 6,172,620 U.S. Treasury Inflation Indexed Note, 3.38%, due 1/15/07 5,968,152
------------
31,656,563
------------
U.S. Government Agency -- 2.0%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02 4,812,500
------------
Total United States 214,178,338
------------
TOTAL DEBT OBLIGATIONS (COST $246,938,292) 248,789,635
------------
LOAN ASSIGNMENTS -- 0.3%
Russia -- 0.3%
USD 5,500,000 Russia Vnesh Restructured Loan Agreements, LIBOR + .8125%
(3.3125%), 3.31%, due 12/15/20 570,625
------------
TOTAL LOAN ASSIGNMENTS (COST $3,469,617) 570,625
------------
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 1.6%
United States -- 1.6%
4,000 Bear Stearns Managed Income Securities Plus Fund 13.27% 3,968,419
------------
TOTAL PREFERRED STOCKS (COST $3,949,109) 3,968,419
------------
Principal Amount
------------------
CALL OPTIONS PURCHASED -- 0.7%
Cross Currency Options -- 0.0%
DEM 72,000,000 DEM Call/ITL Put, Expires 9/22/98, Strike 993 --
------------
Options on Bonds -- 0.1%
SEK 241,000,000 Sweden Government Bond, Expires 10/27/98, Strike 105.354 363,811
------------
Options on Currency -- 0.5%
USD 64,100,000 German Mark, Expires 9/17/98, Strike 1.725 1,333,280
------------
Options on Futures -- 0.1%
USD 1,750,000 Eurodollar, Expires 9/14/98, Strike 94.375 122,500
------------
TOTAL CALL OPTIONS PURCHASED (COST $3,667,699) 1,819,591
------------
PUT OPTIONS PURCHASED -- 0.2%
Cross Currency Options -- 0.1%
DEM 72,000,000 DEM Put/ITL Call, Expires 9/22/98, Strike 993 146,980
USD 477,966 TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires
11/09/98, Strike 654,000 3,808
------------
150,788
------------
Options on Currency -- 0.1%
USD 64,100,000 German Mark, Expires 9/17/98, Strike 1.725 185,890
------------
TOTAL PUT OPTIONS PURCHASED (COST $2,838,656) 336,678
------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
8,743,000 United Mexican States Warrants, Expires 6/30/03 * -
------------
TOTAL RIGHTS AND WARRANTS (COST $0) -
------------
SHORT-TERM INVESTMENTS -- 0.1%
Repurchase Agreement -- 0.1%
USD 332,144 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/98, due 9/1/98, with a maturity value
of $332,192 and an effective yield of 5.18%,
collateralized by a U.S. Treasury Obligation with
a rate of 11.25%, maturity date of 2/15/15 and
market value of $338,787. 332,144
------------
TOTAL SHORT-TERM INVESTMENTS (COST $332,144) 332,144
------------
TOTAL INVESTMENTS -- 104.6%
(COST $261,195,517) 255,817,092
Other Assets and Liabilities (net) -- (4.6)% (11,250,917)
------------
TOTAL NET ASSETS -- 100% $244,566,175
============
Notes to the Schedule of Investments:
IAN -- Interest Arrears Note
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
Variable and Step up rates -- The rates shown on
variable and step up rate notes are the current
interest rates at August 31, 1998 which are
subject to change based on the terms of the
security, including varying reset dates.
</TABLE>
See accompanying notes to the financial statements. 5
<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, 1998 (Unaudited)
________________________________________________________________________________
Notes to the Schedule of Investments - continued
Currency Abbreviations
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollar
CHF - Swiss Franc
DEM - German Mark
DKK - Danish Krone
FRF - French Franc
GBP - British Pound
ITL - Italian Lira
JPY - Japanese Yen
MYR - Malaysian Ringgit
NZD - New Zealand Dollar
SEK - Swedish Krona
TRL - Turkish Lira
USD - United States Dollar
(a) All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts.
* Non-income producing security.
See accompanying notes to the financial statements.
6
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $261,195,517) (Note 1) $255,817,092
Cash (Note 1) 2,419,681
Interest receivable 1,458,208
Receivable for variation margin on open futures contracts (Notes 1 and 6) 623,477
Receivable for open forward foreign currency contracts (Notes 1 and 6) 8,322,679
Receivable for expenses waived or borne by Manager (Note 2) 48,866
------------
Total assets 268,690,003
------------
Liabilities:
Written options outstanding, at value (premiums $6,316,595) (Notes 1 and 6) 12,275,150
Payable for open forward foreign currency contracts (Notes 1 and 6) 9,385,359
Payable to affiliate for (Note 2):
Management fee 87,070
Shareholder service fee 31,937
Payable for open swap contracts (Notes 1 and 6) 2,281,336
Accrued expenses 62,976
------------
Total liabilities 24,123,828
------------
Net assets $244,566,175
============
Net assets consist of:
Paid-in capital $243,000,096
Accumulated undistributed net investment income 7,219,149
Accumulated undistributed net realized gain 9,832,228
Net unrealized depreciation (15,485,298)
------------
$244,566,175
============
Net assets attributable to:
Class III shares $244,566,175
============
Shares outstanding:
Class III 23,302,556
============
Net asset value per share:
Class III $ 10.50
============
</TABLE>
See accompanying notes to the financial statements.
7
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations - Six Months Ended August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $8,131,419
Dividends 265,400
----------
Total income 8,396,819
----------
Expenses:
Management fee (Note 2) 524,974
Custodian and transfer agent fees 67,879
Registration fees 39,649
Audit fees 23,665
Legal fees 3,384
Trustees fees (Note 2) 1,006
Miscellaneous 918
Fees waived or borne by Manager (Note 2) (334,745)
----------
326,730
Shareholder service fee (Note 2)
Class III 196,865
----------
Net expenses 523,595
----------
Net investment income 7,873,224
----------
Realized and unrealized gain (loss): Net realized gain (loss) on:
Investments 1,600,639
Closed futures contracts (646,242)
Closed swap contracts 583,478
Written options 879,575
Foreign currency, forward contracts and foreign currency related
transactions 6,290,106
----------
Net realized gain 8,707,556
----------
Change in net unrealized appreciation (depreciation) on:
Investments (5,789,449)
Open futures contracts 587,579
Open swap contracts (2,279,347)
Written options (6,372,735)
Foreign currency, forward contracts and foreign currency related
transactions (1,678,311)
----------
Net unrealized loss (15,532,26)
----------
Net realized and unrealized loss (6,824,707)
----------
Net increase in net assets resulting from operations $1,048,517
==========
</TABLE>
See accompanying notes to the financial statements.
8
<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
Six Months Ended (commencement of
August 31, 1998 operations) to
(Unaudited) February 28, 1998
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 7,873,224 $ 8,633,540
Net realized gain 8,707,556 8,962,123
Change in net unrealized appreciation (depreciation) (15,532,263) 46,965
------------ ------------
Net increase in net assets resulting from operations 1,048,517 17,642,628
------------ ------------
Distributions to shareholders from:
Net investment income
Class III (2,920,291) (5,715,005)
------------ ------------
Total distributions from net investment income (2,920,291) (5,715,005)
------------ ------------
Net realized gains
Class III (1,229,597) (7,260,173)
------------ ------------
Total distributions from net realized gains (1,229,597) (7,260,173)
------------ ------------
(4,149,888) (12,975,178)
------------ ------------
Net share transactions: (Note 5)
Class III 19,281,520 223,718,576
------------ ------------
Increase in net assets resulting from net share
transactions 19,281,520 223,718,576
------------ ------------
Total increase in net assets 16,180,149 228,386,026
Net assets:
Beginning of period 228,386,026 --
------------ ------------
End of period (including accumulated undistributed net
investment income of $7,219,149 and $2,266,216,
respectively) $244,566,175 $228,386,026
============ ============
</TABLE>
See accompanying notes to the financial statements.
9
<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>
- -----------------------------------------------------------------------------------------------------
Six Months Ended Period from April 30, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.60 $ 10.00
------- -------
Income from investment operations:
Net investment income 0.32 0.55+
Net realized and unrealized gain (loss) (0.26) 0.66
------- -------
Total from investment operations 0.06 1.21
------- -------
Less distributions to shareholders:
From net investment income (0.11) (0.27)
From net realized gains (0.05) (0.34)
------- -------
Total distributions (0.16) (0.61)
------- -------
Net asset value, end of period $ 10.50 $ 10.60
======= =======
Total Return (a) 0.56% 12.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) 244,566 228,386
Net expenses to average daily net assets 0.40%* 0.40%*
Net investment income to average daily net 6.00%* 6.05%*
assets
Portfolio turnover rate 42% 58%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.01 0.02
per share amounts:
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements.
10
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 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 or other persons acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
11
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of August 31, 1998.
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or,
12
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
if a forward currency contract is offset by entering into another forward
currency contract with the same broker, upon settlement of the net gain or
loss. These contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities.
In addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1998.
Options
The Fund may write call and put options on securities or currencies 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, 1998.
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.
13
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund may enter into interest rate, total return and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market-linked return based on a notional amount. To the extent 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.
Credit default swaps involve the payment of a specified rate based on the
notional amount. The fund receives payment upon default of the underlying
security. In connection with these agreements, cash may be set aside as
collateral by the Fund's custodian in accordance with the terms of the swap
agreement. At August 31, 1998, $2,419,681 in cash has been set aside. Swaps
are marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss in the Statement of
Operations. Payments received or made at the end of the measurement period
are recorded as realized gain or loss in the Statement of Operations.
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, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
14
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower fail financially.
The Fund receives compensation for lending its securities. At August 31,
1998, the Fund had no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income 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. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Interest income on the U.S.
Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities adjusted for inflation is recorded as
income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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.
15
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The premium will be reduced by 50% with respect to any portion of
a purchase that is offset by a corresponding redemption occurring on the
same day. In addition, the purchase premium or redemption fee for the Fund
will be reduced by 50% if the purchaser makes an in-kind purchase of Fund
shares or if the purchase or redemption is part of a transfer from or to
another Fund where the Manager is able to transfer securities among the
Funds to effect the transaction. All purchase premiums are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold" as summarized in Note 5. For the six months ended
August 31, 1998, the Fund received $92,410 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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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 six months ended August 31, 1998 was $1,006. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
16
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1998, 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 $ 5,819,594 $ 4,996,869
Investments (non-U.S. Government securities) 133,061,413 98,278,350
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$ 261,195,517 $ 5,132,008 $ 10,510,433 $ 5,378,425
</TABLE>
4. Principal shareholders
At August 31, 1998, 58% of the outstanding shares of the Fund were held by
four shareholders, each holding in excess of 10% of the Fund's outstanding
shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Period from April 30, 1997
Class III: Six Months Ended (commencement of operations)
August 31, 1998 to February 28, 1998
------------------------------- -----------------------------
Shares Amount Shares Amount
----------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 5,736,193 $ 61,606,506 23,536,230 $245,381,956
Shares issued to shareholders
in reinvestment of 224,982 2,407,307 906,550 9,564,099
distributions
Shares repurchased (4,207,327) (44,732,293) (2,894,072) (31,227,479)
========== ============ ========== ============
Net increase 1,753,848 $ 19,281,520 21,548,708 $223,718,576
========== ============ ========== ============
</TABLE>
17
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Forward currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
----------- --------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Buys
11/06/98 AUD 5,500,000 $ 3,149,161 $ (201,027)
9/18/98 CAD 67,700,000 43,275,099 (2,898,164)
9/11/98 DEM 60,400,000 34,272,875 296,295
10/02/98 DEM 142,600,000 81,018,676 556,522
10/23/98 DEM 67,445,000 38,367,631 232,027
10/30/98 DEM 64,200,000 36,537,061 412,544
1/04/99 DEM 101,200,000 57,797,921 149,631
10/16/98 GBP 33,800,000 56,459,114 1,397,907
10/23/98 GBP 4,300,000 7,180,050 117,030
1/04/99 ITL 101,275,875,000 58,258,432 221,473
11/06/98 JPY 500,000,000 3,576,214 24,649
9/11/98 SEK 158,031,000 19,545,709 (943,334)
-----------
$ (634,447)
===========
Sales
11/06/98 AUD 17,800,000 $10,191,829 $ 309,016
9/18/98 CAD 87,200,000 55,739,861 3,256,258
10/30/98 CHF 53,293,062 37,100,792 (976,276)
9/11/98 DEM 36,000,000 20,427,541 61,502
10/02/98 DEM 111,500,000 63,349,105 (1,105,760)
10/23/98 DEM 12,724,990 7,238,902 (175,882)
1/04/99 DEM 102,200,000 58,369,046 (332,088)
1/04/99 FRF 339,323,600 57,820,194 (171,904)
</TABLE>
18
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forward currency contracts -- continued
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- --------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales - continued
10/23/98 GBP 23,500,000 $39,239,807 $(1,104,202)
11/06/98 JPY 11,020,000,000 78,819,754 (1,406,408)
9/21/98 MYR 29,000,000 6,847,698 8,094
10/01/98 NZD 13,000,000 6,441,773 123,227
9/11/98 SEK 268,410,768 33,197,783 778,796
-----------
$ (735,627)
===========
</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>
9/11/98 DEM 2,300,000 SEK 10,285,830 $ (32,913)
10/23/98 DEM 20,207,029 GBP 6,900,000 26,244
1/04/99 DEM 91,400,000 ESB 7,779,054,000 (22,064)
10/29/98 DKK 73,726,000 DEM 19,300,000 (15,014)
1/04/99 FRF 10,727,360 DEM 3,200,000 (323)
9/11/98 SEK 154,519,885 DEM 34,300,000 351,464
-------------
$ 307,394
</TABLE>
19
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
--------- ---------------------------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Buys
10 MATIF FRF Bond September 1998 $ 918,782 $ 34,447
43 MATIF FRF Bond December 1998 3,933,663 (4,722)
17 Swiss Government Bond December 1998 1,502,766 624
1 German Government Bond September 1998 161,086 6,683
28 German Government Bond December 1998 4,463,964 749
115 Canadian Government Bond December 1998 8,960,619 67,230
184 U.S. Treasury Note 5 yr. December 1998 20,625,250 79,320
134 U.S. Treasury Note 10 yr. December 1998 15,694,750 333,238
338 U.S. Treasury Bond 30 yr. December 1998 42,926,000 718,944
279 Australian Government Bond 10 yr. September 1998 40,578,622 (415,203)
26 Australian Government Bond 3 yr. September 1998 3,044,319 (6,386)
------------
$ 814,924
============
Sales
361 Spanish Government Bond 10 yr. September 1998 $27,158,462 $ (828,921)
160 Spanish Government Bond 10 yr. December 1998 12,069,042 8,261
20 Japanese Government Bond 10 yr. September 1998 19,192,577 (283,195)
28 Japanese Government Bond 10 yr. December 1998 26,825,979 (50,255)
40 U.K. Gilt September 1998 2,689,042 (75,545)
117 Italian Government Bond 10 yr. September 1998 16,514,330 (362,166)
184 Italian Government Bond 10 yr. December 1998 23,063,740 6,471
============
$ (1,585,350)
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover any
commitments or margin on these contracts.
20
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Principal
Amount of Amount of
Contracts Contracts
(000's omitted) Premiums (000's omitted) Premiums
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period 173,000 $3,868,525 93,000 $3,870,965
Options expired (80,000) (771,200) -- --
Options sold (28,900) (326,570) (28,900) (325,125)
--------- ---------- -------------- ----------
Outstanding, end
of period 64,100 $2,770,755 64,100 $3,545,840
========= ========== ============== ==========
</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 64,100 113.65 JPY 09/17/98 $12,275,150
Puts
Japanese Yen 64,100 113.65 JPY 09/17/98 --
-----------
$12,275,150
</TABLE>
21
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements
Expiration Net Unrealized
Notional Amount Date Description Depreciation
--------------- ---------- ----------------------- --------------
<S> <C> <C> <C>
Credit Default Swaps
378,000,000,000 ITL 3/31/03 Agreement with Morgan $ (309,922)
Guaranty Trust Company
dated 3/26/98 to pay
.07% per year times
the notional amount.
The Fund receives
payment only upon a
default event in Italy,
the notional amount times
the difference between
the purchase cost of 100
USD and the then-market
value of Italy BTP, 6.00%
due 11/01/07.
7,922,250,000 BEF 3/31/03 Agreement with Morgan (243,179)
Guaranty Trust Company
dated 3/26/98 to pay .07%
per year times the notional
amount. The Fund receives
payment only upon a default
event in Belgium, the
notional amount times the
difference between the
purchase cost of 100 USD
and the then-market value
of Kingdom of Belgium, 5.75%
due 3/28/08.
Interest Rate Swaps
11,200,000 CHF 6/05/05 Agreement with Morgan (99,247)
Guaranty Trust Company dated
6/03/98 to pay the notional
amount multiplied by 3.245%
and to receive the notional
amount multiplied by 6 month
Floating Rate Swiss LIBOR
adjusted by a specified
spread.
15,000,000 CHF 6/10/05 Agreement with Credit Suisse (150,434)
Financial Products dated
6/08/98 to pay the notional
amount multiplied by 3.2625%
and to receive the notional
amount multiplied by 6 month
Floating Rate Swiss LIBOR
adjusted by a specified spread.
</TABLE>
22
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements - continued
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description Depreciation
----------------- ---------- ----------------------- --------------
<S> <C> <C> <C>
10,600,000 CHF 6/11/05 Agreement with Morgan $ (87,226)
Guaranty Trust Company
dated 6/09/98 to pay the
notional amount multiplied
by 3.245% and to receive
the notional amount
multiplied by 6 month
Floating Rate Swiss LIBOR
adjusted by a specified
spread.
Total Return Swaps
2,000,000 USD/ 9/11/98 Agreement with Bank of America (515,633)
1,948,916 USD dated 8/06/98 to receive the
notional amount multiplied by
the change in market value
(including accrued interest)
of Republic of Argentina USD
Global Bond, 9.75% due 9/19/27
and to pay initial market value
multiplied by 1 month LIBOR
adjusted by a specified spread.
3,500,000 USD/ 9/15/98 Agreement with Morgan (951,269)
3,190,748 USD Guaranty Trust Company dated
7/13/98 to receive the
notional amount multiplied by
the change in market value
(including accrued interest)
of Brazil Capitalization
Fixed/Floating Rate Bond due
4/15/14 and to pay initial
market value multiplied by 2
month LIBOR adjusted by a
specified spread.
30,000,000 USD 11/11/98 Agreement with Morgan 386,309
Guaranty Trust Company dated
11/07/97 to receive (pay)
the notional amount multiplied
by the return on the Lehman
Aggregate Index and to pay the
notional amount multiplied by
3 month LIBOR adjusted by a
specified spread.+
</TABLE>
23
<PAGE>
GMO U.S. Bond/Global Alpha A Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Swap agreements - continued
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description Depreciation
----------------- ---------- ----------------------- --------------
<S> <C> <C> <C>
599,672 USD/ 5/14/99 Agreement with Bank of (315,751)
80,250,000,000 TRL America dated 5/29/97 to
receive the notional amount
multiplied by the change in
market value (including
accrued interest) on the
Turkey Index Linked Bond due
5/14/99 and to pay the
notional amount multiplied by
3 month LIBOR adjusted by a
specified spread
234,896 USD/ 6/04/99 Agreement with Bank of (20,178)
51,273,017,332 TRL America dated 6/20/97 to
receive the notional amount
multiplied by the change in
market value (including
accrued interest) on the
Turkey Index Linked Bond due
6/04/99 and to pay the
notional amount multiplied by
3 month LIBOR adjusted by a
specified spread
79,153 USD/ 6/04/99 Agreement with Bank of 25,194
24,802,803,728 TRL America dated 11/13/97 to
receive the notional amount
multiplied by the change in
market value (including
accrued interest) on the
Turkey Index Linked Bond due
6/04/99 and to pay the
notional amount multiplied by
3 month LIBOR adjusted by a
specified spread
-----------
$(2,281,336)
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
+ This swap agreement is valued by management (Note 1).
24
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 100.4%
Argentina -- 0.2%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.75%, due 3/31/23 610,000
-------------
Australia -- 2.1%
GBP 2,000,000 Commonwealth Bank Australia Series EMTN, 8.13%,
due 12/07/06 3,770,974
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,680,857
-------------
5,451,831
-------------
Bulgaria -- 1.6%
USD 1,000,000 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1.31%, 7.19%, due 7/28/24 542,500
USD 5,000,000 Bulgaria Discount Series B Strips, Basket 2, 0.00%, due 7/28/24 217,500
USD 15,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24 3,385,500
-------------
4,145,500
-------------
Canada -- 5.7%
CAD 750,000 Government of Canada, 10.25%, due 3/15/14 697,737
CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 3,542,482
CAD 3,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 2,012,160
CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,513,234
GBP 3,500,000 Province of Quebec, 8.63%, due 11/04/11 6,984,256
-------------
14,749,869
-------------
Cayman Islands -- 0.5%
CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 1,364,915
-------------
Denmark -- 3.9%
DKK 58,200,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 10,049,631
-------------
Ecuador -- 0.3%
USD 2,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.50%, due 2/28/25 810,000
-------------
France -- 1.5%
FRF 14,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 2,691,032
SEK 10,000,000 Credit Foncier, 6.50%, due 2/22/99 1,245,626
-------------
3,936,658
-------------
Germany -- 4.3%
ESP 250,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 1,967,249
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Germany -- continued
GBP 2,000,000 KFW International Finance, 10.63%, due 9/03/01 3,707,343
ESP 280,000,000 KFW International Finance, 8.60%, due 5/20/03 2,204,253
GBP 3,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 3,215,040
-------------
11,093,885
-------------
Italy -- 1.0%
ITL 1,550,000,000 BTPS, 8.50%, due 8/01/04 1,071,309
ITL 1,700,000,000 BTPS, 9.00%, due 11/01/23 1,470,436
-------------
2,541,745
-------------
Ivory Coast -- 0.2%
FRF 10,535,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 3/29/18 356,514
FRF 6,910,000 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 3/29/18 233,841
-------------
590,355
-------------
Japan -- 6.3%
GBP 2,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,665,481
GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.13%,
due 2/16/05 3,859,723
USD 1,030,000 Japan Highway Public Corporation, 7.63%, due
9/22/04 1,129,910
GBP 4,000,000 Kobe City, 9.50%, due 10/20/04 7,776,378
-------------
16,431,492
-------------
Jordan -- 0.2%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 144A, 5.00%, due
12/23/23 500,000
-------------
Mexico -- 0.7%
FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,903,553
-------------
New Zealand -- 1.7%
NZD 8,800,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 4,294,503
-------------
Norway -- 0.3%
SEK 6,300,000 A/S Eksportfinans, 7.50%, due 8/16/01 828,675
-------------
Russia -- 0.0%
USD 169,240 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due
12/15/15 18,617
-------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supra National -- 2.5%
AUD 21,000,000 European Bank Recon and Development, Zero Coupon,
due 2/10/28 1,787,241
CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 502,110
GBP 2,000,000 International Bank Recon and Development, 11.50%,
due 11/09/03 4,144,388
-------------
6,433,739
-------------
Sweden -- 8.8%
SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due
12/01/20 2,687,091
SEK 153,500,000 Kingdom of Sweden, 6.00%, due 2/09/05 20,291,309
-------------
22,978,400
-------------
United Kingdom -- 1.6%
GBP 2,000,000 Guaranteed Export Financial Corp, 12.88%, due
9/29/02 4,109,223
-------------
United States -- 56.8%
Asset Backed Securities -- 51.1%
USD 2,784,650 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due
3/25/27 2,782,910
USD 3,000,000 American Express Credit Account Master Trust
Series 98-1A, Variable Rate, 1 mo. LIBOR + .09%, 5.73%,
due 1/17/06 2,999,100
USD 5,000,000 Anfield Road I Ltd.,
Variable Rate, 6 mo. LIBOR + .25%, 6.00%, due
11/06/06 4,973,438
USD 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, 3 mo. LIBOR + .30%, 144A, 5.99%,
due 4/15/06 4,949,219
USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A,
Variable Rate, LIBOR + .25%, 5.90%, due 4/25/03 5,000,000
USD 2,315,000 Brazos Student Loan Finance Corp Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%,
5.22%, due 12/01/02 2,309,213
USD 12,000,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.79%, due
10/16/06 11,996,399
USD 6,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.81%, due
10/15/06 5,994,375
USD 5,000,000 CS First Boston Mortgage Securities Corp, Series
98-C1 Class A1B, 6.48%, due 5/17/08 5,092,500
USD 2,642,448 CS First Boston Mortgage Securities Corp., Series
96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%,
6.04%, due 7/28/29 2,642,448
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 7,000,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.99%, due
10/16/04 7,049,000
USD 5,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.88%, due
10/15/06 5,002,344
USD 6,000,000 EMAC Series 98-1 Class A2, 144A, 6.38%, due 1/15/25 5,999,063
USD 5,000,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + .37%, 5.99%, due
8/15/03 5,035,156
USD 5,000,000 Health Care Receivables Securitization Program
96-1 Class A, 144A, 7.20%, due 7/01/00 5,057,500
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due
10/15/02 5,019,000
USD 8,000,000 Navistar Financial Dealer Note Master Trust 97-1
Class A, Variable Rate, 1 mo. LIBOR + .15%,
5.83%, due 8/25/03 8,008,000
USD 10,000,000 Northstar CBO Ltd Series 97-2 Class A2, 6.62%, due
7/15/09 11,181,249
USD 5,000,000 Prime Credit Card Master Trust Series 92-2 Class
A2, 7.45%, due 11/15/02 5,082,500
USD 10,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 9/15/09 10,918,749
USD 5,966,000 SMS Student Loan Trust 94-A Certificates,
Variable Rate, 1 mo. LIBOR + .70%, 6.36%, due
7/26/21 6,004,779
USD 5,000,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 6.40%, due
7/25/03 5,007,813
USD 5,000,000 Starvest Emerging Markets CBO-I Series 1A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.94%,
due 7/30/11 4,932,031
-------------
133,036,786
-------------
Corporate Debt -- 0.7%
SEK 14,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 1,827,825
-------------
U.S. Government Agency -- 5.0%
USD 2,700,594 Agency for International Development Floater (Support
of Honduras), Variable Rate, 3 mo. U.S. Treasury
Bill x 117%, 5.85%, due
10/01/11 2,693,842
USD 1,000,000 Agency for International Development Floater
(Support of India), Variable Rate, 3 mo. LIBOR
+ .10%, 5.79%, due 2/01/27 1,001,250
USD 1,849,321 Agency for International Development Floater (Support
of Morocco), Variable Rate, 6 mo. U.S. Treasury
Bill + .45%, 5.59%, due 11/15/14 1,840,363
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- continued
USD 2,584,335 Agency for International Development Floater (Support of Peru),
Series A, Variable Rate, 6 mo. U.S. Treasury Bill +.35%, 5.49%,
due 5/01/14 2,566,971
USD 910,527 Agency for International Development Floater (Support of Peru),
Series B, Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.49%,
due 5/01/14 904,409
USD 233,334 Agency for International Development Floater (Support of Peru),
Variable Rate, 3 mo. U.S. Treasury Bill x 114%,
5.69%, due 2/01/02 231,766
USD 4,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02(a) 3,850,000
-------------
13,088,601
-------------
Total United States 147,953,212
-------------
Venezuela -- 0.2%
USD 1,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 3/31/20 590,000
-------------
590,000
-------------
TOTAL DEBT OBLIGATIONS (COST $260,000,034) 261,385,803
-------------
LOAN ASSIGNMENTS -- 0.4%
Russia -- 0.4%
USD 9,646,950 Russia Vnesh Restructured Loan Agreements, LIBOR + .8125%
(3.3125%) 1,000,871
-------------
TOTAL LOAN ASSIGNMENTS (COST $4,441,057) 1,000,871
-------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Principal Amount Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 1.9%
United States-- 1.9%
5,000 Bear Stearns Managed Income Securities Plus Fund
13.27% 4,960,524
-------------
TOTAL PREFERRED STOCKS (COST $4,933,793) 4,960,524
-------------
CALL OPTIONS PURCHASED -- 0.9%
Cross Currency Options -- 0.0%
DEM 102,200,000 DEM Call/ITL Put, Expires 9/22/98, Strike 993 --
-------------
Options on Bonds -- 0.1%
SEK 244,000,000 Sweden Government Bond, Expires 10/27/98, Strike
105.354 368,340
-------------
Options on Currency -- 0.7%
USD 90,600,000 German Mark, Expires 9/17/98, Strike 1.725 1,884,480
-------------
Options on Futures -- 0.1%
USD 1,750,000 Eurodollar, Expires 9/14/98, Strike 94.375 122,500
-------------
TOTAL CALL OPTIONS PURCHASED
(COST $4,995,846) 2,375,320
-------------
PUT OPTIONS PURCHASED -- 0.2%
Cross Currency Options -- 0.1%
DEM 102,200,000 DEM Put/ITL Call, Expires 9/22/98, Strike 993 208,630
USD 1,593,220 TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires
11/09/98, Strike 654,000 12,694
-------------
221,324
-------------
Options on Currency -- 0.1%
USD 90,600,000 German Mark, Expires 9/17/98, Strike 1.725 262,740
-------------
TOTAL PUT OPTIONS PURCHASED
(COST $4,025,947) 484,064
-------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
870,000 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) --
-------------
TOTAL INVESTMENTS -- 103.8%
(Cost $278,396,677) 270,206,582
Other Assets and Liabilities (net) -- (3.8)% (9,840,982)
-------------
TOTAL NET ASSETS -- 100% $ 260,365,600
=============
Notes to the Schedule of Investments:
EMTN - Euromarket Medium Term Note
FLIRB - Front Loaded Interest Reduction Bond
IAN - Interest Arrears Note
PDI - Past Due Interest
144A - Securities exempt from registration under Rule
144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
Variable and Step up rates - The rates shown on
variable and step up rate notes are the current
interest rates at August 31, 1998, which are
subject to change based on the terms of the
security, including varying reset dates.
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notes to the Schedule of Investments -- continued
<S> <C>
Currency Abbreviations
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc MYR - Malaysian Ringgit
DEM - German Mark NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krona
ESP - Spanish Peseta TRL - Turkish Lira
FRF - French Franc USD - United States Dollar
</TABLE>
(a) Security has been segregated to cover margin
requirements on open financial futures contracts.
* 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, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $278,396,677) (Note 1) $270,206,582
Cash (Note 1) 3,340,536
Receivable for Fund shares sold 8,697
Interest receivable 5,257,208
Receivable for variation margin on open futures contracts (Notes 1 and 6) 312,263
Receivable for open forward foreign currency contracts (Notes 1 and 6) 10,084,357
Receivable for expenses waived or borne by Manager (Note 2) 53,443
------------
Total assets 289,263,086
------------
Liabilities:
Written options outstanding, at value (premiums $8,927,910) (Notes 1 and 6) 17,349,900
Payable for open forward foreign currency contracts (Notes 1 and 6) 7,647,590
Payable for open swap contracts (Notes 1 and 6) 3,208,968
Due to custodian 470,214
Payable to affiliate for (Note 2):
Management fee 89,276
Shareholder service fee 32,325
Accrued expenses 99,213
------------
Total liabilities 28,897,486
------------
Net assets $260,365,600
============
Net assets consist of:
Paid-in capital $264,239,768
Accumulated undistributed net investment income 2,992,227
Accumulated undistributed net realized gain 11,416,404
Net unrealized depreciation (18,282,799)
------------
$260,365,600
============
Net assets attributable to:
Class III shares $260,365,600
============
Shares outstanding:
Class III 25,545,461
============
Net asset value per share:
Class III $ 10.19
============
</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, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $9,084,715
Dividends 367,243
----------
Total income 9,451,958
----------
Expenses:
Management fee (Note 2) 547,150
Custodian and transfer agent fees 94,103
Audit fees 26,624
Registration fees 11,534
Legal fees 5,487
Trustees fees (Note 2) 1,103
Miscellaneous 1,008
Fees waived or borne by Manager (Note 2) (345,044)
----------
341,965
Shareholder service fee (Note 2)
Class III 205,185
----------
Net expenses 547,150
----------
Net investment income 8,904,808
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 4,817,452
Closed futures contracts 3,608,713
Closed swap contracts (703,688)
Written options 1,106,875
Foreign currency, forward contracts and foreign currency related transactions 3,049,801
----------
Net realized gain 11,879,153
----------
Change in net unrealized appreciation (depreciation) on:
Investments (12,330,959)
Open futures contracts (854,647)
Open swap contracts (3,033,714)
Written options (8,979,715)
Foreign currency, forward contracts and foreign currency related transactions 160,538
----------
Net unrealized loss (25,038,497)
----------
Net realized and unrealized loss (13,159,344)
----------
Net decrease in net assets resulting from operations $(4,254,536)
==========
</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, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 8,904,808 $17,003,789
Net realized gain (loss) 11,879,153 (1,512,149)
Change in net unrealized appreciation (depreciation) (25,038,497) 1,786,896
----------- -----------
Net increase (decrease) in net assets resulting from operations (4,254,536) 17,278,536
----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (14,355,792)
----------- -----------
Total distributions from net investment income -- (14,355,792)
----------- -----------
Net realized gains
Class III (1,690,914) (2,663,260)
----------- -----------
Total distributions from net realized gains (1,690,914) (2,663,260)
----------- -----------
In excess of net realized gains
Class III -- (9,216,709)
----------- -----------
Total distributions in excess of net realized gains -- (9,216,709)
----------- -----------
(1,690,914) (26,235,761)
----------- -----------
Net share transactions: (Note 5)
Class III (26,711,092) 66,196,244
----------- -----------
Increase (decrease) in net assets resulting from net
share transactions (26,711,092) 66,196,244
----------- -----------
Total increase (decrease) in net assets (32,656,542) 57,239,019
Net assets:
Beginning of period 293,022,142 235,783,123
----------- -----------
End of period (including accumulated undistributed net investment
income of $2,992,227 and distributions in excess of net investment
income of $5,912,581, respectively) $260,365,600 $293,022,142
============ ============
</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
August 31, 1998 Year Ended February 28/29,
-----------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994*
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 10.45 $ 10.78 $ 10.92 $ 9.64 $ 9.96 $ 10.00
-------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.33 0.59 0.71 0.62 0.98 0.08
Net realized and unrealized gain
(loss) (0.53) 0.08 0.65 1.55 (0.21) (0.12)
-------- -------- ------- ------- ------- -------
Total from investment operations (0.20) 0.67 1.36 2.17 0.77 (0.04)
-------- -------- ------- ------- ------- -------
Less distributions to shareholders:
From net investment income -- (0.54) (0.81) (0.59) (0.75) --
From net realized gains (0.06) (0.10) (0.54) (0.30) (0.34) --
In excess of net realized gains -- (0.36) (0.15) -- -- --
-------- -------- ------- ------- ------- -------
Total distributions (0.06) (1.00) (1.50) (0.89) (1.09) --
-------- -------- ------- ------- ------- -------
Net asset value, end of period $ 10.19 $ 10.45 $ 10.78 $ 10.92 $ 9.64 $ 9.96
======== ======== ======= ======= ======= =======
Total Return /(a)/ (1.89)% 6.32% 12.39% 22.72% 8.23% (0.40)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $260,366 $293,022 $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% 0.40%**
Net investment income to average
daily net assets 6.51%** 6.24% 6.93% 8.17% 7.51% 5.34%**
Portfolio turnover rate 57% 105% 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 $ 0.02 $ 0.01 $ 0.02 $ 0.01
</TABLE>
* For the period from December 22, 1993 (commencement of operations) to
February 28, 1994.
** Annualized.
(a) Calculation excludes purchase premiums. The total 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
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the international fixed income securities
market.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
13
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of August 31, 1998.
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,
14
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
if a forward currency contract is offset by entering into another forward
currency contract with the same broker, upon settlement of the net gain or
loss. These contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities.
In addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1998.
Options
The Fund may write call and put options on futures, securities or
currencies 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, 1998.
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.
15
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund may enter into interest rate, total return, and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market linked return based on a notional amount. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Credit
default swaps involve the payment of a specified rate based on the notional
amount. The Fund receives payment upon default of the underlying security.
In connection with these agreements, cash may be set aside as collateral by
the Fund's custodian in accordance with the terms of the swap agreement. At
August 31, 1998, $3,340,536 in cash has been set aside. Swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. 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, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
16
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower fail financially.
The Fund receives compensation for lending its securities. At August 31,
1998, there were no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Interest income on the U.S.
Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of these securities adjusted for inflation is recorded as
income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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.
17
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The premium will be reduced by 50% with respect to any portion of
a purchase that is offset by a corresponding redemption occurring on the
same day. In addition, the purchase premium or redemption fee for the Fund
will be reduced by 50% if the purchaser makes an in-kind purchase of Fund
shares or if the purchase or redemption is part of a transfer from or to
another Fund where the Manager is able to transfer securities among the
Funds to effect the transaction. All purchase premiums are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of "shares sold" as summarized in Note 5. For the six months ended
August 31, 1998, the Fund received $58,885 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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .40% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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 six months ended August 31, 1998, was $1,103. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
18
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1998, 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 $ 3,863,013 $ 3,997,495
Investments (non-U.S. Government securities) 148,374,908 148,228,134
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------- ------------------ ------------------ ---------------
$ 278,396,677 $7,474,603 $15,664,698 $8,190,095
4. Principal shareholders
At August 31, 1998, 32% 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, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
---------------------------- -----------------------------
Class III: Shares Amount Shares Amount
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 3,792,728 $ 39,926,417 9,447,927 $ 103,640,468
Shares issued to shareholders
in reinvestment of
distributions 161,921 1,675,885 2,082,876 21,695,786
Shares repurchased (6,457,703) (68,313,394) (5,355,799) (59,140,010)
------------ -------------- ------------- --------------
Net increase (decrease) (2,503,054) $ (26,711,092) 6,175,004 $ 66,196,244
============ ============== ============= ==============
</TABLE>
19
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
--------------- ------------------ -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Buys
11/06/98 AUD 9,000,000 $ 5,153,172 $ (328,953)
9/18/98 CAD 65,000,000 41,549,209 (2,819,391)
10/02/98 DEM 315,400,000 179,195,586 2,450,415
10/16/98 GBP 40,000,000 66,815,520 1,749,477
1/04/99 ITL 184,292,800,000 106,013,495 842,604
11/06/98 JPY 320,000,000 2,288,777 15,775
------------------
$ 1,909,927
==================
Sales
11/06/98 AUD 19,000,000 $ 10,878,919 $ 305,461
9/18/98 CAD 87,400,000 55,867,705 3,314,407
10/02/98 DEM 71,700,000 40,736,599 (616,695)
1/04/99 DEM 186,000,000 106,229,380 (1,058,489)
11/06/98 JPY 6,340,000,000 45,346,392 (805,560)
9/21/98 MYR 2,000,000 472,255 558
9/28/98 MYR 32,000,000 7,526,637 (50,001)
10/01/98 NZD 8,800,000 4,360,585 83,415
------------------
$ 1,173,096
==================
</TABLE>
20
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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>
10/30/98 CHF 51,964,886 DEM 62,600,000 $ (549,682)
9/11/98 DEM 5,900,000 SEK 26,287,420 (96,547)
10/23/98 DEM 27,065,322 GBP 9,200,000 (34,761)
1/04/99 DEM 112,900,000 ESP 9,608,919,000 (27,254)
1/04/99 DEM 600,000 FRF 2,011,380 60
10/29/98 DKK 77,928,000 DEM 20,400,000 (15,869)
1/04/99 FRF 129,425,800 DEM 38,600,000 (8,496)
10/23/98 GBP 33,300,000 DEM 95,571,000 (1,235,892)
9/11/98 SEK 383,401,876 DEM 85,900,000 1,322,185
-----------------
$ (646,256)
=================
</TABLE>
Futures contracts
<TABLE>
<CAPTION>
Net
Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
----------- ------------------------------------- --------------------------- ---------------
<S> <C> <C> <C> <C>
Buys
79 Australian Government Bond 3 yr September 1998 $ 5,261,306 $ (20,879)
237 Australian Government Bond 10 yr September 1998 18,401,750 (353,116)
129 Canadian Government Bond December 1998 10,051,477 67,090
48 German Government Bond September 1998 7,732,124 320,782
195 German Government Bond December 1998 31,088,319 8,357
6 Japanese Government Bond December 1998 5,748,424 31,524
81 MATIF National Bond September 1998 7,442,132 287,546
238 MATIF National Bond December 1998 21,772,369 (22,674)
132 U.S. Long Bond December 1998 16,764,000 243,972
--------------
$ 562,602
==============
</TABLE>
21
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Contract Appreciation
Contracts Type Date Value (Depreciation)
------------ -------------------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sales
62 Italian Government Bond 10 yr September 1998 $ 8,751,183 $ (207,221)
96 Italian Government Bond 10 yr December 1998 12,033,256 2,755
220 Spanish Government Bond MEFSA 10 yr September 1998 16,550,863 (503,641)
97 Spanish Government Bond MEFSA 10 yr December 1998 7,316,856 6,390
4 Swiss Government Bond September 1998 353,592 (18,415)
16 U.K. Gilt December 1998 3,015,992 (29,963)
295 U.S. Treasury Bond 10 yr December 1998 34,551,875 (732,503)
--------------
$ (1,482,598)
==============
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any margin requirements on open futures contracts.
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Principal
Amount of Amount of
Contracts Contracts
(000's omitted) Premiums (000's omitted) Premiums
--------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period 228,700 $ 5,311,050 128,700 $ 5,440,015
Options closed (38,100) (430,530) (38,100) (428,625)
Options expired (100,000) (964,000) -- --
--------------- ---------------- ---------------- ---------------
Outstanding, end
of period 90,600 $ 3,916,520 90,600 $ 5,011,390
=============== ================ ================ ===============
</TABLE>
22
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 90,600 113.65 JPY 9/17/98 $ 17,349,900
Puts
Japanese Yen 90,600 113.65 JPY 9/17/98 --
---------------
$ 17,349,900
===============
</TABLE>
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
---------------------- ----------- --------------------------------------------- ----------------
<S> <C> <C> <C>
Credit Default Swaps
270,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust $ (221,373)
Company dated 3/26/98 to pay .07% per year
times the notional amount. The Fund
receives payment only upon a default event
in Italy, the notional amount times the
difference between the purchase cost of 100
USD and the then-market value of Italy BTP,
6.00% due 11/01/07.
5,658,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust (173,699)
Company dated 3/26/98 to pay .07% per year
times the notional amount. The Fund
receives payment only upon a default event
in Belgium, the notional amount times the
difference between the purchase cost of 100
USD and the then-market value of Kingdom of
Belgium, 5.75% due 3/28/08.
</TABLE>
23
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
---------------------- ----------- --------------------------------------------- ----------------
<S> <C> <C> <C>
Interest Rate Swaps
11,000,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust (97,474)
Company dated 6/03/98 to pay the notional
amount multiplied by 3.245% and to receive
the notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
14,500,000 CHF 6/10/05 Agreement with Credit Suisse Financial (145,419)
Products dated 6/08/98 to pay the notional
amount multiplied by 3.2625% and to receive
the notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
10,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust $ (82,289)
Company dated 6/09/98 to pay the notional
amount multiplied by 3.245% and to receive
the notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
Total Return Swaps
3,000,000 USD/ 6/10/05 Agreement with Bank of America dated (773,449)
2,923,374 USD 8/06/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Republic
of Argentina USD Global Bond, 9.75% due
9/19/27 and to pay initial market value
multiplied by 1 month LIBOR adjusted by
a specified spread.
</TABLE>
24
<PAGE>
GMO International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- --------------------------------------------- ----------------
<S> <C> <C> <C>
2,500,000 USD/ 9/15/98 Agreement with Morgan Guaranty Trust (679,478)
2,279,106 USD Company dated 7/13/98 to receive the
notional amount multiplied by the change
in market value (including accrued
interest) of Brazil Capitalization
Fixed/Floating Rate Bond due 4/15/14 and
to pay initial market value multiplied
by 2 month LIBOR adjusted by a specified
spread.
1,998,907 USD/ 5/14/99 Agreement with Bank of America dated (1,052,505)
267,500,000,000 TRL 5/29/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) on the
Turkey Index Linked Bond due 5/14/99 and
to pay notional amount multiplied by 3
month LIBOR adjusted by a specified
spread.
782,986 USD/ 6/04/99 Agreement with Bank of America dated $ (67,261)
170,910,054,657 TRL 6/20/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) on the
Turkey Index Linked Bond due 6/04/99 and
to pay notional amount multiplied by 3
month LIBOR adjusted by a specified
spread.
263,846 USD/ 6/04/99 Agreement with Bank of America dated 83,979
82,676,302,839 TRL 11/13/97 to receive the notional amount
multiplied by the change in market value
(including accrued interest) on the
Turkey Index Linked Bond due 6/04/99 and
to pay notional amount multiplied by 3
month LIBOR adjusted by a specified
spread.
----------------
$ (3,208,968)
================
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
25
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS -- 89.3%
Asset Backed Securities -- 22.8%
$ 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, 3 mo. LIBOR + .30%, 144A, 5.99%, due
4/15/06 4,949,219
11,887,168 Augusta Funding VI Series 96-A3, 144A, 7.38%, due 4/15/13 12,986,731
2,642,448 CS First Boston Mortgage Securities Corp, Series 96-1
Class A1, Variable Rate, 3 mo. LIBOR + .23%, 6.04%,
due 7/28/29 2,642,448
1,333,347 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 11/15/03 1,333,347
6,000,000 Health Care Receivables Securitization Program 96-1 Class A,
144A, 7.20%, due 7/01/00 6,069,000
1,050,303 New York City Tax Lien Series 96-1 Class B, 144A, 6.91%, 1,052,404
due 5/25/05
5,000,000 Northstar CBO Ltd Series 97-2 Class A2, 6.62%, due 7/15/09 5,590,625
1,275,824 Resolution Trust Corp 94-C1 Class A1,
Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due 6/25/26 1,276,223
506,800 Resolution Trust Corp 94-C1 Class A3,
Variable Rate, 1 mo. LIBOR + .55%, 6.24%, due 6/25/26 506,879
5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 9/15/09 5,459,375
2,637,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .75%, 6.40%, due 10/25/23 2,637,000
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + .65%, 6.30%, due 4/25/25 4,925,835
5,888,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + .75%, 6.40%, due 7/25/03 5,897,200
1,651,064 UCFC Home Equity Loan 95-B2 Class A8,
Variable Rate, 1 mo. LIBOR + .45%, 6.20%, due 10/10/26 1,655,192
-------------
56,981,478
-------------
Foreign Government Obligations -- 7.3%
25,000,000 Bulgaria Discount Strips, due 7/28/24 5,642,500
39,794,675 Republic of Albania Par Bond, Zero Coupon, due 8/31/25 7,958,935
20,000,000 Republic of Ecuador Discount Bond Series A Receipts, Zero
Coupon, due 2/28/25 4,715,200
-------------
18,316,635
-------------
Municipal Bonds -- 3.9%
15,000,000 Alameda County California Pension, Zero Coupon, due
12/01/05 9,766,406
-------------
U.S. Government -- 7.7%
19,983,857 U.S. Treasury Inflation Indexed Note, 3.38%, due
1/15/07/(a)/ 19,321,892
-------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. Government Agency -- 47.6%
$10,000,000 Agency for International Development Floater (Support of
India), Variable Rate, 3 mo. LIBOR + .10%, 5.79%,
due 2/01/27 10,012,500
8,250,000 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. LIBOR + .30%, 5.99%,
due 12/01/14 8,271,914
6,288,667 Agency for International Development Floater (Support of
Jamaica), Variable Rate, 6 mo. U.S. Treasury Bill
+ .75%, 5.89%, due 3/30/19 6,287,685
15,000,000 Agency for International Development Floater (Support of
Morocco), Variable Rate, 6 mo. LIBOR + .15%, 5.87%,
due 10/29/26 15,044,531
20,000,000 Agency for International Development Floater (Support of
Morocco), Variable Rate, 6 mo. LIBOR - .015%, 5.70%,
due 2/01/25 19,700,000
25,000,000 Agency for International Development Floater (Support of
Portugal), Variable Rate, 6 mo. LIBOR, 5.69%, due
1/01/21 24,874,999
9,730,000 Agency for International Development Floater (Support of
Sri Lanka), Variable Rate, 6 mo. LIBOR + .20%, 5.89%,
due 6/15/12 9,768,008
9,900,001 Agency for International Development Floater (Support of
Zimbabwe), Variable Rate, 3 mo. U.S. Treasury
Bill x 115%, 5.75%, due 1/01/12 9,801,001
4,000,000 Federal Farm Credit Bank,
Variable Rate, CPI + 3.00%, 4.68%, due 2/14/02 3,830,000
11,000,000 Small Business Administration Series 95-C, 6.88%, due
9/01/05 11,357,500
-------------
118,948,138
-------------
TOTAL DEBT OBLIGATIONS (COST $216,189,409) 223,334,549
-------------
PREFERRED STOCKS -- 7.9%
Preferred Stocks -- 7.9%
10,000 Bear Stearns Managed Income Securities Plus Fund 13.27% 9,921,047
10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 9,908,470
-------------
19,829,517
-------------
TOTAL PREFERRED STOCKS (COST $19,698,280) 19,829,517
-------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
--------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.8%
Cash Equivalents -- 0.8%
$ 619,686 BankBoston Eurodollar Time Deposit, 5.8925% due 9/1/98/(b)/ 619,686
420,314 Merrimac Cash Fund Premium Class/(b)/ 420,314
$1,000,000 Prudential Securities Group Inc, Master Note, 5.94% due
9/1/98/(b)/ 1,000,000
-------------
2,040,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,040,000) 2,040,000
-------------
TOTAL INVESTMENTS -- 98.0%
(Cost $237,927,689) 245,204,066
Other Assets and Liabilities (net) -- 2.0% 5,043,511
-------------
TOTAL NET ASSETS -- 100% $ 250,247,577
=============
Notes to the Schedule of Investments:
Variable rates -- The rates shown on variable notes are the
current interest rates at August 31, 1998, which are subject
to change based on the terms of the security, including
varying reset dates.
144A - Securities exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be
resold in transactions exempt from registration, normally to
qualified institutional buyers.
/(a)/ All or a portion of this security has been segregated to
cover margin requirements on open financial futures
contracts.
/(b)/ Represents investments of security lending collateral
(Note 1).
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $237,927,689) (Note 1) $245,204,066
Cash 296,060
Receivable for Fund shares sold 9,344
Dividends and interest receivable 2,254,978
Receivable for open swap contracts (Notes 1 and 6) 4,615,086
Receivable for expenses waived or borne by Manager (Note 2) 43,761
------------
Total assets 252,423,295
------------
Liabilities:
Payable upon return of securities loaned (Note 1) 2,040,000
Payable to affiliate for (Note 2):
Management fee 54,047
Shareholder service fee 32,429
Payable for variation margin on open futures contracts (Notes 1 and 6) 4,438
Accrued expenses 44,804
------------
Total liabilities 2,175,718
------------
Net assets $250,247,577
============
Net assets consist of:
Paid-in capital $234,693,204
Accumulated undistributed net investment income 2,444,289
Accumulated undistributed net realized gain 1,514,945
Net unrealized appreciation 11,595,139
------------
$250,247,577
============
Net assets attributable to:
Class III shares $250,247,577
============
Shares outstanding:
Class III 24,010,547
============
Net asset value per share:
Class III $ 10.42
============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $3,720) $ 8,630,250
Dividends 1,663,850
-----------
Total income 10,294,100
-----------
Expenses:
Management fee (Note 2) 401,374
Custodian and transfer agent fees 39,582
Audit fees 20,483
Legal fees 4,750
Registration fees 4,627
Trustees fees (Note 2) 1,565
Miscellaneous 1,388
Fees waived or borne by Manager (Note 2) (313,209)
-----------
160,560
Shareholder service fee (Note 2)
Class III 240,825
-----------
Net expenses 401,385
-----------
Net investment income 9,892,715
-----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 2,636,040
Closed futures contracts 291,339
Closed swap contracts (1,548,282)
-----------
Net realized gain 1,379,097
-----------
Change in net unrealized appreciation (depreciation) on:
Investments 374,090
Open futures contracts (243,907)
Open swap contracts 4,727,342
-----------
Net unrealized gain 4,857,525
-----------
Net realized and unrealized gain 6,236,622
-----------
Net increase in net assets resulting from operations $16,129,337
===========
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28,1998
----------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 9,892,715 $ 32,189,416
Net realized gain 1,379,097 14,245,198
Change in net unrealized appreciation (depreciation) 4,857,525 9,064,186
------------ ------------
Net increase in net assets resulting from operations 16,129,337 55,498,800
------------ ------------
Distributions to shareholders from:
Net investment income
Class I -- (206,797)
Class III (10,428,971) (34,705,546)
------------ ------------
Total distributions from net investment income (10,428,971) (34,912,343)
------------ ------------
Net realized gains
Class I -- (76,406)
Class III (3,298,727) (10,245,112)
------------ ------------
Total distributions from net realized gains (3,298,727) (10,321,518)
------------ ------------
(13,727,698) (45,233,861)
------------ ------------
Net share transactions: (Note 5)
Class I -- (3,679,073)
Class III (183,564,443) (149,668,125)
------------ ------------
Decrease in net assets resulting from net share
transactions (183,564,443) (153,347,198)
------------ ------------
Total decrease in net assets (181,162,804) (143,082,259)
Net assets:
Beginning of period 431,410,381 574,492,640
------------ ------------
End of period (including accumulated undistributed net
investment income of $2,444,289 and $2,980,545,
respectively) $250,247,577 $431,410,381
============ ============
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------------------------------------
Period from Period from September 10, 1996
March 1, 1997 (commencement of operations)
to January 9, 1998 to February 28, 1997
------------------ ------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.16 $10.01
------ ------
Income from investment operations:
Net investment income 0.56+ 0.36
Net realized and unrealized gain 0.56 0.13
------ ------
Total from investment operations 1.12 0.49
------ ------
Less distributions to shareholders:
From net investment income (0.68) (0.29)
From net realized gains (0.27) (0.03)
In excess of net realized gains -- (0.02)
------ ------
Total distributions (0.95) (0.34)
------ ------
Net asset value, end of period $10.33/(a)/ $10.16
====== ======
Total Return/(b)/ 11.52% 4.93%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $3,630
Net expenses to average daily net assets 0.38%* 0.38%*
Net investment income to average daily net
assets 6.31%* 5.83%*
Portfolio turnover rate 59% 25%
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)/ All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
/(b)/ The total returns would have been lower had certain expenses not been
waived during the periods shown.
See accompanying notes to the financial statements. 7
<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, 1998 --------------------------------------------------------
(Unaudited) 1998 1997 1996 1995*
------------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.26 $ 10.18 $ 10.40 $ 10.13 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.34 0.67 0.58 0.66 0.24
Net realized and unrealized gain (loss) 0.25 0.38 (0.09) 0.58 0.07
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.59 1.05 0.49 1.24 0.31
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.31) (0.70) (0.60) (0.60) (0.18)
From net realized gains (0.12) (0.27) (0.08) (0.37) --
In excess of net realized gains -- -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.43) (0.97) (0.71) (0.97) (0.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.42 $ 10.26 $ 10.18 $ 10.40 $ 10.13
========== ========== ========== ========== ==========
Total Return/(a)/ 5.90% 10.71% 4.93% 12.50% 3.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 250,248 $ 431,410 $ 570,862 $ 310,949 $ 209,377
Net expenses to average daily net assets 0.25%** 0.25% 0.25% 0.25% 0.25%**
Net investment income to average daily net assets 6.16%** 6.14% 6.15% 6.52% 6.96%**
Portfolio turnover rate 8% 59% 25% 70% 65%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.02 $ 0.02 $ 0.01 $ 0.01
</TABLE>
* For the period from August 18, 1994 (commencement of operations) to
February 28, 1995.
** Annualized.
/(a)/ The total returns would have been lower had certain expenses not been
waived during the periods shown.
8 See accompanying notes to the financial statements.
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks high total return through investment in U.S. 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).
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares
ceased operations and all shares were exchanged for Class III shares, and
Class II shares ceased to be offered. The principal economic difference
among the classes of shares is the level of shareholder service fee borne
by the classes. Eligibility for and automatic conversion between the
various classes of shares is generally based on the total amount of assets
invested with GMO, as more fully described in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
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 or other persons
acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
9
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from
yield data relating to investments or securities with similar
characteristics.
Certain investments in securities held by the Fund were valued on the
basis of a price provided by a principal market maker. 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.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instruments or hedge other Fund instruments.
Upon entering into a futures contract, the Fund is required to deposit
with its custodian, in a segregated account in the name of the futures
broker, an amount of cash or U.S. government obligations in accordance
with the initial margin requirements of the broker or exchange. Futures
contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from changes in the
value of the underlying instrument, if there is an illiquid secondary
market for the contracts, or if counterparties do not perform under the
contract terms. Futures contracts are valued at the settlement price
established each day by the board of trade or exchange on which they are
traded. See Note 6 for all open futures contracts as of August 31, 1998.
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, 1998, the Fund had no written option contracts outstanding.
10
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults, the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Indexed securities
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indices, or other financial indicators. The Fund uses indexed securities
to increase or decrease its exposure to different underlying instruments
and to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than
their underlying instruments, but any loss is limited to the amount of the
original investment.
Security lending
The Fund may lend its securities to certain 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, 1998, the Fund loaned securities
having a market value of $1,991,085, collateralized by cash in the amount
of $2,040,000 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 may enter into interest rate and total return
swap agreements. Interest rate swap agreements involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. Total return swap
agreements involve commitments to pay interest in exchange for a market
linked return based on a notional amount. To the extent that the total
return of the security or index underlying the transaction exceeds or
falls short of the offsetting interest rate obligation, the Fund will
receive a payment from or make a payment to the counterparty,
respectively. Swaps are marked to market daily based upon quotations from
market makers and the change, if any, is recorded as unrealized gain or
loss in the Statement of Operations. 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
11
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 the open swap agreement as of August
31, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis. Interest income on
U.S. Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities adjusted for inflation is recorded as
income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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.
12
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .15% for Class III
shares.
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 six months ended August 31, 1998, was $1,565. 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, 1998, 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 $ 3,850,800 $ 64,395,454
Investments (non-U.S. Government securities) 20,154,492 99,818,575
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
-------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C>
$237,927,689 $7,878,136 $601,759 $7,276,377
</TABLE>
4. Principal shareholders
At August 31, 1998, 35.4% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
13
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997
to January 9, 1998
-----------------------------------------
Class I: Shares Amount
------------------ ---------------------
<S> <C> <C>
Shares sold 46,389 $ 476,298
Shares issued to shareholders in
reinvestment of distributions 27,963 283,203
Shares repurchased (431,611) (4,438,574)
------------------ ---------------------
Net decrease (357,259) $ (3,679,073)
================== =====================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
---------------------------------------- -----------------------------------------
Class III: Shares Amount Shares Amount
------------------ -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Shares sold 3,902,030 $ 40,051,636 22,386,390 $ 227,678,006
Shares issued to shareholders in
reinvestment of distributions 1,088,358 11,040,760 3,685,870 37,365,549
Shares repurchased (23,014,550) (234,656,839) (40,102,345) (414,711,680)
------------------ -------------------- ------------------ ---------------------
Net decrease (18,024,162) $ (183,564,443) (14,030,085) $ (149,668,125)
================== ==================== ================== =====================
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Futures contracts
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
------------------ ------------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Buys
106 U.S. Long Bond December 1998 $ 13,462,000 $ 229,445
Sells
200 U.S. Treasury Note 10 Yr. December 1998 $ 23,425,000 $ (469,308)
42 U.S. Treasury Note 5 Yr. December 1998 4,707,938 (56,461)
-----------------------
$ (296,324)
=======================
</TABLE>
14
<PAGE>
GMO Domestic Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
Total return swap agreement
<TABLE>
<CAPTION>
Notional Expiration Net Unrealized
Amount Date Description Appreciation
------------------- ----------------- -------------------------------------------------------------- ----------------
<S> <C> <C> <C>
$100,000,000 5/21/99 Agreement with Morgan Guaranty Trust Company dated 5/19/98 $4,615,086
to receive the notional amount multiplied by the return on
the Merrill Lynch Total Return U.S. Treasury Index and to
pay the notional amount multiplied by 3 month LIBOR adjusted
by a specified spread.
----------------
$4,615,086
================
</TABLE>
15
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 98.7%
Brazil -- 0.5%
USD 1,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 4/15/24 580,000
-----------------
Bulgaria -- 0.2%
USD 2,000,000 Bulgaria Discount Series B Strips, Basket 2, 0.00%, due 7/28/24 87,000
USD 500,000 Bulgaria FLIRB Series B,
Variable Rate, Step up, 3.00%, due 7/28/12 176,250
-----------------
263,250
-----------------
Canada -- 1.2%
CAD 2,000,000 Government of Canada Real Return, 4.25%, due 12/1/21 1,416,993
-----------------
Denmark -- 1.8%
DKK 12,400,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 2,141,159
-----------------
Ecuador -- 0.2%
USD 500,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.50%, due 2/28/25 202,500
-----------------
France -- 3.9%
FRF 23,650,000 Credit Foncier, 6.50%, due 10/13/08 4,557,927
-----------------
Germany -- 0.7%
ESP 100,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 786,899
-----------------
Jordan -- 0.2%
USD 500,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 144A, 5.00%, due 12/23/23 250,000
-----------------
Mexico -- 0.5%
FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 634,518
-----------------
New Zealand -- 1.9%
NZD 4,500,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 2,196,053
-----------------
Nigeria -- 0.2%
USD 500,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up, 6.25%, due 11/15/20 257,500
-----------------
Russia -- 0.0%
USD 35,086 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 12/15/15 3,859
-----------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supra National -- 2.3%
AUD 6,900,000 European Bank Recon and Development, Zero Coupon, due 2/10/28 587,236
GBP 1,000,000 International Bank Recon and Development, 11.50%, due 11/9/03 2,072,194
-----------------
2,659,430
-----------------
Sweden -- 5.4%
SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/1/20 671,773
SEK 42,500,000 Kingdom of Sweden, 6.00%, due 2/9/05 5,618,115
-----------------
6,289,888
-----------------
United States -- 79.5%
Asset Backed Securities -- 64.4%
USD 556,907 AFC Home Equity Loan Trust Series 97-1 Class A,
Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 556,559
USD 5,000,000 Augusta Funding Series 96-F2,
Variable Rate, 3 mo. LIBOR + .30%, 144A, 5.99%, due 4/15/06 4,949,219
USD 130,797 BCI Home Equity Loan 94-1 Class A1,
Variable Rate, 1 mo. LIBOR + .24%, 5.93%, due 3/29/44 130,732
USD 7,000,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.79%, due 10/16/06 6,997,900
USD 4,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.81%, due 10/15/06 3,996,250
USD 5,000,000 CS First Boston Mortgage Securities Corp, Series 98-C1 Class A1B,
6.48%, due 5/17/08 5,092,500
USD 16,045,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.99%, due 10/16/04 16,157,314
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + .25%, 6.00%, due 10/03/01 3,006,900
USD 5,000,000 First Deposit Master Trust Series 96-1 Class A,
Variable Rate, 1 mo. LIBOR +.17%, 5.81%, due 8/15/07 5,007,500
USD 2,000,000 Health Care Receivables Securitization Program 96-1 Class A, 144A,
7.20%, due 7/01/00 2,023,000
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due 10/15/02 5,019,000
USD 10,000,000 Pacific Life CBO 98-1 Class A2A,
Variable Rate, Step Up, 5.71%, due 2/15/10 10,215,625
USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A,
Variable Rate, Step Up, 6.33%, due 9/15/09 5,459,375
USD 3,805,820 SMS Student Loan Trust 94-B Class A2,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 4/25/16 3,815,335
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A,
Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.94%, due 7/30/11 2,959,219
-----------------
75,386,428
-----------------
Structured Notes -- 7.0%
USD 5,000,000 Federal Home Loan Bank,
Variable Rate, (10.00% - 6 mo. LIBOR), 4.31%, due 9/22/03 4,657,500
USD 3,500,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 1/07/05 3,500,000
-----------------
8,157,500
-----------------
U.S. Government Agency -- 8.1%
USD 4,000,000 Agency for International Development Floater (Support of India),
Variable Rate, 3 mo. LIBOR + .10%, 5.79%, due 2/01/27 4,005,000
USD 2,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02(a) 1,925,000
USD 1,485,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,485,743
USD 2,000,000 Small Business Administration Series 95-C, 6.88%, due 9/01/05 2,065,000
-----------------
9,480,743
-----------------
Total United States 93,024,671
-----------------
Venezuela -- 0.2%
USD 500,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 6.56%, due 3/31/20 295,000
-----------------
TOTAL DEBT OBLIGATIONS (COST $116,498,712) 115,559,647
-----------------
LOAN ASSIGNMENTS -- 0.2%
Russia -- 0.2%
USD 2,000,000 Russia Vnesh Restructured Loan Agreements, LIBOR + .8125% (3.3125%) 207,500
-----------------
TOTAL LOAN ASSIGNMENTS (COST $1,252,599) 207,500
-----------------
</TABLE>
See acompanying notes to the financial statements. 3
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALL OPTIONS PURCHASED -- 0.6%
Cross Currency Options -- 0.0%
DEM 28,300,000 DEM Call/ITL Put, Expires 9/22/98, Strike 993 --
-----------------
Options on Bonds -- 0.1%
SEK 105,000,000 Sweden Government Bond, Expires 10/27/98, Strike 105.354 158,507
-----------------
Options on Currency -- 0.4%
USD 25,100,000 German Mark, Expires 9/17/98, Strike 1.725 522,080
-----------------
Options on Futures -- 0.1%
USD 875,000 Eurodollar, Expires 9/14/98, Strike 94.375 61,250
-----------------
TOTAL CALL OPTIONS PURCHASED (COST $1,460,291) 741,837
-----------------
PUT OPTIONS PURCHASED -- 0.1%
Cross Currency Options -- 0.0%
DEM 28,300,000 DEM Put/ITL Call, Expires 9/22/98, Strike 993 57,771
USD 558,320 TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires 11/09/98, Strike
654,000 4,448
-----------------
62,219
-----------------
Options on Currency -- 0.1%
USD 25,100,000 German Mark, Expires 9/17/98, Strike 1.725 72,790
-----------------
TOTAL PUT OPTIONS PURCHASED (COST $1,116,795) 135,009
-----------------
</TABLE>
4 See accomapnaying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value/Shares Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
870,000 United Mexican States Warrants, Expires 6/30/03* --
-----------------
Nigeria -- 0.0%
500 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20* --
-----------------
Venezuela -- 0.0%
3,570 Republic of Venezuela Recovery Warrants,
Expires 04/15/20* --
-----------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
-----------------
SHORT-TERM INVESTMENTS -- 2.8%
Commercial Paper -- 2.8%
USD 3,200,000 GE Capital Corp, 5.83% due 9/01/98 3,200,000
-----------------
Repurchase Agreement -- 0.0%
USD 29,730 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/98, due
9/1/98, with a maturity value of $29,734 and an effective yield of
5.18%, collateralized by a U.S. Treasury Obligation with a rate of
11.25%, a maturity date of 2/15/15 and a market value of $30,325. 29,730
-----------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,229,730) 3,229,730
-----------------
TOTAL INVESTMENTS -- 102.4%
(Cost $123,558,127) 119,873,723
Other Assets and Liabilities (net) -- (2.4)% (2,815,948)
-----------------
TOTAL NET ASSETS -- 100% $ 117,057,775
=================
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
FLIRB - Front Loaded Interest Reduction Bond
144A- Securities exempt from registration
under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from
registration, normally to qualified institutional
buyers.
Variable and Step up rates - The rates shown
on variable and step up rate notes are the current
interest rates at August 31, 1998, which are subject to
change based on the terms of the security, including
varying reset dates.
Currency Abbreviations
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc MYR - Malaysian Ringgit
DEM - German Mark NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krone
ESP - Spanish Peseta USD - United States Dollar
FRF - French Franc
(a) Security has been segregated to cover margin requirements on open financial
futures contracts.
* Non-income producing security.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $123,558,127) (Note 1) $ 119,873,723
Cash (Note 1) 1,225,958
Interest receivable 1,347,888
Receivable for variation margin on open futures contracts (Notes 1 and 6) 280,630
Receivable for open forward foreign currency contracts (Notes 1 and 6) 4,086,057
Receivable for expenses waived or borne by Manager (Note 2) 26,907
-----------------
Total assets 126,841,163
-----------------
Liabilities:
Written options outstanding, at value (premiums $2,473,445) (Notes 1 and 6) 4,806,650
Payable for open forward foreign currency contracts (Notes 1 and 6) 3,456,020
Payable to affiliate for (Note 2):
Management fee 34,648
Shareholder service fee 14,816
Payable for open swap contracts (Notes 1 and 6) 1,409,049
Accrued expenses 62,205
-----------------
Total liabilities 9,783,388
-----------------
Net assets $ 117,057,775
=================
Net assets consist of:
Paid-in capital $ 118,106,002
Accumulated undistributed net investment income 2,576,886
Accumulated undistributed net realized gain 3,311,145
Net unrealized depreciation (6,936,258)
=================
$ 117,057,775
=================
Net assets attributable to:
Class III shares $ 117,057,775
=================
Shares outstanding:
Class III 11,616,248
=================
Net asset value per share:
Class III $ 10.08
=================
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (including securities lending income of $915) $ 3,829,997
-------------
Total income 3,829,997
-------------
Expenses:
Management fee (Note 2) 208,136
Custodian and transfer agent fees 45,205
Audit fees 25,070
Registration fees 6,951
Legal fees 3,720
Trustees fees (Note 2) 737
Miscellaneous 370
Fees waived or borne by Manager (Note 2) (177,191)
-------------
112,998
Shareholder service fee (Note 2)
Class III 89,204
-------------
Net expenses 202,202
-------------
Net investment income 3,627,795
-------------
Net realized gain on:
Net realized gain (loss) on:
Investments 552,157
Closed futures contracts 1,716,561
Closed swap contracts 320,254
Written options 340,200
Foreign currency, forward contracts and foreign currency related transactions 504,252
-------------
Net realized gain 3,433,424
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (3,287,177)
Open futures contracts (5,248)
Open swap contracts (1,319,252)
Written options (2,503,240)
Foreign currency, forward contracts and foreign currency related transactions (147,035)
-------------
Net unrealized loss (7,261,952)
-------------
Net realized and unrealized loss (3,828,528)
-------------
Net decrease in net assets resulting from operations $ (200,733)
=============
</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, 1998 Year Ended
(Unaudited) February 28, 1998
--------------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,627,795 $ 5,273,007
Net realized gain 3,433,424 2,574,738
Change in net unrealized appreciation (depreciation) (7,261,952) 306,402
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (200,733) 8,154,147
--------------- ---------------
Distributions to shareholders from:
Net investment income
Class I -- (308,025)
Class III (501,889) (4,712,549)
--------------- ---------------
Total distributions from net investment income (501,889) (5,020,574)
--------------- ---------------
Net realized gains
Class I -- (157,383)
Class III (440,683) (2,433,530)
--------------- ---------------
Total distributions from net realized gains (440,683) (2,590,913)
--------------- ---------------
In excess of net realized gains
Class I -- (104,612)
Class III -- (1,617,556)
--------------- ---------------
Total distributions in excess of net realized gains -- (1,722,168)
--------------- ---------------
(942,572) (9,333,655)
--------------- ---------------
Net share transactions: (Note 5)
Class I -- (684,405)
Class III 13,149,004 35,501,679
--------------- ---------------
Increase in net assets resulting from net share transactions 13,149,004 34,817,274
--------------- ---------------
Total increase in net assets 12,005,699 33,637,766
Net assets:
Beginning of period 105,052,076 71,414,310
--------------- ---------------
End of period (including accumulated undistributed net investment income
of $2,576,886 and distributions in excess of net investment income of
$549,020, respectively) $ 117,057,775 $ 105,052,076
=============== ===============
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Financial Highlights
(For a Class I share outstanding throughout each period)
- ----------------------------------------------------------------------------------------------------------------------------------
Period from Period from January 6, 1997
March 1, 1997 to (commencement of operations)
January 9, 1998 to February 28, 1997
-------------------- -----------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.15 $ 10.29
--------- ---------
Income from investment operations:
Net investment income 0.55+ 0.09
Net realized and unrealized gain (loss) 0.44 (0.23)
--------- ---------
Total from investment operations 0.99 (0.14)
--------- ---------
Less distributions to shareholders:
From net investment income (0.55) --
From net realized gains (0.28) --
In excess of net realized gains (0.18) --
--------- ---------
Total distributions (1.01) --
--------- ---------
Net asset value, end of period $ 10.13(a) $ 10.15
========= =========
Total Return (b) 9.98% (1.36)%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 646
Net expenses to average daily net assets 0.47%* 0.47%*
Net investment income to average daily net assets 6.12%* 6.05%*
Portfolio turnover rate 103% 72%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: $ 0.03 $ 0.01
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(b) 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>
Year Ended
Six Months Ended February 28/29,
August 31, 1998 -----------------------------
(Unaudited) 1998 1997 1996*
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.15 $ 10.16 $ 9.89 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.31 0.65+ 0.61 0.05
Net realized and unrealized gain (loss) (0.30) 0.36 0.59 (0.16)
-------- -------- -------- --------
Total from investment operations 0.01 1.01 1.20 (0.11)
-------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.04) (0.56) (0.57) --
From net realized gains (0.04) (0.28) (0.36) --
In excess of net realized gains -- (0.18) -- --
-------- -------- -------- --------
Total distributions (0.08) (1.02) (0.93) --
-------- -------- -------- --------
Net asset value, end of period $ 10.08 $ 10.15 $ 10.16 $ 9.89
======== ======== ======== ========
Total Return (a) 0.06% 10.19% 12.01% (1.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $117,058 $105,052 $ 70,768 $ 31,072
Net expenses to average daily net assets 0.34%** 0.34% 0.34% 0.34%**
Net investment income to average daily net
assets 6.10%** 6.21% 6.31% 6.16%**
Portfolio turnover rate 42% 103% 72% 0%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amounts: $ 0.02 $ 0.04 $ 0.04 $ 0.01
</TABLE>
* Period from December 28, 1995 (commencement of operations) to February 29,
1996.
** Annualized.
+ Computed using average shares outstanding throughout the period.
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
See accompanying notes to the financial statements 11
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks high total return 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares ceased
operations, and all shares were exchanged for Class III shares, and Class
II shares ceased to be offered. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
12
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of August 31, 1998.
13
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of August 31, 1998.
Options
The Fund may write call and put options on futures, securities or
currencies 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, 1998.
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.
14
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund may enter into interest rate, total return, and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market-linked return based on a notional amount. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short or the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Credit
default swaps involve the payment of a specified rate based on the notional
amount. The Fund receives payment upon default of the underlying security.
In connection with these agreements, cash may be set aside as collateral by
the Fund's custodian in accordance with the terms of the swap agreement. At
August 31, 1998, $1,225,958 in cash has been set aside. Swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. 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, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower fail financially.
The Fund receives compensation for lending its securities. At August 31,
1998, the Fund had no securities on loan.
15
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis. Interest income
on the U.S. Treasury inflation indexed securities is accrued daily based
upon an inflation adjusted principal. Additionally, any increase in the
principal or face amount of the securities adjusted for inflation is
recorded as income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The premium will be reduced by 50% with respect to any portion of
a purchase that is offset by a corresponding redemption occurring on the
same day. In addition, the purchase premium or redemption fee for the Fund
will be reduced by 50% if the purchaser makes an in-kind purchase of Fund
shares or if the purchase or redemption is part of a transfer from or to
another Fund where the Manager is able to transfer securities among the
Funds to effect the transaction. All purchase premiums are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of each class' "shares sold", as summarized in Note 5. For the six
months ended August 31, 1998, the Fund received $48,390 in purchase
premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
16
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .35% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $737. 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, 1998, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
----------------- ----------------
<S> <C> <C>
U.S. Government securities $ 1,931,507 $ 1,998,748
Investments (non-U.S. Government securities) 63,016,678 44,367,212
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
$123,558,127 $939,796 $4,624,200 $3,684,404
</TABLE>
17
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholders
At August 31, 1998, 54.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997 to
January 9, 1998
--------------------------------
Class I: Shares Amount
--------------- ----------------
<S> <C> <C>
Shares sold 498,433 $ 5,013,156
Shares issued to shareholders
in reinvestment of distributions 56,872 570,020
Shares repurchased (618,948) (6,267,581)
--------------- ----------------
Net decrease (63,643) $ (684,405)
=============== ================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
------------------------------ -------------------------------
Class III: Shares Amount Shares Amount
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 3,143,624 $ 32,260,541 3,289,637 $ 34,819,662
Shares issued to shareholders
in reinvestment of
distributions 77,170 784,818 724,057 7,256,147
Shares repurchased (1,954,037) (19,896,355) (627,568) (6,574,130)
-------------- -------------- ------------- ---------------
Net increase 1,266,757 $ 13,149,004 3,386,126 $ 35,501,679
============== ============== ============= ===============
</TABLE>
18
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 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
11/06/98 AUD 4,800,000 $ 2,748,359 $ (175,441)
9/18/98 CAD 32,900,000 21,030,292 (1,425,952)
10/02/98 DEM 123,700,000 70,280,577 628,882
10/16/98 GBP 25,400,000 42,427,855 998,900
1/04/99 ITL 59,165,685,000 34,034,759 33,732
11/06/98 JPY 160,000,000 1,144,388 7,887
-----------------
$ 68,008
=================
Sales
11/06/98 AUD 9,200,000 $ 5,267,687 $ 132,773
9/18/98 CAD 41,300,000 26,399,728 1,577,597
10/02/98 DEM 33,700,000 19,146,770 (339,264)
1/04/99 DEM 59,700,000 34,096,204 (95,178)
11/06/98 JPY 2,490,000 17,809,545 (317,440)
9/21/98 MYR 11,000,000 2,597,403 3,070
10/01/98 NZD 4,500,000 2,229,845 42,656
-----------------
$ 1,004,214
=================
</TABLE>
19
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Forward cross currency contracts
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange For (Depreciation)
------------ --------------------------- -------------------------- ----------------
<S> <C> <C> <C>
10/30/98 CHF 23,326,091 DEM 28,100,000 $ (246,742)
9/11/98 DEM 17,000,000 SEK 74,897,505 (382,809)
10/23/98 DEM 13,527,270 GBP 4,600,000 (14,314)
1/04/99 DEM 45,900,000 ESP 3,906,549,000 (11,080)
1/04/99 DEM 700,000 FRF 2,346,610 71
1/04/99 DEM 400,000 ITL 396,080,000 (607)
10/29/98 DKK 26,358,000 DEM 6,900,000 (5,368)
1/04/99 FRF 115,678,500 DEM 34,500,000 (7,593)
10/23/98 GBP 11,700,000 DEM 33,579,000 (434,232)
9/11/98 SEK 196,981,778 DEM 44,100,000 660,489
---------------
$ (442,185)
===============
</TABLE>
<TABLE>
<CAPTION>
Futures contracts
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- -------------------------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
Buys
15 FRF MATIF Bond September 1998 $ 1,378,173 $ 48,265
45 FRF MATIF Bond December 1998 4,116,624 (4,391)
34 U.K. Gilt December 1998 2,285,685 113,341
13 German Government Bond September 1998 2,094,117 82,761
60 German Government Bond December 1998 9,565,637 1,032
114 Canadian Government Bond December 1998 8,882,700 51,346
123 Australian Government Bond 10 Yr September 1998 31,258,955 (191,948)
350 U.S. Treasury Bond 30 Yr December 1998 44,450,000 580,913
--------------
$ 681,319
==============
</TABLE>
20
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Number of Contract Appreciation
Contracts Type Expiration Date Value (Depreciation)
--------- ----------------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales
93 Spanish Government Bond 10 Yr September 1998 $ 6,996,501 $ (209,617)
41 Spanish Government Bond 10 Yr December 1998 3,092,692 2,701
22 Swiss Government Bond September 1998 1,944,756 (1,990)
3 Japanese Government Bond September 1998 2,878,887 (57,343)
4 Japanese Government Bond December 1998 3,832,283 (7,179)
27 Italian Government Bond 10 Yr September 1998 3,810,999 (80,123)
42 Italian Government Bond 10 Yr December 1998 5,264,549 1,429
168 U.S. Treasury Bond 10 Yr December 1998 19,677,000 (417,155)
-----------------
$ (769,277)
=================
</TABLE>
At August 31, 1998, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of period 68,700 $ 1,526,710 38,700 $ 1,542,615
Options closed (13,600) (153,680) (13,600) (153,000)
Options expired (30,000) (289,200) -- --
----------------- --------------- ----------------- ---------------
Outstanding, end
of period 25,100 $ 1,083,830 25,100 $ 1,389,615
================= =============== ================= ===============
</TABLE>
21
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 25,100 113.65 JPY 9/17/98 $ 4,806,650
Puts
Japanese Yen 25,100 113.65 JPY 9/17/98 --
----------------
$ 4,806,650
================
</TABLE>
Swap agreements
<TABLE>
<CAPTION>
Net
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Depreciation
------------------- ----------- ---------------------------------------------- --------------
<S> <C> <C> <C>
Credit Default Swaps
108,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (88,549)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Italy, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Italy BTP, 6.00% due
11/01/07.
2,263,500,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company (69,480)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Belgium, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Kingdom of Belgium,
5.75% due 3/28/08.
</TABLE>
22
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Depreciation
---------------------- ------------ -------------------------------------------- ----------------
<S> <C> <C> <C>
Interest Rate Swaps
5,500,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company $ (48,737)
dated 6/03/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
7,400,000 CHF 6/10/05 Agreement with Credit Suisse Financial (74,214)
Products dated 6/08/98 to pay the notional
amount multiplied by 3.2625% and to receive
the notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
3,900,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (32,093)
dated 6/09/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
Total Return Swaps
1,000,000 USD/ 9/11/98 Agreement with Bank of America dated 8/06/98 (257,816)
974,458 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Republic of
Argentina USD Global Bond, 9.75% due
9/19/27 and to pay initial market value
multiplied by 1 month LIBOR adjusted by
a specified spread.
</TABLE>
23
<PAGE>
GMO Global Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net
Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ------------ -------------------------------------------- ----------------
<S> <C> <C> <C>
1,750,000 USD/ 9/15/98 Agreement with Morgan Guaranty Trust Company $ (475,636)
1,595,374 USD dated 7/13/98 to receive the notional amount
multiplied by the change in market
value (including accrued interest) of
Brazil Capitalization Fixed/Floating
Rate Bond due 4/15/14 and to pay
initial market value multiplied by 2
month LIBOR adjusted by a specified
spread.
699,618 USD/ 5/14/99 Agreement with Bank of America dated 5/29/97 (368,376)
93,625,000,000 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) on the Turkey Index
Linked Bond due 5/14/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
274,045 USD/ 6/04/99 Agreement with Bank of America dated 6/20/97 (23,541)
59,818,517,884 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Turkey Index
Linked Bond due 6/04/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
92,346 USD/ 6/04/99 Agreement with Bank of America dated 11/13/97 29,393
28,936,660,891 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) on the Turkey Index
Linked Bond due 6/04/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
--------------
$ (1,409,049)
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
24
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUND -- 100.0%
5,958,084 GMO Emerging Country Debt Fund (Cost $60,000,000) 34,378,144
-----------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreement -- 0.0%
$ 7,141 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $7,142 and an
effective yield of 5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 11.25%, a maturity date of
2/15/15 and a market value of $7,284. 7,141
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $7,141) 7,141
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $60,007,141) 34,385,285
Other Assets and Liabilities (net)-- (0.0%) (1,009)
-----------
TOTAL NET ASSETS-- 100% $34,384,276
===========
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (cost $60,007,141) (Note 1) $ 34,385,285
Receivable for expenses waived or borne by Manager (Note 2) 3,132
------------
Total assets 34,388,417
------------
Liabilities:
Accrued expenses 4,141
------------
Total liabilities 4,141
------------
Net assets $ 34,384,276
============
Net assets consist of:
Paid-in capital $ 60,000,000
Accumulated undistributed net investment income 6,132
Net unrealized depreciation (25,621,856)
============
$ 34,384,276
============
Shares outstanding 6,000,000
============
Net asset value per share $ 5.73
============
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Operations -- Period from July 20, 1998 to August 31, 1998 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 6,132
------------
Total income 6,132
------------
Expenses:
Audit fees 2,296
Custodian and transfer agent fees 1,107
Legal fees 287
Registration fees 205
Trustees fees (Note 2) 41
Miscellaneous 205
Fees waived or borne by Manager (Note 2) (4,141)
------------
Net expenses --
------------
Net investment income 6,132
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on investments --
------------
Change in net unrealized appreciation (depreciation) on investments (25,621,856)
------------
Net realized and unrealized loss (25,621,856)
------------
Net decrease in net assets resulting from operations $(25,615,724)
============
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
July 20, 1998
(commencement of operations)
to August 31, 1998
(Unaudited)
-----------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,132
Net realized gain --
Change in net unrealized appreciation (depreciation) (25,621,856)
-----------
Net decrease in net assets resulting from operations (25,615,724)
-----------
Fund share transactions: (Note 5)
Proceeds from sale of shares 60,000,000
-----------
Net increase in net assets resulting from Fund share transactions 60,000,000
-----------
Total increase in net assets 34,384,276
Net assets:
Beginning of period --
-----------
End of period (including accumulated undistributed net investment
income of $6,132) $34,384,276
===========
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from July 20, 1998
(commencement of
operations)
to August 31, 1998
(Unaudited)
-----------
<S> <C>
Net asset value, beginning of period $ 10.00
-------
Income from investment operations:
Net investment income/(a)/ --
Net realized and unrealized loss (4.27)
-------
Total from investment operations (4.27)
-------
Net asset value, end of period $ 5.73
=======
Total Return/(b)/ (42.70)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $34,384
Net expenses to average daily net assets 0.00%*
Net investment income to average daily net assets/(a)/ 0.11%*
Portfolio turnover rate 0%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: (c)
</TABLE>
* Annualized.
/(a)/ Recognition of net investment income is affected by the timing of the
declaration of dividends by ECDF.
/(b)/ The total return would have been lower had certain expenses not been
waived during the period shown.
/(c)/ Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
See accompanying notes to financial statements. 5
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Emerging Country Debt Share Fund (the "Fund"), which commenced
operations on July 20, 1998, is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or
"GMO"). The Trust was established as a Massachusetts Business Trust under
the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares, and to
subdivide a series of shares into classes.
The Fund's objective is to maximize total return through investment of
substantially all of its assets in Class III shares of the GMO Emerging
Country Debt Fund, a portfolio of the Trust ("ECDF"). GMO also serves as
investment manager to ECDF. ECDF pursues its objectives by investing
primarily in sovereign debt of countries in Asia, Latin America, the Middle
East and Africa.
The financial statements of ECDF should be read in conjunction with the
Fund's financial statements.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of ECDF are valued at their net asset value as reported on each
business day. Short-term investments with a remaining maturity of sixty
days or less are valued at amortized cost, which approximates market value.
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. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
6
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains, if any, at least annually. All distributions will be paid in
shares of the Fund, at net asset value, unless the shareholder elects to
receive cash distributions.
Income 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 of ECDF. Interest income is recorded on
the accrual basis. In determining the net gain or loss on securities sold,
the cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated 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. In addition, the Fund will also
incur fees and expenses indirectly as a shareholder in ECDF (See Note 2).
Purchases and redemptions of Fund shares
The Fund does not charge any purchase premium or redemption fee in
connection with the purchase and sale of Fund shares. As a shareholder in
ECDF, the Fund will indirectly bear ECDF's purchase premium and redemption
fees which are .50% and .25%, respectively. These fees are paid to and
retained by ECDF.
Investment risk
The Fund is subject to the investment risk associated with an investment in
ECDF. Investments in emerging country debt present certain risks that are
not inherent in many other securities. Many emerging countries present
elements of political and/or economic instability, which may result in the
Fund's inability to collect on a timely basis, or in full, principal and
interest payments. Further,
7
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
countries may impose various types of foreign currency regulations or
controls which may impede the Fund's ability to repatriate amounts it
receives. ECDF may acquire interests in securities or bank loans which are
in default at the time of acquisition in anticipation of improving
conditions in the related countries. These factors may result in
significant volatility in the values of its holdings. The markets for
emerging country debt are relatively illiquid. Accordingly, ECDF may not be
able to realize in an actual sale amounts approximating those used to value
its holdings.
2. Fees and other transactions with affiliates
The Manager does not charge an advisory fee or shareholder service fee. As
a shareholder in ECDF, the Fund will indirectly bear all fees and expenses
associated with an investment in ECDF. GMO, in its capacity as Manager of
ECDF, has agreed to waive a portion of its fee and bear other expenses
until further notice to the extent that ECDF's annual expenses (including
the management fee but excluding custody fees, brokerage commissions,
certain other transaction costs (including transfer taxes), shareholder
service fees and extraordinary expenses) exceed .35% of average daily net
assets. Class III shares of ECDF also bear an annual shareholder service
fee of .15% of ECDF's average daily net assets.
GMO has agreed to reimburse all expenses directly incurred by the Fund
until further notice (excluding brokerage commissions, certain other
transaction costs (including transfer taxes), and extraordinary expenses).
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 1998 was $41. 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, 1998, aggregated
$60,000,000 and $0, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------- ------------------ -------------------- --------------------
<S> <C> <C> <C>
$60,007,141 $0 $25,621,856 $25,621,856
</TABLE>
4. Principal shareholder
At August 31, 1998, 100% of the outstanding shares of the Fund were held by
one shareholder.
8
<PAGE>
GMO Emerging Country Debt Share Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 20, 1998
(commencement of operations)
Class III: to August 31, 1998
----------------------------
Shares Amount
----------- ------------
<S> <C> <C>
Shares sold 6,000,000 $ 60,000,000
Shares issued to shareholders in
reinvestment of distributions -- --
Shares repurchased -- --
----------- ------------
Net increase 6,000,000 $ 60,000,000
=========== ============
</TABLE>
9
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 92.6%
Aerospace -- 0.2%
700 Allied Signal Inc 23,979
600 Cordant Technologies Inc 21,375
400 Lockheed Martin Corp 34,975
600 Northrop Grumman Corp 38,025
5,000 Sundstrand Corp 227,813
700 Textron Inc 43,925
500 TRW Inc 21,438
-------------
411,530
-------------
Automotive -- 2.6%
7,200 Chrysler Corp 321,300
400 Eaton Corp 23,425
25,000 Exide Corp 248,438
14,600 Ford Motor Co 642,400
57,100 General Motors Corp 3,297,524
1,200 General Motors Corp, Class H 43,350
800 Genuine Parts Co 25,050
1,200 Goodyear Tire & Rubber Co 58,800
50,000 Mascotech Industries Inc 875,000
-------------
5,535,287
-------------
Banking and Financial Services -- 9.1%
801 Advanta Corp, Class A 9,109
20,500 American Express Co 1,599,000
2,284 American General Corp 146,747
3,360 Banc One Corp 127,680
16,600 BankAmerica Corp 1,063,438
300 BankBoston Corp 10,706
1,000 Bankers Trust New York Corp 74,313
2,155 Bear Stearns Inc 79,600
75,000 Block (HR) Inc 2,934,374
300 Capital One Financial Corp 26,250
76,900 Chase Manhattan Corp 4,075,699
34,999 Citicorp 3,784,266
650 Compass Bankshares Inc 21,450
1,200 Countrywide Credit Industry Inc 44,925
1,500 Donaldson Lufkin & Jenrette 52,500
1,500 Edwards (AG) Inc 40,688
1,300 Federal Home Loan Mortgage Corp 51,350
See accompanying notes to the financial statements. 1
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
6,400 Federal National Mortgage Association 363,600
1,900 First Chicago NBD Corp 120,413
12,304 First Union Corp 596,744
500 Firstar Corp 19,375
1,400 Franklin Resources Inc 45,150
700 Golden West Financial Corp 53,288
300 Greenpoint Financial Corp 7,556
1,100 Key Corp 28,050
1,500 Lehman Brothers Holding Inc 59,063
700 Leucadia National Corp 19,381
1,450 Liberty Financial Cos 42,775
1,675 MBNA Corp 39,363
1,600 Mercantile Bankshares 44,800
1,200 Merrill Lynch 79,200
800 MGIC Investment Corp 33,200
1,400 Morgan Jersey Co Inc 130,200
4,785 Morgan Stanley Dean Witter & Co 277,829
400 National City Corp 23,500
11,362 NationsBank Corp 647,634
1,700 Norwest Corp 50,575
393 Old Kent Financial Corp 12,674
1,400 Pacific Century Financial Corp 20,650
1,450 Paine Webber Group Inc 50,388
500 PMI Group Inc 27,688
25,500 PNC Bank Corp 1,096,500
800 Popular Inc 22,400
1,200 Providian Financial Corp 77,025
600 Regions Financial Corp 20,775
1,200 Republic New York Corp 49,500
800 Rowe (T) Price & Associates Inc 24,350
850 SLM Holding Corp 30,494
850 Southtrust Corp 27,519
18,564 Travelers Group Inc 823,778
300 Union Planters Corp* 12,075
500 Unionbancal Corp 37,438
319 Wachovia Corp 23,387
1,293 Washington Federal Inc 29,254
500 Wells Fargo & Co 140,938
200 Wilmington Trust Corp 9,350
------------
19,359,974
------------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Chemicals -- 0.5%
600 Eastman Chemical Co 30,938
17,500 Engelhard Corp 321,563
1,300 Great Lakes Chemical Corp 50,863
800 Lubrizol Corp 18,300
1,100 Morton International Inc 24,475
5,000 Nova Corp 58,125
500 PPG Industries Inc 25,406
800 Praxair Inc 28,700
200 Rohm & Haas Co 17,263
700 Sherwin Williams Co 16,713
1,000 Union Carbide Corp 40,188
37,500 Wellman Inc 428,906
-------------
1,061,440
-------------
Computer and Office Equipment -- 3.5%
1,300 Apple Computer Inc 40,544
41,800 Electronic Data Systems Corp 1,400,300
1,700 Gateway 2000 Inc* 80,431
3,700 Hewlett Packard Co 179,681
43,000 IBM Corp 4,842,874
87,500 Intergraph Corp* 552,344
700 Lexmark International Group Inc* 42,394
1,800 Micron Technology Inc* 40,950
1,500 Quantum Corp* 17,156
14,900 Silicon Graphics Inc* 135,031
1,300 Sterling Software Inc 26,731
-------------
7,358,436
-------------
Construction -- 0.2%
800 Centex Corp 28,300
200 Georgia-Pacific Corp 8,575
20,000 Hanson PLC ADR 492,500
-------------
529,375
-------------
Consumer Goods -- 3.0%
600 Black and Decker Corp 24,975
1,400 Callaway Golf Co 13,913
56,100 Eastman Kodak Co 4,382,812
400 Fastenal Co 11,675
1 Footstar Inc 29
See accompanying notes to the financial statements. 3
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- continued
2,400 Fortune Brands Inc 66,150
750 Hasbro Inc 23,484
800 Jones Apparel Group Inc 15,500
37,500 Jostens Inc 745,313
700 Lancaster Colony Corp 20,213
2,000 Mattel Co 64,750
20,000 Maytag Corp 862,500
500 Newell Co 23,875
1,600 Nike Inc, Class B 55,500
600 Procter and Gamble Co 45,900
2,100 Terra Industries Inc 10,500
1,000 Unifi Inc* 22,250
800 VF Corp 30,300
500 Whirlpool Corp 24,813
-------------
6,444,452
-------------
Electronic Equipment -- 1.4%
1,100 American Power Conversion Corp 29,700
800 Amp Inc 28,550
1,200 Arrow Electronics Inc 15,750
900 Emerson Electric Co 51,300
1,500 General Instrument Corp* 29,813
800 Harris Corp 25,500
125,000 International Rectifier Corp* 531,250
500 Linear Technology Corp 23,500
300 Litton Industries* 14,400
1,200 Maxim Integrated Products Inc 33,000
1,000 Motorola Inc 43,063
79,300 National Semiconductor Corp* 723,613
660 Northern Telecom Ltd 31,515
2,500 Raychem Corp 72,500
17,200 Raytheon Co, Class B 784,750
37,500 Stewart & Stevenson Services Corp 489,844
900 Xilinx Inc 27,450
-------------
2,955,498
-------------
Food and Beverage -- 4.2%
96,600 Anheuser Busch Cos Inc 4,455,674
4,979 Archer Daniels Midland Co 74,678
1,000 Bestfoods 50,188
4 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- continued
1,100 Coca Cola Enterprises Inc 26,125
24,200 Darden Restaurants Inc 375,100
12,500 General Mills Co 817,969
600 Heinz (HJ) Co 31,988
1,200 IBP Inc 19,875
700 McDonald's Corp 39,244
9,700 Pepsico Inc 268,569
75,000 RJR Nabisco Holdings Corp 1,626,563
1,400 Sara Lee Corp 63,350
2,100 Seagrams Co Ltd 64,838
2,500 Tyson Food Inc, Class A 40,938
6,400 Unilever NV ADR 405,600
26,200 Wendy's International Inc 525,638
1,300 Whitman Corp 20,150
-------------
8,906,487
-------------
Health Care -- 1.3%
2,500 Acuson Corp 36,563
700 Bard (CR) 22,925
1,000 Becton Dickinson & Co 33,313
60,400 Beverly Enterprises Inc 475,650
1,200 BioMet Inc 32,250
4,900 Columbia HCA Healthcare Corp 110,556
800 First Health Group Corp 16,150
500 Hillenbrand Industries Inc 26,781
17,100 Johnson & Johnson 1,179,900
900 Lincare Holdings Inc 30,544
900 Mallinckrodt Inc 20,588
2,300 Medtronic Inc 118,163
7,000 Pharmacia & Upjohn Inc 290,938
25,000 Phycor Inc* 173,438
5,000 Quest Diagnostics Inc 83,125
1,600 Tenet Healthcare Corp 41,300
2,100 United Healthcare Corp 75,863
900 United States Surgical Corp 35,944
600 Wellpoint Health Network* 32,025
-------------
2,836,016
-------------
See accompanying notes to the financial statements. 5
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- 3.1%
3,500 Aetna Life and Casualty Co 210,656
1,000 AFLAC Corp 25,125
29,966 Allstate Corp 1,123,725
1,000 AMBAC Inc 47,188
600 American Bankers Insurance Group 31,125
800 American Financial Group Inc 26,600
700 American National Insurance Co 63,175
600 Chubb Corp 37,500
1,800 Cigna Corp 104,738
2,000 CNA Financial Corp* 73,250
900 Commerce Group Inc 23,625
3,071 Conseco Inc 84,836
600 Equitable Companies Inc 34,313
800 Everest Re Holdings Inc 28,000
200 General Re Corp 41,500
3,000 Hartford Financial Services Group 134,250
1,000 Lincoln National Corp 86,000
1,900 Loews Corp 160,313
550 Marsh & McLennan Cos Inc 26,675
800 MBIA Inc 44,900
500 Mercury General Corp 18,281
1,100 Ohio Casualty Corp 41,250
2,350 Old Republic International Corp 52,434
14,300 Oxford Health Plans Inc 87,588
804 Pacificare Health Systems, Class B* 50,652
300 Progressive Corp 29,231
700 Protective Life Corp 21,613
834 Provident Cos Inc 30,024
100,000 Reliance Group Holdings Inc 1,262,500
1,200 ReliaStar Financial Corp 47,100
1,600 Safeco Corp 65,000
2,903 Saint Paul Cos Inc 88,723
151,000 TIG Holdings Inc 2,085,688
2,100 Torchmark Corp 75,075
600 Transamerica Corp 61,538
600 Transatlantic Holding Inc 48,713
500 Unitrin Inc 28,188
-------------
6,501,092
-------------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Machinery -- 2.0%
2,100 Applied Materials Inc* 51,581
15,000 Baker Hughes Inc 273,750
900 Brunswick Corp 13,444
900 Case Corp 24,300
1,000 Caterpillar Inc 42,188
75,000 Cincinnati Milacron Inc 1,453,125
11,000 Cummins Engine Inc 447,563
8,000 FMC Corp* 414,000
50,000 Pall Corp 1,025,000
12,500 Stanley Works 492,188
400 Tecumseh Products Co, Class B 20,400
500 York International Corp* 17,313
-------------
4,274,852
-------------
Manufacturing -- 5.3%
1,200 American Greetings Corp 43,950
34,000 Clayton Homes Inc 524,875
102,500 Corning Inc 2,524,062
700 Crane Co 28,175
22,500 General Electric Co 1,800,000
20,000 Griffon Corp* 177,500
600 Harsco Corp 22,013
1,200 International Game Technology 23,250
600 Lafarge Corp 17,138
8,000 Minnesota Mining and Manufacturing Co 548,000
60,000 Owens Corning 2,103,750
700 Owens Illinois Inc* 21,831
3,700 Rockwell International Corp 134,125
50,000 Tenneco Inc 1,584,375
900 Trinity Industries Inc* 27,225
23,100 United Technologies Corp 1,676,194
-------------
11,256,463
-------------
Metals and Mining -- 1.1%
36,300 Alcan Aluminum Ltd 689,700
7,500 Allegheny Teledyne Inc 112,969
600 Asarco Inc 9,563
47,500 Inco Ltd 397,813
5,000 Newmont Mining Corp 68,438
5,000 Pegasus Gold 75
1,900 Phelps Dodge Corp 85,025
See accompanying notes to the financial statements. 7
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Metals and Mining -- continued
20,000 Pittston Minerals Group 73,750
20,600 Reynolds Metals Co 987,513
1,400 Timken Co 25,463
-------------
2,450,309
-------------
Oil and Gas -- 7.4%
13,100 Amerada Hess Corp 643,538
6,100 Amoco Corp 276,406
6,100 Atlantic Richfield Co 353,800
8,000 Burlington Resources Inc 236,500
17,500 Cabot Oil & Gas Corp, Class A 223,125
100 Chevron Corp 7,406
800 Columbia Energy Group 39,800
1,000 Consolidated Natural Gas Co 43,813
65,000 EEX Corp* 288,438
50,000 Enron Oil & Gas 650,000
10,000 Exxon Corp 654,375
100,000 Gulf Canada Resources Ltd 300,000
300 Kerr-McGee Corp 11,588
37,500 Mitchell Energy, Class B 525,000
16,100 Mobil Corp 1,112,913
127,000 Occidental Petroleum Corp 2,349,500
900 Phillips Petroleum Co 36,731
26,200 Questar Corp 425,750
21,700 Texaco Inc 1,205,706
12,500 Triton Energy Limited 143,750
151,600 Union Pacific Resources Group 1,298,075
75,700 Unocal Corp 2,370,356
70,900 USX - Marathon Group 1,843,400
40,000 Westcoast Energy Inc 707,500
-------------
15,747,470
-------------
Paper and Allied Products -- 2.9%
35,000 Abitibi-Consolidated Inc 271,250
15,000 Boise Cascade Corp 366,563
1,000 Bowater Inc 37,813
13,200 Champion International Corp 435,600
50,700 Fort James Corp 1,476,638
36,500 International Paper Co 1,350,500
41,000 Kimberly Clark Corp 1,563,125
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Paper and Allied Products -- continued
1,000 Louisiana Pacific Corp 18,875
400 Pentair Inc 11,150
2,000 Stone Container Corp* 20,875
500 Union Camp Corp 18,531
1,000 Westvaco Corp 21,000
17,500 Weyerhaeuser Co 657,344
1,000 Willamette Industries Inc 24,625
-------------
6,273,889
-------------
Pharmaceuticals -- 1.2%
15,800 Abbott Laboratories 608,300
600 Allergan Inc 28,350
2,800 American Home Products Corp 140,350
1,600 Amgen Inc* 97,400
400 Bergen Brunswig Corp, Class A 13,650
900 Bristol Myers Squibb Co 88,088
20,000 Lilly (Eli) & Co 1,310,000
1,100 Merck & Co Inc 127,531
30,720 PharMerica Inc 120,002
-------------
2,533,671
-------------
Primary Materials -- 0.0%
500 Crown Cork & Seal Inc 16,375
1,700 Premark International Inc 44,944
-------------
61,319
-------------
Primary Processing -- 0.3%
4,600 Dow Chemical Co 358,800
1,700 LTV Corp 9,244
11,300 USX-US Steel Group Inc 236,594
800 Valspar Corp 26,600
1,700 Worthington Industries 22,100
-------------
653,338
-------------
Printing and Publishing -- 0.1%
10,000 News Corporation Ltd ADR 240,625
-------------
Real Estate -- 3.5%
10,000 Amli Residential Properties Trust 197,500
10,000 Duke Realty Investments 207,500
15,000 Equity Office Properties 340,313
See accompanying notes to the financial statements. 9
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate -- continued
10,000 Equity Residential Properties Trust 399,375
82,500 JP Realty Inc 1,660,313
900 Meditrust Corp 13,950
1 Starwood Hotels & Resorts 37
125,000 Summit Properties Inc 2,093,750
125,000 United Dominion Realty Trust 1,453,125
50,000 Walden Residential Properties Inc 1,131,250
-------------
7,497,113
-------------
Refining -- 0.4%
500 Murphy Oil Corp 17,656
17,500 Quaker State Corp 219,844
25,900 Ultramar Diamond Shamrock Corp 598,938
2,500 Valero Energy Corp 44,688
-------------
881,126
-------------
Retail Trade -- 5.9%
2,100 Albertsons Inc 106,181
1,500 American Stores Co 43,500
1,100 Autozone Inc* 28,531
1,400 Bed, Bath & Beyond Inc 25,200
25,000 Cone Mills Corp 176,563
900 Dayton Hudson Corp 32,400
14,000 Dillards Department Stores Inc 404,250
66,500 Federated Department Stores* 2,896,905
700 Fruit of the Loom Inc* 15,706
1,800 Gap Inc 91,913
400 General Nutrition Cos Inc 5,325
4,200 Kmart Corp* 53,550
500 Kroger Co* 22,500
21,100 Limited Inc 440,463
600 May Department Stores Co 33,750
1,100 MSC Industrial Direct Co Inc 23,169
2,100 OfficeMax Inc* 22,050
1,700 Penney (JC) Co Inc 84,256
1,200 Safeway Inc 47,250
50,000 Saks Holdings Inc* 1,046,875
54,000 Sears Roebuck & Co 2,453,624
800 Tandy Corp 43,650
102,500 Toys R Us Inc* 1,902,656
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Retail Trade -- continued
1,300 Venator Group Inc 11,781
42,000 Wal Mart Stores Inc 2,467,499
1,500 Weismarkets Inc 52,219
700 Winn-Dixie Stores Inc 26,075
-------------
12,557,841
-------------
Services -- 4.8%
300 BHC Communications Inc, Class A 34,950
75,000 Browning Ferris Industries Inc 2,437,500
902 Chris Craft Industries Inc 37,546
1,500 Circus Circus Enterprises Inc 15,375
1,200 Dun & Bradstreet Corp 28,200
1,500 Harrahs Entertainment Inc* 21,656
50,000 Hilton Hotels Corp 1,037,500
400 Kelly Services 10,250
1,500 KingWorld Productions Inc 31,500
45,000 Manpower Inc 916,875
2,000 Meredith Corp 67,125
1,100 Olsten Corp 6,463
1,950 Servicemaster Company 40,828
2,200 Supervalu Inc 44,688
100,580 Waste Management Inc 4,438,092
97,500 Waste Management International PLC ADR* 1,029,844
-------------
10,198,392
-------------
Technology -- 4.1%
31,700 Advanced Micro Devices Inc* 418,044
1,300 Autodesk Inc 30,388
500 Avnet Inc 23,625
1,800 BMC Software Inc* 76,163
3,500 Cabletron Systems Inc 24,500
7,550 Cisco Systems Inc* 618,156
78,805 Compaq Computer Corp 2,201,615
200 Computer Sciences Corp 11,313
22,500 Data General Corp* 168,750
700 Electronic Arts Inc 26,688
35,000 G TECH Holdings Corp* 918,750
300 Grainger (WW) Inc 11,756
12,500 Information Resources Inc* 121,875
8,700 Intel Corp 619,331
See accompanying notes to the financial statements. 11
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Technology -- continued
14,300 Microsoft Corp* 1,371,906
4,400 Novell Inc* 41,800
2,000 Oracle Corp 39,875
1,500 Seagate Technology Corp* 26,250
91,100 Storage Technology Corp* 1,981,425
600 Teradyne Inc* 10,425
300 Xerox Corp 26,344
-------------
8,768,979
-------------
Telecommunications -- 7.0%
800 Alltel Corp 36,100
4,000 Ameritech Corp 188,500
19,100 AT & T Corp 957,388
4,412 Bell Atlantic Corp 194,680
2,900 Bellsouth Corp 198,831
25,000 CBS Corp 650,000
900 Century Telephone Enterprises Inc 40,838
30,000 Comsat Corp 654,375
800 Frontier Corp 24,300
70,300 GTE Corp 3,514,999
4,200 MCI Communications Corp 210,000
49,300 MediaOne Group Inc 2,021,300
1,100 Nextel Communications Inc, Class A* 19,869
56,702 SBC Communications 2,154,676
2,300 Sprint Corp 154,244
2 Telecom-TCI Ventures 33
900 United States Cellular Corp 25,594
71,131 US West Inc 3,698,811
1,200 Viacom Inc, Class B* 59,550
1,300 Worldcom Inc* 53,219
-------------
14,857,307
-------------
Tobacco -- 0.9%
62,500 Imperial Tobacco Group PLC ADR 1,114,588
17,000 Philip Morris Cos Inc 706,563
-------------
1,821,151
-------------
Transportation -- 3.7%
22,500 Airborne Freight Corp 438,750
14,000 AMR Corp* 763,000
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Transportation -- continued
1,500 Burlington Northern Santa Fe Railroad Co 139,594
75,000 Canadian Pacific 1,420,313
1,000 Comair Holdings Inc 25,438
1,500 CSX Corp 56,625
500 Delta Air Lines Inc 51,000
800 Gatx Corp 26,400
2,200 Norfolk Southern Corp 62,013
101,800 Ryder System Inc 2,398,663
5,000 Sabre Group Holding Inc 160,000
5,700 UAL Corp* 343,781
32,800 USAir Group Inc* 1,910,600
-------------
7,796,177
-------------
Utilities -- 12.9%
500 AES Corp* 13,625
700 American Electric Power Inc 31,675
900 American Water Works Co 24,750
1,100 Baltimore Gas and Electric Co 33,894
900 BEC Energy 35,663
25,000 Calenergy Inc* 635,938
25,000 Calpine Corp 464,063
1,800 Central & South West Corp 47,025
50,000 Cinergy Corp 1,737,500
4,131 Citizens Utilities, Class B 29,690
500 CMS Energy Corp 21,156
1,500 Coastal Corp 39,000
1,100 Conectiv Inc 22,413
3,000 Consolidated Edison Co. of N.Y. Inc 141,938
51,800 Dominion Resources Inc 2,159,413
50,000 DPL Inc 900,000
500 DQE Inc 17,844
2,200 DTE Energy Co 92,675
15,000 Duke Power Co 935,625
4,000 Edison International 113,750
600 El Paso Energy Corp 14,888
1,200 Energy East Corp 54,000
56,200 Entergy Corp 1,619,263
28,422 Firstenergy Corp 820,685
600 Florida Progress Corp 25,313
600 FPL Group Inc 39,938
See accompanying notes to the financial statements. 13
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Utilities -- continued
1,700 General Public Utilities Inc 63,856
27,300 Houston Industries Inc 786,581
51,100 Illinova Corp 1,319,019
1,300 Midamerican Energy Holding Co 32,256
800 Montana Power Co 31,200
1,000 New England Electric System 40,375
152,600 Niagara Mohawk Power Corp* 2,365,300
1,900 Northeast Utilities* 28,500
26,000 Pacificorp 586,625
3,600 Peco Energy Co 123,300
55,700 PG & E Corp 1,789,363
600 Pinnacle West Capital Corp 25,913
2,200 PP & L Resources Inc 51,838
28,700 Public Service Enterprise Group Inc 1,051,138
800 Sempra Energy* 20,350
26,900 Southern Co 756,563
128,000 Texas Utilities Co 5,439,999
37,500 TransCanada Pipeline Ltd 508,594
68,300 Unicom Corp 2,433,188
600 Western Resources Inc 24,188
-------------
27,549,870
-------------
TOTAL COMMON STOCKS (COST $193,342,775) 197,319,479
-------------
PREFERRED STOCKS -- 2.3%
Insurance -- 0.2%
5,000 Aetna Inc 6.25% Convertible 310,313
-------------
Metals and Mining -- 0.1%
7,500 Freeport McMoran Corp $0.34 133,594
-------------
Oil and Gas -- 0.7%
30,000 Unocal Corp Convertible 6.25% 144A 1,496,250
-------------
Real Estate -- 0.3%
25,000 Crescent Real Estate 6.75% 445,313
12,500 Reckson Associates Realty Corp 7.625% 262,500
-------------
707,813
-------------
14 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
Transportation -- 1.0%
50,000 Union Pacific Capital Trust 6.25% 144A 2,225,000
-------------
TOTAL PREFERRED STOCKS (COST $5,468,439) 4,872,970
-------------
RIGHTS AND WARRANTS -- 0.0%
Oil and Gas -- 0.0%
300 Petrofina SA Warrants, Expires 8/05/03 1,294
-------------
TOTAL RIGHTS AND WARRANTS (COST $1,425) 1,294
-------------
DEBT OBLIGATIONS -- 0.8%
Electronic Equipment -- 0.8%
$2,500,000 Advanced Micro Devices, 6.00%, due 5/15/05 1,746,875
-------------
TOTAL DEBT OBLIGATIONS (COST $2,015,354) 1,746,875
-------------
SHORT-TERM INVESTMENTS -- 11.4%
Cash Equivalents -- 6.8%
$1,497,752 BankBoston Eurodollar Time Deposit, 5.8925% due 1,497,752
9/1/98/(a)/
2,983,708 Merrimac Cash Fund Premium Class/(a)/ 2,983,708
$10,000,000 Prudential Securities Group Inc, Master Note, 5.94% due
9/1/98/(a)/ 10,000,000
-------------
14,481,460
-------------
U.S. Government -- 0.2%
$ 500,000 U.S. Treasury Bill, 4.875%, due 11/12/98/(b)/ 495,190
-------------
Repurchase Agreement -- 4.4%
$9,369,773 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $9,371,121
and an effective yield of 5.18%, collateralized by a U.S.
Treasury Obligation with a rate of 5.875%, maturity date
of 11/15/99 and market value of $9,557,169. 9,369,773
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $24,346,358) 24,346,423
-------------
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Value ($)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 107.1%
(COST $225,174,351) 228,287,041
Other Assets and Liabilities (net) -- (7.1)% (15,179,081)
-------------
TOTAL NET ASSETS -- 100% $ 213,107,960
=============
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.
16 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $225,174,351) (Note 1) $228,287,041
Receivable for investments sold 3,446,478
Dividends and interest receivable 567,626
Receivable for expenses waived or borne by Manager (Note 2) 64,016
------------
Total assets 232,365,161
------------
Liabilities:
Payable for investments purchased 2,886,620
Payable upon return of securities loaned (Note 1) 14,481,460
Payable to affiliate for (Note 2):
Management fee 141,508
Shareholder service fee 28,748
Payable for open swap contracts (Notes 1 and 6) 1,510,166
Payable for variation margin on open futures contracts
(Notes 1 and 6) 154,879
Accrued expenses 53,820
------------
Total liabilities 19,257,201
------------
Net assets $213,107,960
============
Net assets consist of:
Paid-in capital $172,670,916
Accumulated undistributed net investment income 952,187
Accumulated undistributed net realized gain 38,214,835
Net unrealized appreciation 1,270,022
============
$213,107,960
============
Net assets attributable to:
Class III shares $213,107,960
============
Shares outstanding:
Class III 18,962,549
============
Net asset value per share:
Class III $ 11.24
============
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $22,177) $ 3,145,560
Interest (including securities lending income of $21,968) 431,146
------------
Total income 3,576,706
------------
Expenses:
Management fee (Note 2) 1,068,248
Custodian and transfer agent fees 63,494
Audit fees 18,855
Legal fees 3,896
Trustees fees (Note 2) 1,380
Registration fees 582
Miscellaneous 1,295
Fees waived or borne by Manager (Note 2) (455,769)
------------
701,981
Shareholder service fee (Note 2)
Class III 228,910
------------
Net expenses 930,891
------------
Net investment income 2,645,815
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 39,672,197
Closed futures contracts 645,910
Closed swap contracts (1,126,485)
------------
Net realized gain 39,191,622
------------
Change in net unrealized appreciation (depreciation) on:
Investments (64,382,664)
Open futures contracts (436,711)
Open swap contracts (810,747)
------------
Net unrealized loss (65,630,122)
------------
Net realized and unrealized loss (26,438,500)
------------
Net decrease in net assets resulting from operations $(23,792,685)
============
18 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------
Six Months Ended Year Ended
August 31, 1998 February
(Unaudited) 28, 1998
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 2,645,815 $ 7,420,546
Net realized gain 39,191,622 91,343,278
Change in net unrealized appreciation (depreciation) (65,630,122) 8,029,177
------------- -------------
Net increase (decrease) in net assets resulting from
operations (23,792,685) 106,793,001
------------- -------------
Distributions to shareholders from:
Net investment income
Class III (1,767,262) (8,678,684)
------------- -------------
Total distributions from net investment income (1,767,262) (8,678,684)
------------- -------------
Net realized gains
Class III (30,212,314) (95,748,520)
------------- -------------
Total distributions from net realized gains (30,212,314) (95,748,520)
------------- -------------
(31,979,576) (104,427,204)
------------- -------------
Net share transactions: (Note 5)
Class III (63,223,101) (139,853,837)
------------- -------------
Decrease in net assets resulting from net share
transactions (63,223,101) (139,853,837)
------------- -------------
Total decrease in net assets (118,995,362) (137,488,040)
Net assets:
Beginning of period 332,103,322 469,591,362
------------- -------------
End of period (including accumulated undistributed
net investment income of $952,187 and $73,634,
respectively) $ 213,107,960 $ 332,103,322
============= =============
</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 August Year Ended February 28/29,
31, 1998 -------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 14.33 $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50
--------- --------- --------- -------- --------- --------
Income from investment operations:
Net investment income 0.13 0.31 0.31 0.39 0.41 0.43
Net realized and unrealized
gain (loss) (1.52) 3.81 2.47 3.71 0.32 1.27
--------- --------- --------- --------- --------- --------
Total from investment
operations (1.39) 4.12 2.78 4.10 0.73 1.70
--------- --------- --------- --------- --------- --------
Less distributions to shareholders:
From net investment income (0.08) (0.35) (0.32) (0.39) (0.45) (0.40)
From net realized gains (1.62) (4.29) (1.86) (1.51) (1.71) (1.32)
--------- --------- --------- --------- --------- --------
Total distributions (1.70) (4.64) (2.18) (1.90) (2.16) (1.72)
--------- --------- --------- --------- -------- --------
Net asset value, end of period $ 11.24 $ 14.33 $ 14.85 $ 14.25 $ 12.05 $ 13.48
========= ========= ========= ========= ========== ========
Total Return (a) (11.67)% 31.54% 21.26% 35.54% 6.85% 13.02%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $213,108 $332,103 $469,591 $317,612 $350,694 $679,532
Net expenses to average daily
net assets 0.61%* 0.61% 0.61% 0.61% 0.61% 0.61%
Net investment income to
average daily net assets 1.73%* 1.89% 2.17% 2.66% 2.86% 2.70%
Portfolio turnover rate 17% 40% 84% 65% 77% 35%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.02 $ 0.05 $ 0.04 $ 0.02 $ 0.02 $ 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.
* Annualized.
20 See accompanying notes to the financial statements.
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks 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.
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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
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
21
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1998, the Fund loaned securities having a market
value of $13,848,237, collateralized by cash in the amount of $14,481,460,
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. The Fund also enters into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of August 31, 1998.
22
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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. Dividends representing a return
of capital are reflected as a reduction of cost.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. Purchase premiums are included as part of "shares sold",
as summarized in Note 5. For the six months ended August 31, 1998, the Fund
received $1,912 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee
23
<PAGE>
GMO Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
for client and shareholder service, reporting, and other support. Pursuant
to the Shareholder Service Plan, the shareholder service fee is calculated
based on the average daily net assets at the annual rate of .15% for Class
III shares.
GMO has 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $1,380. 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, 1998,
aggregated $48,131,110 and $136,696,858, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
------------------ ------------------- --------------------------------------
$225,174,351 $28,445,744 $25,333,054 $3,112,690
4. Principal shareholder
At August 31, 1998, 37.9% 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 -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
------------------------------- -----------------------------
Shares Amount Shares Amount
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 91,562 $ 1,365,506 681,641 $ 10,600,108
Shares issued to shareholders
in reinvestment of
distributions 2,154,722 29,066,341 7,181,148 99,150,661
Shares repurchased (6,462,225) (93,654,948) (16,313,781) (249,604,606)
------------- --------------- ------------- --------------
Net decrease (4,215,941) $ (63,223,101) (8,450,992) $ (139,853,837)
============= =============== ============= ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contracts
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
----------- -------- ----------------- ---------------- ---------------
5 S&P 500 September 1998 $ 1,192,500 $ (273,873)
3 S&P 500 December 1998 722,850 (58,629)
--------------
$ (332,502)
==============
At August 31, 1998, 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 -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
--------------------- ------------ ----------------------------------------- ----------------
<S> <C> <C> <C>
$ 4,645,711/ 9/11/98 Agreement with Morgan Stanley Capital $ (556,096)
3,313,467 Services, Inc. dated 9/08/97 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 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.
11,901,574/ 5/18/99 Agreement with Morgan Stanley Capital (954,070)
8,131,995 Services, Inc. dated 5/13/98 to pay
(receive) the notional amount
multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread and to receive
(pay) the change in market value of a
basket of selected securities
(including dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR adjusted
by a specified spread.
----------------
$ (1,510,166)
================
</TABLE>
26
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 96.1%
Advertising -- 0.1%
1,200 Grey Advertising Inc 384,000
---------
Aerospace -- 0.8%
41,200 Cordant Technologies Inc 1,467,749
13,200 Curtiss Wright Corp 581,625
17,600 Gencorp Inc 369,600
43,500 Kaman Corp, Class A 584,531
12,600 Teleflex Inc 396,900
---------
3,400,405
---------
Automotive -- 1.6%
21,600 Bandag Inc 650,700
26,800 Borg Warner Automotive Inc 1,085,399
32,300 Breed Technologies Inc 236,194
85,801 Cooper Tire & Rubber Co 1,372,821
12,000 Mascotech Industries Inc 210,000
12,400 Meritor Automotive Inc 220,100
41,100 Modine Manufacturing Co 1,143,093
28,650 Smith (AO) Corp, Class B 540,769
32,300 Superior Industries International Inc 672,244
26,200 Wabash National Corp 415,925
---------
6,547,245
---------
Banking and Financial Services -- 7.2%
36,500 Advanta Corp, Class A 412,906
14,500 Amresco Inc* 179,438
27,300 Baldwin and Lyons Inc, Class B 576,713
12,952 BOK Financial Corporation 556,936
7,800 CCB Financial Corp 741,488
23,300 Citizens Banking Corp Michigan 666,963
91,200 Comdisco Inc 1,134,299
16,152 Commerce Bancshares Inc 646,080
30,750 Compass Bankshares Inc 1,014,750
10,700 Corus Bancshares Inc 306,288
14,100 Dain Rauscher Corp 524,344
14,400 Donaldson Lufkin & Jenrette 504,000
18,116 Downey Financial Corp 417,800
19,400 Eaton Vance Corp 771,150
20,650 Edwards (AG) Inc 560,131
24,000 Financial Security Assurance Holdings Ltd 1,184,999
9,000 First Citizens Bancshares, Class A 751,500
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
20,600 Banking and Financial Services -- continued
25,800 First Federal Financial Corp 303,850
10,450 First Hawaiian Inc 757,875
39,800 First Virginia Banks Inc 449,350
27,700 FirstBank Puerto Rico 950,225
17,900 Imperial Credit Industries Inc* 377,413
4,400 Jefferies Group Inc 511,269
19,700 JSB Financial 199,100
39,400 Leucadia National Corp 545,444
1,800 Liberty Financial Cos 1,162,299
31,025 M & T Bank Corp 738,000
24,400 Morgan Keegan Inc 550,694
10,667 National Bancorp of Alaska Inc 738,100
70,500 Old Kent Financial Corp 344,011
20,600 Pacific Century Financial Corp 1,039,875
28,200 PMI Group Inc 1,140,724
56,775 Popular Inc 789,600
23,200 Raymond James Financial Corp 975,820
14,400 Ryland Group Inc 458,200
62,196 SEI Investments Co 896,400
12,400 Sovereign Bancorp Inc 758,014
40,700 Student Loan Group 544,050
14,010 Trustmark Corp 707,163
38,500 UMB Financial Corp 570,908
12,800 United Cos Financial Corp 539,000
35,231 Value Line Inc 444,800
21,300 Washington Federal Inc 797,101
Wilmington Trust Corp 995,775
----------
29,234,845
----------
Chemicals -- 1.8%
17,600 Albemarle Corp 295,900
15,900 Cabot Corporation 345,825
19,500 Crompton & Knowles Corp 285,188
10,400 Cytec Industries Inc* 237,900
32,900 Engelhard Corp 604,538
17,650 Ferro Corp 356,309
5,300 Fuller (HB) Co 251,750
25,400 Geon Co 492,125
44,000 Hanna (MA) Co 547,250
25,600 Kaiser Aluminum Corp* 152,000
22,500 Lubrizol Corp 514,688
25,100 Millenium Chemicals Inc 542,788
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------
<S> <C>
Chemicals -- continued
32,100 Mississippi Chemical Corp 403,256
21,200 Olin Corp 596,250
24,200 Stepan Co 611,050
40,900 W.R. Grace & Co* 526,588
42,600 Wellman Inc 487,238
----------
7,250,643
----------
Communications -- 0.2%
27,100 DSC Communications Corp* 653,788
----------
Computer and Office Equipment -- 2.6%
29,100 Apple Computer Inc 907,556
23,100 BancTec Inc* 308,963
13,800 CDW Computer Centers Inc* 531,300
9,900 Everex Systems Inc(a) --
39,500 Exabyte Corp* 212,313
44,700 Infocus Systems Inc 167,625
32,000 Intergraph Corp* 202,000
42,400 Lexmark International Group Inc* 2,567,849
43,100 Quantum Corp* 492,956
42,100 Reynolds & Reynolds Inc, Class A 531,513
64,700 Sandisk Corp* 566,125
63,400 Silicon Graphics Inc* 574,563
64,300 Sterling Software Inc 1,322,168
25,100 Stratus Computer Inc* 630,638
31,400 Western Digital Corp* 259,050
35,300 Zebra Technologies Corp* 1,096,505
----------
10,371,124
----------
Construction -- 2.0%
41,300 Bridge & Toll Road Brothers Inc* 1,055,731
35,600 Centex Corp 1,259,349
27,600 Foster Wheeler Corp 339,825
36,100 Granite Construction Inc 857,375
50,700 Horton (DR) Inc 811,200
47,000 Kaufman & Broad Home Corp 1,004,625
27,700 McDermott International Inc 555,731
31,000 MEMC Electronic Materials* 166,625
51,700 Pulte Corp 1,492,837
48,000 Standard Pacific Corp 567,000
----------
8,110,298
----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- 4.9%
19,200 Alberto Culver Co, Class B 384,000
15,200 Bassett Furniture Industries Inc 336,300
11,219 Block Drug Co Inc, Class A 381,446
61,300 Burlington Industries Inc* 582,350
35,400 Callaway Golf Co 351,788
24,400 Coleman Co Inc* 247,050
86,900 Compucom Systems Inc* 369,325
31,800 Department 56 Inc* 938,100
21,700 Enesco Group Inc 523,513
33,800 Fastenal Co 986,538
32,800 First Brands Corp 653,950
21,600 Fossil Inc 356,400
27,900 Furniture Brands International Inc* 624,263
19,800 Jones Apparel Group Inc 383,625
60,700 Justin Industries 830,831
30,900 Kimball International, Class B 529,163
10,600 La-Z-Boy Chair Co 558,488
33,615 Lancaster Colony Corp 970,633
65,600 Moore Corp Ltd 627,300
12,200 National Service Industries 454,450
37,100 Nautica Enterprises Inc* 716,494
41,200 Nine West Group Inc* 656,625
31,650 Oneida LTD 644,869
18,700 Osh Kosh B Gosh, Class A 682,550
12,150 Patterson Dental Company 362,222
49,600 PSS World Medical Inc* 762,600
30,000 Reebok International Ltd* 485,625
28,100 Russell Corp 888,663
53,200 Sunbeam Corp 399,000
16,800 Technology Data Corp* 635,250
90,000 Terra Industries Inc 450,000
16,200 Unifi Inc* 360,450
50,120 US Industries Inc 695,415
30,900 Wallace Computer Services 500,194
17,700 Warnaco Group Inc, Class A 482,325
----------
19,811,795
----------
Electronic Equipment -- 4.6%
50,600 Adaptec Inc* 581,900
28,100 Altron Inc* 266,950
49,600 American Power Conversion Corp 1,339,199
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- -------------------------------------------------------------
<S> <C> <C>
Electronic Equipment -- continued
39,500 Andrew Corp * 585,094
29,900 Arrow Electronics Inc 392,438
61,800 Atmel Corp * 372,734
33,800 C-Cube Microsystems Inc * 500,663
33,200 CTS Corp 942,050
46,300 Cypress Semiconductor Corp * 283,588
28,300 Dallas Semiconductor Corp 765,869
33,500 DSP Communications Inc * 383,156
36,000 Federal Signal Corp 733,500
5,800 Franklin Electric Inc 364,675
41,300 General Instrument Corp * 820,838
18,300 Hadco Corp * 370,575
14,600 Harman International Industries 511,913
29,800 Hutchinson Technology Inc * 404,163
60,200 Integrated Device Technology Inc * 276,547
51,700 Kemet Corp * 601,013
90,800 Komag Inc * 249,700
24,400 Lattice Semiconductor Corp * 587,125
21,600 Litton Industries * 1,036,800
17,000 Marshall Industries * 402,688
63,300 Methode Electronics, Class A 759,600
55,900 National Semiconductor Corp * 510,088
166,100 Oak Technology Inc * 477,538
13,200 Pioneer Standard Electronics Inc 99,825
8,700 Pittway Corp, Class A 326,250
79,000 Read Rite Corp * 434,500
36,900 SCI Systems Inc * 846,394
51,700 Silicon Valley Group Inc * 497,613
16,900 Stewart & Stevenson Services Corp 220,756
12,300 Tech Corp * 302,888
11,300 Thomas & Betts Corp 384,906
16,100 Valmont Industries Inc 243,513
39,170 Vishay Intertechnology Inc * 411,285
20,300 Watkins Johnson 399,656
6,841 Zilog Inc(b) * 136,392
----------
18,824,382
----------
Food and Beverage -- 3.2%
28,500 Bob Evans Farms Inc 525,469
34,000 Chiquita Brands International Inc 380,375
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- -----------------------------------------------------------------------------
<S> <C> <C>
Food and Beverage -- continued
13,700 Coors (Adolph) Co 565,125
72,400 Darden Restaurants Inc 1,122,199
13,700 Dean Foods Co 602,800
4,000 Farmer Brothers Co 820,000
23,000 Great Atlantic & Pacific Tea Co 547,688
13,700 Hormel (Geo A) and Co 377,606
80,000 IBP Inc 1,324,999
28,300 International Multifoods Corp 491,713
34,900 Interstate Bakeries Corp 909,581
18,100 Luby's Cafeteria Inc 276,025
27,100 Michael Foods Inc 670,725
22,600 Pilgrims Pride Corp 442,113
49,400 Ryan's Family Steak Houses Inc * 503,263
1,200 Seaboard Corp 334,800
33,200 Smithfield Foods Inc 605,900
16,600 Universal Corp 522,900
56,350 Universal Foods Corp 1,190,393
44,800 Wendy's International Inc 898,800
----------
13,112,474
----------
Health Care -- 5.7%
68,300 Apria Healthcare Group * 286,006
18,800 Arrow International Inc 509,950
31,100 Ballard Medical Products 577,294
30,500 Bard (CR) 998,875
19,500 Bausch & Lomb Inc 825,094
12,199 Bindley Western Industries Inc 320,230
48,000 BioMet Inc 1,289,999
28,100 Dentsply International Inc 599,761
15,800 Express Scripts Inc, Class A * 1,062,549
70,300 First Health Group Corp 1,419,180
10,400 Forest Laboratories Inc 340,600
38,600 Haemonetics Corp * 605,538
20,000 Health Care & Retirement * 510,000
38,100 Integrated Health Services Inc 738,188
359,500 Laboratory Corporation of America Holdings * 404,438
48,500 Lincare Holdings Inc 1,645,968
27,200 Mallinckrodt Inc 622,200
15,300 Manor Care Inc 367,200
53,000 Mariner Post-Acute Network Inc 377,625
34,900 Marquette Medical Systems, Class A * 831,056
24,900 Mentor Corp 364,163
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ------------------------------------------------------------------
<S> <C> <C>
Health Care -- continued
61,300 Mid Atlantic Medical Services Inc * 340,981
63,000 Novacare Corp * 460,688
110,100 Perrigo Co * 935,850
24,400 Quorum Health Group Inc 463,600
30,400 RightCHOICE Managed Care, Class A * 319,200
24,350 Sierra Health Services Inc 389,600
11,500 Sofamor Denek Group Inc * 959,531
40,800 Sola International Inc * 591,600
29,800 Spacelabs Medical Inc * 512,188
33,900 Sunrise Medical Inc * 296,625
28,500 Sybron International Corp 518,344
28,600 United States Surgical Corp 1,142,212
13,300 Universal Health Services, Class B * 515,375
13,400 Varian Associates Inc 456,438
118,900 Vencor Inc * 431,013
----------
23,029,159
----------
Insurance -- 9.1%
3,357 Alleghany Corp 698,256
31,400 Allied Group Inc 1,473,837
52,600 American Bankers Insurance Group 2,728,624
14,600 American Financial Group Inc 485,450
37,298 American Heritage Life Investments 729,642
11,600 American National Insurance Co 1,046,900
18,300 Argonaut Group Inc 471,225
32,000 Berkley (WR) Corp 1,012,000
27,700 Capital Re Corp 734,050
36,900 Citizens Corp 934,031
8,700 CMAC Investment Corp 334,950
34,500 Commerce Group Inc 905,625
19,673 Delphi Financial Group Inc 821,348
17,300 Enhance Financial Services Group Inc 434,663
43,300 Everest Re Holdings Inc 1,515,499
18,900 Fidelity National Financial Inc 523,294
46,650 First American Financial Corp 1,201,237
88,610 Foundation Health Systems Inc, Class A * 991,324
27,315 Fremont General Corp 1,167,715
11,400 Gallagher (Arthur J) and Co 421,800
31,900 Harleysville Group Inc 622,050
25,500 Horace Mann Educators Corp 710,813
25,900 John Alden Financial Corp 581,131
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- ----------------------------------------------------------------
<S> <C> <C>
Insurance -- continued
13,800 Kansas City Life Insurance Co 909,075
18,200 Liberty Corp 808,763
15,700 Life Re Corp 1,409,074
39,200 Life USA Holdings Inc 455,700
26,500 Mercury General Corp 968,906
19,500 NAC Re Corp 920,156
32,500 Ohio Casualty Corp 1,218,749
21,800 Orion Capital Corp 812,050
9,700 Pacificare Health Systems, Class B * 611,100
27,100 Penncorp Financial Group Inc 94,850
36,500 Presidential Life Corp 725,438
25,600 Protective Life Corp 790,400
19,234 Provident Cos Inc 692,424
52,400 Reliance Group Holdings Inc 661,550
20,378 ReliaStar Financial Corp 799,837
16,444 RLI Corp 519,013
36,800 Selective Insurance Group 654,352
50,200 TIG Holdings Inc 693,388
20,100 Transatlantic Holding Inc 1,631,868
10,550 Trenwick Group Inc 363,975
23,600 UICI * 358,425
35,400 Vesta Insurance Group 334,088
----------
36,978,645
----------
Machinery -- 3.9%
57,700 Agco Corp 497,663
23,900 Cincinnati Milacron Inc 463,063
19,200 Cooper Cameron Corp * 408,000
24,200 Cummins Engine Inc 984,638
44,500 Detroit Diesel Corp * 795,438
57,200 Donaldson Co Inc 1,015,300
14,000 Federal Mogul Corp 747,250
27,000 Flowserve Corp 506,250
11,300 FMC Corp * 584,775
37,000 Harnischfeger Industries Inc 594,313
27,600 Kaydon Corp 746,925
9,700 Kennametal Inc 251,594
30,300 Kulicke & Soffa Industries * 392,006
33,400 Lam Research Corp * 365,313
40,000 Mohawk Industries Inc 1,062,499
23,000 Nordson Corp 980,375
41,300 Novellus System Inc 1,099,612
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------------
<S> <C> <C>
Machinery -- continued
64,600 Oakley Inc* 650,038
14,500 Starrett (LS) Co, Class A 499,344
31,700 Tecumseh Products Co, Class B 1,616,699
10,500 Toro Co 231,000
26,100 Ultratech Stepper Inc* 451,856
29,400 York International Corp* 1,017,975
----------
15,961,926
----------
Manufacturing -- 4.4%
43,600 ACX Technologies Inc* 689,425
13,500 Aeroquip-Vickers Inc 544,219
82,600 Amcast Industrial Corp 1,264,812
26,100 Applied Power Inc, Class A 647,606
23,300 Ball Corp 870,838
29,500 Barnes Group Inc 706,156
35,700 Champion Enterprises Inc* 834,488
90,950 Clayton Homes Inc 1,404,040
29,700 Crane Co 1,195,424
7,600 CSS Industries Inc* 209,950
23,500 General Cable Corp 470,000
29,300 Gibson Greetings Inc* 569,519
21,000 Global Industrial Technologies Inc* 126,000
7,900 Greif Brothers Corp 256,750
57,100 Griffon Corp* 506,763
13,700 Harsco Corp 502,619
31,300 International Game Technology 606,438
28,300 Lafarge Corp 808,319
18,400 Lydall Inc* 255,300
7,100 Mine Safety Appliances 524,069
12,200 NCI Building Systems Inc 216,550
16,200 Owens Corning 568,013
10,800 Sequa Corp, Class A* 689,175
23,500 Standex International Corp 522,875
31,500 Tower Automotive Inc 576,844
17,850 Tredegar Industries 287,831
41,000 Trinity Industries Inc* 1,240,249
23,200 Watts Industries Inc, Class A 387,150
11,300 West Co Inc 295,919
----------
17,777,341
----------
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------
<S> <C> <C>
Metals and Mining -- 1.1%
51,100 Arch Coal Inc 951,738
49,400 Asarco Inc 787,313
12,000 Cleveland Cliffs Inc 438,000
20,400 Commercial Metals Co 497,250
76,200 Cyprus Amax Minerals Co 700,088
7,700 Nacco Industries Inc, Class A 733,425
28,900 Timken Co 525,619
1,500 Zeigler Coal Holding Co 29,625
---------
4,663,058
---------
Oil and Gas -- 1.4%
31,400 BJ Services Co 396,425
37,500 Equitable Resources Inc 820,313
35,400 Friede Goldman International Inc 369,488
46,900 KCS Energy Inc 175,875
14,700 Mitchell Energy, Class B 205,800
43,500 Nabors Industries Inc* 513,844
33,000 National-Oilwell Inc 255,750
43,900 Newpark Resources Inc 249,681
27,900 Peoples Energy Corp 924,188
32,100 Pogo Producing Co 383,194
62,000 Pride International Inc* 492,125
66,900 Santa Fe Energy Resources Inc* 501,750
7,500 Seacor Smit Inc* 258,750
---------
5,547,183
---------
Paper and Allied Products -- 1.9%
20,600 Boise Cascade Corp 503,413
16,500 Bowater Inc 623,906
1,500 Caraustar Industries Inc 31,875
18,700 Chesapeake Corp 612,425
41,700 Jefferson Smurfit Corp* 469,125
14,500 Louisiana Pacific Corp 273,688
15,000 Media General Inc, Class A 637,500
14,700 Pentair Inc 409,763
13,600 Potlatch Corp 447,100
16,500 Rayonier Inc 643,500
38,300 Rock-Tenn Co, Class A 421,300
54,300 Shorewood Packaging Corp 705,900
62,000 Stone Container Corp* 647,125
20,100 TJ International Inc 420,844
45,400 Unisource Worldwide Inc 300,775
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -------------------------------------------------------------------
<S> <C> <C>
Paper and Allied Products -- continued
28,200 Wausau-Mosinee Paper Corp 359,550
13,800 Westvaco Corp 289,800
---------
7,797,589
---------
Pharmaceuticals -- 1.5%
22,900 Allergan Inc 1,082,024
8,100 Amerisource Health Corp* 381,206
23,175 Bergen Brunswig Corp, Class A 790,847
62,300 ICN Pharmaceuticals Inc 957,863
53,475 Mark IV Industries Inc 758,677
17,900 Rexall Sundown Inc 326,675
37,000 Watson Pharmaceutical Inc* 1,667,312
---------
5,964,604
---------
Primary Materials -- 1.8%
14,300 Ameron Inc 544,294
19,000 Carpenter Technology Corp 687,563
39,200 Florida Rock Industries 1,080,449
16,800 Martin Marietta Materials Inc 716,100
64,000 Premark International Inc 1,691,999
23,888 Southdown Inc 1,009,268
23,700 Tupperware Corp 447,338
24,400 USG Corp 1,049,200
---------
7,226,211
---------
Primary Processing -- 1.5%
118,400 Bethlehem Steel Corp* 851,000
29,200 Birmingham Steel Corp 200,750
23,700 Citation Corp* 251,813
40,400 Inland Steel Industries Inc 765,075
38,400 LTV Corp 208,800
4,500 Maxxam Inc* 256,500
10,800 Mueller Industries Inc 276,075
63,900 National Steel Corp, Class B 431,325
15,000 NCH Corp 853,125
24,700 Oregon Steel Mills Inc 233,106
14,500 Quanex Corp 315,375
28,100 Rouge Industries Inc, Class A 217,775
38,900 Titanium Metals Corp 447,350
26,200 USX-US Steel Group Inc 548,563
9,800 Valspar Corp 325,850
---------
6,182,482
---------
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------
<S> <C> <C>
Printing and Publishing -- 0.3%
15,700 American Business Products Inc 274,750
40,500 Hollinger International Inc 567,000
7,599 Pulitzer Publishing Co 577,999
---------
1,419,749
---------
Real Estate -- 0.5%
37,200 Lennar Corp 674,250
35,600 Meditrust Corp 551,800
10,700 Parkway Properties Inc 290,238
37,000 Price Enterprises Inc 138,750
18,200 Webb (D) Corp 358,313
---------
2,013,351
---------
Refining -- 0.7%
13,400 Holly Corp 284,750
25,600 Lyondell Petro Chemical Co 552,000
20,000 Murphy Oil Corp 706,250
19,892 Ultramar Diamond Shamrock Corp 460,003
42,200 Valero Energy Corp 754,325
---------
2,757,328
---------
Retail Trade -- 8.7%
27,000 AnnTaylor Stores Corp* 656,438
45,900 Apple South Inc 527,850
20,500 Barnes & Noble Inc 554,781
76,200 Bed, Bath & Beyond Inc 1,376,362
47,600 Best Buy Co Inc* 1,874,249
18,000 Borders Group Inc* 340,875
36,400 Brinker International Inc* 623,350
17,100 Brown Group Inc 252,225
53,140 Burlington Coat Factory Warehouse 1,119,260
23,600 Casey's General Stores Inc 305,325
30,400 Cash American Investments Inc 368,600
44,400 Claire's Stores Inc 666,000
23,900 CompUSA Inc* 283,813
53,200 Cone Mills Corp 375,725
22,000 CPI Corp 442,750
31,100 Dress Barn Inc* 540,363
29,500 Eagle Hardware & Garden Inc* 630,563
55,600 Family Dollar Stores Inc 705,425
35,200 Fingerhut Cos Inc 853,600
18,800 Foodmaker Inc* 259,675
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
21,000 Fruit of the Loom Inc* 471,188
7,300 Giant Food Inc, Class A 310,250
40,300 Global Directmail Corp* 536,494
34,900 Goodys Family Clothing Inc 628,200
37,800 Gymboree Corp* 330,750
19,700 Hannaford Brothers Co 818,781
45,200 Heilig Meyers Co 514,150
70,200 Homebase Inc* 429,975
46,800 Ingles Markets Inc 514,800
37,300 Lands End Inc* 764,650
36,300 Lone Star Steakhouse and Saloon* 308,550
22,700 Longs Drug Stores Corp 774,638
34,300 Michaels Stores Inc* 806,050
49,100 Micro Warehouse Inc* 797,875
35,400 Neiman Marcus Group Inc* 860,663
52,300 NPC International Inc* 542,613
60,500 Office Depot Inc* 1,542,749
66,100 OfficeMax Inc* 694,050
49,100 Outback Steakhouse Inc* 1,476,068
41,400 Phillips Van Heusen 390,713
36,125 Proffitts Inc 921,188
32,900 Rainforest Cafe Inc 271,425
38,900 Richfood Holdings Inc 799,881
37,900 Ross Stores Inc 1,378,612
50,400 Ruby Tuesday Inc 708,750
32,500 Ruddick Corp 491,563
217,500 Service Merchandise Co* 299,063
22,800 Shopko Stores Inc* 585,675
192,200 Southland Corp* 441,464
63,500 Spiegel Inc, Class A* 230,188
17,400 St. John Knits Inc 331,688
57,400 Stein Mart Inc 509,425
33,000 The Pep Boys 484,688
52,400 Value City Department Stores Inc* 510,900
16,300 Weismarkets Inc 567,444
20,500 Zale Corp* 471,500
----------
35,273,890
----------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ----------------------------------------------------------------
<S> <C> <C>
Services -- 6.3%
42,100 Alternative Resources Corp* 268,388
9,800 Amerco* 218,050
13,200 Anchor Gaming* 633,600
62,025 Arctic Cat Inc 534,966
112,500 Aztar Corp* 485,156
27,550 Banta Corp 771,400
21,200 Berlitz International Inc* 567,100
40,400 Bowne and Co Inc 636,300
8,800 Carmike Cinemas Inc, Class A 171,600
22,600 Catalina Marketing Corp* 950,613
6,800 Chemed Corp 200,175
8,889 Chris Craft Industries Inc 370,005
54,900 Circus Circus Enterprises Inc 562,725
117,200 Dames and Moore Inc 1,391,749
44,500 Electro Rental Corp 567,375
48,400 Fleming Cos Inc 577,775
33,800 Franklin Covey Co* 633,750
71,600 Grand Casinos Inc* 626,500
48,300 Handleman Co* 310,931
68,300 Harrahs Entertainment Inc* 986,081
12,700 Interim Services Inc 260,350
39,800 Interpool Inc 490,038
34,200 Jacobs Engineering Group* 872,100
21,900 Kellwood Co 584,456
31,200 Kelly Services 799,500
66,700 KingWorld Productions Inc 1,400,699
14,150 Marcus Corp 180,413
68,000 Nash Finch Co 952,000
22,400 Norrell Corp 280,000
48,100 Oakwood Homes Corp 685,425
28,900 Ogden Corp 666,506
69,000 Olsten Corp 405,375
11,600 Primark Corp* 274,050
20,900 Promus Hotel Corp* 642,675
37,000 Rollins Truck Leasing Corp 351,500
25,100 Sbarro Inc 497,294
37,000 Servico Inc* 360,750
44,200 Spelling Entertainment Group Inc* 265,200
47,600 Station Casinos Inc* 261,800
6,500 Stone & Webster Inc 221,406
60,300 Sun Healthcare Group Inc* 527,625
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- ------------------------------------------------------------------
<S> <C> <C>
Services -- continued
61,400 Supervalu Inc 1,247,187
63,000 United Video Satellite Group Inc 960,750
17,348 United Water Resources Inc 307,927
47,500 Wolverine World Wide Inc 501,719
----------
25,460,984
17,800 Technology -- 3.5%
15,700 Advanced Micro Devices Inc* 234,738
17,700 Autodesk Inc 366,988
20,900 Avnet Inc 836,325
42,200 Beckman Coulter Inc 1,157,337
46,100 Broderbund Software Inc* 588,163
58,300 Cabletron Systems Inc 322,700
27,200 Cirrus Logic Corp* 353,444
24,900 Cognex Corp* 380,800
25,300 Cohu Inc 379,725
51,900 Data General Corp* 189,750
19,000 Datastream Systems Inc 525,488
26,400 Dionex Corp 409,688
70,800 EG & G Inc 618,750
31,700 Electroglas Inc* 761,100
36,900 Electronics For Imaging Inc* 463,613
21,800 Esterline Corp 590,400
22,500 G TECH Holdings Corp* 572,250
41,400 General Signal 826,875
17,200 MTS Systems Inc 517,500
59,000 National Computer System Inc 376,250
16,000 Novell Inc* 560,500
96,000 Storage Technology Corp* 348,000
41,500 Sybase Inc* 660,000
81,200 Synopsys Inc* 1,084,187
19,550 System Software Associates Inc* 365,400
21,800 Tektronix Inc 296,916
Veeco Intruments Inc* 493,225
----------
14,280,112
Telecommunications -- 0.8%
12,100 Adtran Inc* 260,150
27,100 Brightpoint Inc 245,594
17,600 Cablevision Systems Corp 596,200
8,400 Century Communications Corp* 195,300
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------
<S> <C> <C>
Telecommunications -- continued
31,900 Century Telephone Enterprises Inc 1,447,462
70,900 Premiere Technologies Inc* 465,281
12,100 USA Networks Inc 237,463
----------
3,447,450
----------
Textiles -- 0.8%
4,200 Crystal Brands Inc /(a)/ --
36,250 Guilford Mills 532,422
60,900 Shaw Industries Inc 921,113
24,400 Springs Industries Inc, Class A 806,725
31,700 Westpoint Stevens Inc 939,113
----------
3,199,373
----------
Transportation -- 2.9%
32,300 Airborne Freight Corp 629,850
36,450 Airline Express International Corp 624,206
100,100 Airtran Holdings Inc* 425,425
26,600 American West Holdings Corp, Class B 517,038
23,200 ASA Holdings Inc 794,600
28,300 CNF Transportation Inc 884,375
60,600 Comair Holdings Inc 1,541,512
33,100 Fleetwood Enterprises Inc 1,106,780
34,800 Gatx Corp 1,148,399
28,400 Halter Marine Group Inc 255,600
33,900 Heartland Express Inc* 542,400
34,700 Navistar International Corp* 728,700
11,900 Ryder System Inc 280,394
26,200 Tidewater Inc 550,200
23,500 US Freightways Corp 527,281
33,600 Viad Corp 697,200
26,500 Wisconsin Central Transport* 332,906
----------
11,586,866
----------
Utilities -- 10.3%
20,800 American Water Works Co 572,000
37,500 BEC Energy 1,485,937
25,000 Calenergy Inc* 635,938
15,300 Central Hudson Gas & Electric 653,119
54,100 Central Maine Power Co 943,369
6,100 Cilcorp Inc 303,856
57,327 Citizens Utilities, Class B 412,036
13,700 Cleco Corp 425,556
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
36,900 Commonwealth Energy Systems 1,116,224
95,850 Conectiv Inc 1,952,943
28,100 DQE Inc 1,002,819
26,000 Dynegy Inc 248,625
10,800 Eastern Enterprises 427,275
25,400 Eastern Utilities Associates 630,238
68,200 El Paso Electric Company* 537,075
8,100 El Paso Energy Corp 200,981
23,000 Energen Corp 359,375
68,400 Energy East Corp 3,077,999
20,000 Hawaiian Electric Industry Inc 751,250
53,200 Illinova Corp 1,373,224
19,600 MarketSpan Corp 536,550
29,900 MCN Corp 525,119
62,982 Midamerican Energy Holding Co 1,562,740
9,200 Minnesota Power & Light Co 391,575
45,900 Montana Power Co 1,790,099
39,500 Nevada Power Co 980,094
17,500 New England Electric System 706,563
175,300 Niagara Mohawk Power Corp* 2,717,149
140,300 Northeast Utilities* 2,104,499
26,800 Nui Corporation 561,125
27,600 Oneok Inc 829,725
15,500 Orange and Rockland Utilities 833,125
27,400 Potomac Electric Power Co 671,300
55,100 Public Services Co of New Mexico 1,101,999
37,800 Puget Sound Power and Light Co 949,725
42,600 Rochester Gas and Electric Corp 1,243,387
19,800 Sierra Pacific Resources 723,938
21,300 Southwest Natural Gas Corp 387,394
30,100 TNP Enterprises Inc 893,594
30,340 UniSource Energy Corp Holding Co* 394,420
14,900 United Illuminating Co 745,931
47,400 Utilicorp United Inc 1,632,337
20,800 Washington Gas Light Co 494,000
18,500 Washington Water Power 313,344
47,400 Western Gas Resources Inc 394,013
31,900 Western Resources Inc 1,285,968
-----------
41,879,552
-----------
TOTAL COMMON STOCKS (COST $465,906,242) 390,147,852
-----------
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIGHTS AND WARRANTS -- 0.0%
Oil and Gas -- 0.0%
21,200 Petrofina SA Warrants, Expires 8/05/03 91,425
------------
Printing and Publishing -- 0.0%
550 American Satellite Network Warrants expires 06/30/99 (Cost $0)(a) --
------------
TOTAL RIGHTS AND WARRANTS (COST 100,701) $ 91,425
------------
SHORT-TERM INVESTMENTS -- 12.5%
Cash Equivalents -- 7.7%
$4,746,994 BankBoston Eurodollar Time Deposit, 5.8925% due 9/1/98(c) 4,746,994
6,421,935 Merrimac Cash Fund Premium Class(c) 6,421,935
$20,000,000 Prudential Securities Group Inc, Master Note, 5.94% due 9/1/98(c) 20,000,000
------------
31,168,929
U.S. Government -- 0.1%
$ 500,000 U.S. Treasury Bill, 4.875%, due 11/12/98(d) 495,190
------------
Repurchase Agreement -- 4.7%
$19,137,325 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $19,140,079
and an effective yield of 5.18%, collateralized by a U.S.
Treasury Obligation with a rate of 5.625%, a maturity
date of 12/31/99 and a market value of $19,520,071. 19,137,325
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $50,801,379) 50,801,444
------------
TOTAL INVESTMENTS -- 108.6%
(COST $516,808,322) 441,040,721
Other Assets and Liabilities (net)-- (8.6)% (34,775,719)
------------
TOTAL NET ASSETS-- 100% $406,265,002
============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
(a) Bankrupt issuer.
(b) Valued by management (Note 1).
(c) Represents investments of security lending collateral (Note 1).
(d) Security has been segregated to cover margin requirements on
open financial futures contracts.
18 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $516,808,322) (Note 1) $441,040,721
Receivable for investments sold 9,836,024
Dividends and interest receivable 548,472
Receivable for open swap contracts (Notes 1 and 6) 239,009
Receivable for expenses waived or borne by Manager (Note 2) 86,068
Receivable for Fund shares sold 85,522
------------
Total assets 451,835,816
------------
Liabilities:
Payable for investments purchased 13,694,801
Payable upon return of securities loaned (Note 1) 31,168,929
Payable for Fund shares repurchased 70,350
Payable to affiliate for (Note 2):
Management fee 198,954
Shareholder service fee 56,108
Payable for variation margin on open futures contracts (Notes 1 and 6) 294,268
Accrued expenses 87,404
------------
Total liabilities 45,570,814
------------
Net assets $406,265,002
============
Net assets consist of:
Paid-in capital $400,343,307
Accumulated undistributed net investment income 938,851
Accumulated undistributed net realized gain 81,889,477
Net unrealized depreciation (76,906,633)
------------
$406,265,002
============
Net assets attributable to:
Class III shares $406,265,002
============
Shares outstanding:
Class III 31,312,621
============
Net asset value per share:
Class III $ 12.97
============
</TABLE>
See accompanying notes to the financial statements. 19
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $4,974) $ 3,948,138
Interest (including securities lending income of $127,037) 637,260
-------------
Total income 4,585,398
-------------
Expenses:
Management fee (Note 2) 1,589,429
Custodian and transfer agent fees 92,645
Audit fees 19,970
Legal fees 7,657
Trustees fees (Note 2) 3,036
Registration fees 1,150
Miscellaneous 2,677
Fees waived or borne by Manager (Note 2) (667,542)
-------------
1,049,022
Shareholder service fee (Note 2)
Class III 476,829
-------------
Net expenses 1,525,851
-------------
Net investment income 3,059,547
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 86,087,523
Closed futures contracts (2,944,625)
-------------
Net realized gain 83,142,898
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (192,831,000)
Open futures contracts (1,493,469)
Open swap contracts 239,009
-------------
Net unrealized loss (194,085,460)
-------------
Net realized and unrealized loss (110,942,562)
-------------
Net decrease in net assets resulting from operations $(107,883,015)
=============
</TABLE>
20 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
August 31, 1998 February 28,
(Unaudited) 1998
---------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,059,547 $ 11,043,966
Net realized gain 83,142,898 117,624,535
Change in net unrealized appreciation (depreciation) (194,085,460) 89,479,085
------------ -------------
Net increase (decrease) in net assets resulting from (107,883,015) 218,147,586
operations ------------ -------------
Distributions to shareholders from:
Net investment income
Class I -- (26,599)
Class III (3,529,017) (11,940,475)
------------ -------------
Total distributions from net investment income (3,529,017) (11,967,074)
------------ -------------
Net realized gains
Class I -- (323,423)
Class III (47,366,098) (97,888,562)
------------ -------------
Total distributions from net realized gains (47,366,098) (98,211,985)
------------ -------------
(50,895,115) (110,179,059)
------------ -------------
Net share transactions: (Note 5)
Class I -- (1,301,006)
Class III (204,569,154) 6,180,752
------------ -------------
Increase (decrease) in net assets resulting from net (204,569,154) 4,879,746
share transactions ------------ -------------
Total increase (decrease) in net assets (363,347,28) 112,848,273
Net assets:
Beginning of period 769,612,286 656,764,013
------------ -------------
End of period (including accumulated undistributed net
investment income of $938,851 and $1,408,321, $406,265,002 $ 769,612,286
respectively) ============ =============
</TABLE>
See accompanying notes to the financial statements.
21
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Period from January 2, 1997
March 1, 1997 (commencement of operations)
to January 9, 1998 to February 28, 1997
------------------ ----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.89 $ 15.34
------- -------
Income from investment operations:
Net investment income 0.22+ 0.05
Net realized and unrealized gain 3.00 0.50
------- -------
Total from investment operations 3.22 0.55
------- -------
Less distributions to shareholders:
From net investment income (0.27) --
From net realized gains (2.44) --
------- -------
Total distributions (2.71) --
------- -------
Net asset value, end of period $ 16.40(c) $ 15.89
======= =======
Total Return (a) 20.55% 3.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 1,391
Net expenses to average daily net assets 0.61%* 0.61%*
Net investment income to average daily net 1.45%* 1.87%*
assets
Portfolio turnover rate 56% 58%
Average broker commission rate per equity $0.0305 $0.0271
share
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.03 (b)
per share amounts:
</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.
(c) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
+ Computed using average shares outstanding throughout the period.
* Annualized.
22 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
Six Months Ended Year Ended February 28/29,
August 31, 1998 ----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 18.28 $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68
-------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.10 0.27 0.28 0.23 0.20 0.21
Net realized and unrealized
gain (loss) (3.66) 4.85 2.32 3.20 0.34 2.14
-------- -------- -------- -------- ------- -------
Total from investment
operations (3.56) 5.12 2.60 3.43 0.54 2.35
-------- -------- -------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.10) (0.29) (0.27) (0.23) (0.20) (0.22)
From net realized gains (1.65) (2.44) (0.33) (2.92) (1.04) (0.50)
-------- -------- -------- -------- ------- -------
Total distributions (1.75) (2.73) (0.60) (3.15) (1.24) (0.72)
-------- -------- -------- -------- ------- -------
Net asset value, end of period $ 12.97 $ 18.28 $ 15.89 $ 13.89 $ 13.61 $ 14.31
======== ======== ======== ======== ======= =======
Total Return (a) (21.61)% 34.43% 19.12% 27.18% 4.48% 18.97%
Ratios/Supplemental Data:
Net assets, end of period (000's) $406,265 $769,612 $655,373 $231,533 $235,781 $151,286
Net expenses to average daily
net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to
average daily net assets 0.96%* 1.51% 2.15% 1.67% 1.55% 1.66%
Portfolio turnover rate 23% 56% 58% 135% 54% 30%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.02 $ 0.04 $ 0.03 $ 0.02 $ 0.01 $ 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.
* Annualized.
See accompanying notes to the financial statements. 23
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
1. Significant accounting policies
GMO Small Cap Value Fund (the "Fund"), is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term growth of capital 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares ceased
operations and all shares were exchanged for Class III shares, and Class II
shares ceased to be offered. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on 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 entering into a futures contract, the
Fund is required to deposit
24
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
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 as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund
loaned securities having a market value of $29,747,156, collateralized by
cash in the amount of $31,168,929, 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. The Fund also enters into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
25
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there 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, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
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.
26
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Purchases and redemptions of fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. Purchase
premiums are included as part of "shares sold" and redemption fees are
included as part of "shares repurchased", respectively, as summarized in
Note 5. For the six months ended August 31, 1998, the Fund received
$111,145 in purchase premiums and $906,305 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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $3,036. 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, 1998,
aggregated $138,239,110 and $389,101,788, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments were as
follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
$ 516,808,322 $28,900,016 $104,667,617 $75,767,601
</TABLE>
4. Principal shareholder
At August 31, 1998, 12.2% of the outstanding shares of the Fund were held
by one shareholder.
27
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from
March 1, 1997
Class I: to January 9, 1998
--------------------------
Shares Amount
---------- -----------
<S> <C> <C> <C> <C>
Shares sold 55,930 $ 1,050,044
Shares issued to shareholders
in reinvestment of distributions 20,915 350,022
Shares repurchased (164,410) (2,701,072)
-------- ------------
Net decrease (87,565) $ (1,301,006)
======== ============
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
---------------------------- ---------------------------
Shares Amount Shares Amount
----------- ------------- ----------- ------------
Shares sold 1,206,197 $ 22,229,042 8,025,013 $137,024,478
Shares issued to shareholders
in reinvestment of distributions 2,885,397 48,729,516 6,187,157 103,690,318
Shares repurchased (14,875,558) (275,527,712) (13,350,357) (234,534,044)
----------- ------------- ----------- ------------
Net increase (decrease) (10,783,964) $(204,569,154) 861,813 $ 6,180,752
=========== ============= =========== ============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contract
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C>
27 Russell 2000 September 1998 $4,542,750 $ 1,378,041
===========
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
28
<PAGE>
GMO Small Cap Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- ---------------------------------------------------------------------------
Swap agreement
<TABLE>
<CAPTION>
Net
Expiration Unrealized
Notional Amount Date Description Appreciation
- ------------------- ----------- ------------------------------------------- --------------
<S> <C> <C> <C>
$15,903,135/ 7/16/99 Agreement with Lehman Brothers Finance S.A. $ 239,009
16,030,753 dated 7/16/98 to pay (receive) the notional
amount multiplied by the return on the
Standard & Poor's 500 Index (including
dividends) less the notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread and to receive (pay) the
change in market value of a basket of
selected securities (including dividends)
less the counterparty's notional amount
multiplied by 3 month LIBOR adjusted by a
specified spread.
--------------
$ 239,009
==============
</TABLE>
29
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
--------------------------------------------------------------------------------------------------
<C> <S> <C>
DEBT OBLIGATIONS -- 94.9%
Asset Backed Securities -- 46.9%
$ 284,525 Americredit Automobile Receivables Trust Series 96-B Class
A, 6.50%, due 1/12/02 285,725
2,100,000 Brazos Student Loan Finance Corp Series 96-A4,
Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.22%,
due 12/01/02 2,094,750
3,000,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.79%, due 10/16/06 2,999,100
148,150 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 11/15/03 148,150
1,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.88%, due 10/15/06 1,000,469
5,500,000 Health Care Receivables Securitization Program 96-1 Class
A, 144A, 7.20%, due 7/01/00 5,563,249
2,000,000 Starvest Emerging Markets CBO-I Series 1A,
Variable Rate, 6 mo. LIBOR + .19% 144A, 5.94%, due
7/30/11 1,972,813
-----------
14,064,256
-----------
Structured Notes -- 1.7%
500,000 Polaris Funding Company,
Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 1/07/05 500,000
-----------
U.S. Government -- 12.0%
3,500,000 U.S. Treasury Note, 7.75%, due 11/30/99 3,609,375
-----------
U.S. Government Agency -- 34.3%
338,333 Agency for International Development Floater (Support of
Botswana), Variable Rate, 6 mo. U.S. Treasury
Bill + .40%, 5.54%, due 10/01/12 335,373
2,175,075 Agency for International Development Floater (Support of
C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury
Bill + .40%, 5.54%, due 10/01/12 2,164,200
2,250,495 Agency for International Development Floater (Support of
Honduras), Variable Rate, 3 mo. U.S. Treasury
Bill x 117%, 5.85%, due 10/01/11 2,244,869
95,844 Agency for International Development Floater (Support of
Peru), Series B, Variable Rate, 6 mo. U.S. Treasury
Bill + .35%, 5.49%, due 5/01/14 95,200
1,000,000 Federal Farm Credit Bank,
Variable Rate, CPI + 3.00%, 4.68%, due 2/14/02 957,500
4,455,763 Small Business Administration Pool #502320,
Variable Rate, Prime - 2.18%, 6.31%, due 8/25/18 4,482,498
-----------
10,279,640
-----------
TOTAL DEBT OBLIGATIONS (COST $28,425,813) 28,453,271
-----------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Schedule of Investments--(Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 5.7%
Repurchase Agreement -- 5.7%
$1,697,000 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $1,697,241
and an effective yield of 5.18%, collateralized by a U.S.
Treasury Obligation with a rate of 5.625%, maturity date of
12/31/99 and market value of $1,730,940. 1,697,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,697,000) 1,697,000
-----------
TOTAL INVESTMENTS -- 100.6%
(Cost $30,122,813) 30,150,271
Other Assets and Liabilities (net) -- (0.6)% (177,957)
-----------
TOTAL NET ASSETS -- 100% $29,972,314
===========
Notes to the Schedule of Investments:
Variable rates - The rates shown on variable rate notes are
the current interest rates at August 31, 1998, 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $30,122,813) (Note 1) $30,150,271
Cash 347
Receivable for investments sold 9,311
Receivable for Fund shares sold 51,632
Interest receivable 338,562
Receivable for expenses waived or borne by Manager (Note 2) 8,422
-----------
Total assets 30,558,545
-----------
Liabilities:
Payable for Fund shares repurchased 560,000
Payable to affiliate for (Note 2):
Management fee 6,421
Shareholder service fee 3,852
Accrued expenses 15,958
-----------
Total liabilities 586,231
-----------
Net assets $29,972,314
===========
Net assets consist of:
Paid-in capital $29,683,235
Accumulated undistributed net investment income 289,431
Accumulated net realized loss (27,810)
Net unrealized appreciation 27,458
===========
$29,972,314
===========
Shares outstanding 3,062,191
===========
Net asset value per share $ 9.79
===========
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest $995,659
--------
Total income 995,659
--------
Expenses:
Management fee (Note 2) 42,906
Audit fees 13,335
Custodian and transfer agent fees 4,955
Registration fees 1,568
Legal fees 464
Trustees fees (Note 2) 183
Miscellaneous 184
Fees waived or borne by Manager (Note 2) (54,990)
--------
8,605
Shareholder service fee (Note 2) 25,726
--------
Net expenses 34,331
--------
Net investment income 961,328
--------
Realized and unrealized loss:
Net realized loss on investments (23,743)
--------
Change in net unrealized appreciation (depreciation) on investments (30,567)
--------
Net realized and unrealized loss (54,310)
--------
Net increase in net assets resulting from operations $907,018
========
</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, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 961,328 $ 2,685,861
Net realized gain (loss) (23,743) 13,827
Change in net unrealized appreciation (depreciation) (30,567) 110,882
----------- -----------
Net increase in net assets resulting from operations 907,018 2,810,570
----------- -----------
Distributions to shareholders from:
Net investment income (982,505) (2,703,434)
----------- -----------
Fund share transactions: (Note 5)
Proceeds from sale of shares 6,752,830 40,588,732
Net asset value of shares issued to shareholders in
payment of distributions declared 826,399 1,868,584
Cost of shares repurchased (14,908,180) (46,124,637)
----------- -----------
Net decrease in net assets resulting from Fund share
transactions (7,328,951) (3,667,321)
----------- -----------
Total decrease in net assets (7,404,438) (3,560,185)
Net assets:
Beginning of period 37,376,752 40,936,937
----------- -----------
End of period (including accumulated undistributed net
investment income of $289,431 and $310,608,
respectively) $29,972,314 $37,376,752
=========== ===========
</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, 1998 ----------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 9.81 $ 9.78 $ 9.77 $ 9.56 $ 9.79 $10.05
------- ------- ------- ------- ------ ------
Income from investment operations:
Net investment income 0.30 0.55 0.47 0.57 0.63 0.44
Net realized and unrealized
gain (loss) (0.04) 0.03 0.06 0.20 (0.28) (0.09)
------- ------- ------- ------- ------ ------
Total from investment
operations 0.26 0.58 0.53 0.77 0.35 0.35
------- ------- ------- ------- ------ ------
Less distributions to shareholders:
From net investment income (0.28) (0.55) (0.52) (0.56) (0.58) (0.46)
From net realized gains -- -- -- -- -- (0.15)
------- ------- ------- ------- ------ -------
Total distributions (0.28) (0.55) (0.52) (0.56) (0.58) (0.61)
------- ------- ------- ------- ------ ------
Net asset value, end of period $ 9.79 $ 9.81 $ 9.78 $ 9.77 $ 9.56 $ 9.79
======= ======= ======= ======= ====== ======
Total Return/(a)/ 2.74% 6.10% 5.62% 8.32% 3.78% 3.54%
Ratios/Supplemental Data:
Net assets, end of period (000's) $29,972 $37,377 $40,937 $11,066 $8,193 $8,095
Net expenses to average daily
net assets 0.20%* 0.20% 0.20% 0.25% 0.25% 0.25%
Net investment income to
average daily net assets 5.61%* 5.73% 5.88% 6.49% 5.02% 4.35%
Portfolio turnover rate 28% 50% 287% 139% 335% 243%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share amounts: $ 0.02 $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.02
</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
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Short Term Income Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on
June 24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares.
The Fund seeks 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 or other persons acting
at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
7
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults, the value of
the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Security lending
The Fund may lend its securities to certain 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, 1998, the Fund had no securities on loan.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
8
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts and amortization of premiums. In determining the net gain or loss
on securities sold, the cost of securities is determined on the identified
cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of the Fund at the annual rate of .15%.
GMO has 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $183. 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, 1998, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 4,170,112 $ 4,198,869
Investments (non-U.S. Government
securities) 4,502,853 7,296,733
</TABLE>
9
<PAGE>
GMO Short-Term Income Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
----------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
$ 30,122,813 $ 77,194 $ 49,736 $ 27,458
</TABLE>
4. Principal shareholders
At August 31, 1998, 45.8% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
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, 1998 February 28, 1998
------------------- -------------------
<S> <C> <C>
Shares sold 690,737 4,145,609
Shares issued to shareholders in
reinvestment of distributions 85,144 192,315
Shares repurchased (1,524,473) (4,714,947)
------------------- -------------------
Net decrease (748,592) (377,023)
Fund shares:
Beginning of period 3,810,783 4,187,806
------------------- -------------------
End of period 3,062,191 3,810,783
=================== ===================
</TABLE>
10
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS -- 100.0%
191,345 GMO Currency Hedged International Core Fund 1,903,889
233,490 GMO Emerging Country Debt Fund 1,347,239
273,080 GMO Emerging Markets Fund 1,444,591
243,148 GMO Evolving Countries Fund 1,111,186
135,931 GMO Growth Fund 489,351
99,462 GMO Inflation Indexed Bond Fund 1,016,500
90,518 GMO International Bond Fund 922,378
295,052 GMO International Core Fund 6,095,780
47,703 GMO International Small Companies Fund 523,779
305,792 GMO REIT Fund 2,926,425
249,482 GMO Small Cap Growth Fund 2,237,857
182,584 GMO Small Cap Value Fund 2,369,946
166,008 GMO U.S. Bond/Global Alpha A Fund 1,743,080
745,097 GMO U.S. Core Fund 12,361,162
156,340 GMO Value Fund 1,757,261
-----------
TOTAL MUTUAL FUNDS (COST $47,750,060) 38,250,424
-----------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreement -- 0.0%
$ 11,286 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $11,288 and an
effective yield of 5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 11.25%, maturity date of 2/15/15
and market value of $11,512. 11,286
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $11,286) 11,286
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $47,761,346) 38,261,710
Other Assets and Liabilities (net) -- 0.0% (10,021)
-----------
TOTAL NET ASSETS -- 100% $38,251,689
===========
</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, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Assets:
Investments, at value (cost $47,761,346) (Note 1) $38,261,710
Receivable for expenses waived or borne by Manager (Note 2) 1,801
-----------
Total assets 38,263,511
-----------
Liabilities:
Accrued expenses 11,822
-----------
Total liabilities 11,822
-----------
Net assets $38,251,689
===========
Net assets consist of:
Paid-in capital $45,549,190
Accumulated undistributed net investment income 213,325
Accumulated undistributed net realized gain 1,988,810
Net unrealized depreciation (9,499,636)
===========
$38,251,689
===========
Net assets attributable to:
Class III shares $38,251,689
===========
Shares outstanding:
Class III 4,513,182
===========
Net asset value per share:
Class III $ 8.48
===========
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, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Investment Income:
Dividends from investment company shares $ 212,329
Interest 996
------------
Total income 213,325
------------
Expenses:
Audit fees 7,912
Custodian and transfer agent fees 5,060
Registration fees 3,175
Legal fees 644
Trustees fees (Note 2) 184
Miscellaneous 184
Fees waived or borne by Manager (Note 2) (17,159)
------------
Net expenses --
------------
Net investment income 213,325
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 23,804
Realized gain distributions from investment company shares 2,674,381
------------
Net realized gain 2,698,185
------------
Change in net unrealized appreciation (depreciation) on
investments (10,280,074)
------------
Net realized and unrealized loss (7,581,889)
------------
Net decrease in net assets resulting from operations $(7,368,564)
============
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
- -------------------------------------------------------------------------------
Six Months
Ended Year Ended
August 31, 1998 February 28,
(Unaudited) 1998
---------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 213,325 $ 935,912
Net realized gain 2,698,185 6,464,770
Change in net unrealized appreciation
(depreciation) (10,280,074) 402,806
------------ -----------
Net increase (decrease) in net assets
resulting from operations (7,368,564) 7,803,488
------------ -----------
Distributions to shareholders from:
Net investment income
Class I -- (27,511)
Class III -- (908,401)
------------ -----------
Total distributions from net
investment income -- (935,912)
------------ -----------
In excess of net investment income
Class I -- (92)
Class III -- (3,044)
------------ -----------
Total distributions in excess of
net investment income -- (3,136)
------------ -----------
Net realized gains
Class I -- (175,698)
Class III (1,826,116) (5,674,854)
------------ -----------
Total distributions from net
realized gains (1,826,116) (5,850,552)
------------ -----------
(1,826,116) (6,789,600)
------------ -----------
Net share transactions: (Note 5)
Class I -- 138,452
Class III 2,345,369 13,162,081
------------ -----------
Increase in net assets resulting from
net share transactions 2,345,369 13,300,533
------------ -----------
Total increase (decrease) in net
assets (6,849,311) 14,314,421
Net assets:
Beginning of period 45,101,000 30,786,579
------------ -----------
End of period (including accumulated
undistributed net investment
income of $213,325 and $0,
respectively) $ 38,251,689 $45,101,000
============ ===========
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)
- --------------------------------------------------------------------------------
Period from
April 30, 1997
(commencement of
operations) to
January 9, 1998
----------------------
Net asset value, beginning of period $10.24
------
Income from investment operations:
Net investment income/(b)/ 0.25+
Net realized and unrealized gain 0.93
------
Total from investment operations 1.18
------
Less distributions to shareholders:
From net investment income (0.26)
In excess of net investment income --/(d)/
From net realized gains (1.65)
------
Total distributions (1.91)
------
Net asset value, end of period $ 9.51/(c)/
======
Total Return/(a)/ 11.04%
Ratios/Supplemental Data:
Net assets, end of period (000's) --
Net expenses to average daily net assets .13%*
Net investment income to average daily net assets/(b)/ 3.18%*
Portfolio turnover rate 32%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.01
/(a)/ Calculation excludes purchase premiums and redemption fees. The total
return would have been lower had certain expenses not been waived during
the period shown.
/(b)/ Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
/(c)/ All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
/(d)/ The per share distribution in excess of net investment income was $0.0008.
+ Computed using average shares outstanding throughout the period.
* 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>
Six Months Ended Year Ended February 28,
August 31, 1998 --------------------------
(Unaudited) 1998 1997*
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.48 $ 10.30 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income/(a)/ 0.05 0.26+ 0.12
Net realized and unrealized gain (loss) (1.64) 1.83 0.38
---------- ---------- ----------
Total from investment operations (1.59) 2.09 0.50
---------- ---------- ----------
Less distributions to shareholders:
From net investment income -- (0.26) (0.12)
In excess of net investment income -- --/(c)/ --
From net realized gains (0.41) (1.65) (0.08)
---------- ---------- ----------
Total distributions (0.41) (1.91) (0.20)
---------- ---------- ----------
Net asset value, end of period $ 8.48 $ 10.48 $ 10.30
========== ========== ==========
Total Return/(b)/ (16.00)% 21.86% 5.09%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 38,252 $ 45,101 $ 30,787
Net expenses to average daily net assets 0.00%** 0.00% 0.00%**
Net investment income to average daily
net assets/(a)/ 0.90%** 2.39% 3.21%**
Portfolio turnover rate 9% 32% 10%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: /(d)/ $ 0.01 $ 0.01
</TABLE>
/(a)/ Recognition of net investment income is affected by the timing of the
declaration of dividends by the underlying funds in which the fund
invests.
/(b)/ Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
/(c)/ The per share distribution in excess of net investment income was $0.0009.
/(d)/ Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Period from November 26, 1996 (commencement of operations) to February
28, 1997.
** Annualized.
+ Computed using average shares outstanding throughout the period.
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
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global (U.S.+) Equity Allocation Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares ceased
operations and all shares were exchanged for Class III shares, and Class II
shares ceased to be offered. 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
7
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
default by the seller. Collateral for certain tri-party agreements is held
at the counterparty's custodian in a segregated account for the benefit of
the Fund and the counterparty. In connection with transactions in
repurchase agreements, if the seller defaults and the value of the
collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. 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 -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 by the Fund as paid-in capital.
Purchase premiums are included as part of each class' "shares sold" and
redemption fees are included as part of each class' "shares repurchased",
respectively, as summarized in Note 5. For the six months ended August 31,
1998, the Fund received $15,793 in purchase premiums and $2,576 in
redemption fees. There is no premium for reinvested distributions or
in-kind transactions.
Investment risk
The Fund is subject to the investment risk associated with an investment in
the underlying funds, some of which may invest in foreign securities. There
are certain additional risks involved in investing in foreign securities
that are not inherent in investments in domestic securities. These risks
may involve adverse political and economic developments 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. The
risks described above apply to an even greater extent to investments in
emerging markets. The securities markets of emerging countries are
generally smaller, less developed, less liquid, and more volatile than the
securities markets of the U.S. and developed foreign markets.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests. The Fund has adopted a Shareholder Service Plan under which the
Fund pays GMO a shareholder service fee for client and shareholder service,
reporting and other support. No shareholder service fee is charged for
Class III shares.
GMO has agreed to reimburse all expenses directly incurred by the Fund
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, 1998 was $184. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
9
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $7,346,013 and $3,942,001, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------------- -------------------- ------------------- ------------------
<S> <C> <C> <C>
$ 47,761,346 $ 27,266 $ 9,526,902 $ 9,499,636
</TABLE>
4. Principal shareholders
At August 31, 1998, 44.2% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
10
<PAGE>
GMO Global (U.S.+) Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from April 30, 1997
(commencement of operations)
Class I: to January 9, 1998
--------------------------------
Shares Amount
-------------- -----------------
<S> <C> <C>
Shares sold 107,248 $ 1,151,341
Shares issued to shareholders
in reinvestment of distributions 20,607 203,301
Shares repurchased (127,855) (1,216,190)
============== =================
Net increase -- $ 138,452
============== =================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
-------------------------------- --------------------------------
Shares Amount Shares Amount
-------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares sold 306,326 $ 3,360,148 1,472,906 $ 15,143,599
Shares issued to shareholders
in reinvestment of
distributions 67,103 699,882 192,315 1,900,758
Shares repurchased (161,735) (1,714,661) (352,601) (3,882,276)
-------------- ---------------- -------------- -----------------
Net increase 211,694 $ 2,345,369 1,312,620 $ 13,162,081
============== ================ ============== =================
</TABLE>
11
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value ($)/
Shares Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS-- 99.9%
225,820 GMO REIT Fund 2,161,097
151,581 GMO Small Cap Growth Fund 1,359,682
109,748 GMO Small Cap Value Fund 1,424,535
612,718 GMO U.S. Core Fund 10,164,989
------------
TOTAL MUTUAL FUNDS (COST $17,741,615) 15,110,303
------------
SHORT-TERM INVESTMENTS -- 0.3%
Repurchase Agreement -- 0.3%
$35,593 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $35,599 and an
effective yield of 5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 11.25%, maturity date of 2/15/15
and an aggregate market value of $36,305. 35,593
------------
TOTAL SHORT-TERM INVESTMENTS (COST $35,593) 35,593
------------
TOTAL INVESTMENTS -- 100.2%
(COST $17,777,208) 15,145,896
Other Assets and Liabilities (net)-- (0.2)% (24,747)
------------
TOTAL NET ASSETS-- 100% $15,121,149
============
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities --August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $17,777,208) (Note 1) $15,145,896
Receivable for expenses waived or borne by Manager (Note 2) 8,216
-----------
Total assets 15,154,112
-----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 7,137
Shareholder service fee 1,486
Accrued expenses 24,340
-----------
Total liabilities 32,963
-----------
Net assets $15,121,149
===========
Net assets consist of:
Paid-in capital $14,552,529
Accumulated undistributed net investment income 233,220
Accumulated undistributed net realized gain 2,966,712
Net unrealized depreciation (2,631,312)
===========
$15,121,149
===========
Net assets attributable to:
Class III shares $15,121,149
===========
Shares outstanding:
Class III 3,066,018
===========
Net asset value per share:
Class III $ 4.93
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends from investment company shares $ 232,863
Interest 459
-----------
Total income 233,322
-----------
Expenses:
Management fee (Note 2) 78,656
Audit fees 7,636
Custodian and transfer agent fees 7,420
Registration fees 1,918
Legal fees 480
Trustees fees (Note 2) 96
Miscellaneous 96
Fees waived or borne by Manager (Note 2) (96,302)
-----------
Shareholder service fee (Note 2)
Class III 102
-----------
Net expenses 102
-----------
Net investment income 233,220
-----------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 2,232,201
Realized gain distributions from investment company shares 1,226,029
-----------
Net realized gain 3,458,230
-----------
Change in net unrealized appreciation (depreciation) on
investments (3,546,829)
Net realized and unrealized loss (88,599)
-----------
Net increase in net assets resulting from operations $ 144,621
===========
</TABLE>
See accompanying notes to the financial statements. 3
<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, 1998 February 28,
(Unaudited) 1998
---------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 233,220 $ 4,417,706
Net realized gain 3,458,230 53,759,388
Change in net unrealized appreciation (depreciation) (3,546,829) (14,779,902)
------------- -------------
Net increase in net assets resulting from operations 144,621 43,397,192
------------- -------------
Distributions to shareholders from:
Net investment income
Class I -- (46,918)
Class III -- (5,767,909)
------------- -------------
Total distributions from net investment income -- (5,814,827)
------------- -------------
In excess of net investment income
Class I -- (1,635)
Class III -- (201,027)
------------- -------------
Total distributions in excess of net investment -- (202,662)
income
------------- -------------
Net realized gains
Class I -- (878,317)
Class III (6,069,104) (95,593,791)
------------- -------------
Total distributions from net realized gains (6,069,104) (96,472,108)
------------- -------------
(6,069,104) (102,489,597)
------------- -------------
Net share transactions: (Note 5)
Class I -- (661,857)
Class III (49,777,206) (97,490,425)
------------- -------------
Decrease in net assets resulting from net share
transactions (49,777,206) (98,152,282)
------------- -------------
Total decrease in net assets (55,701,689) (157,244,687)
Net assets:
Beginning of period 70,822,838 228,067,525
------------- -------------
End of period (including accumulated undistributed net
investment income of $233,220 and $0, respectively) $ 15,121,149 $ 70,822,838
============= =============
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from Period from September 3, 1996
March 1, 1997 to (commencement of operations)
January 9, 1998 to February 28, 1997
---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $13.03 $ 11.78
------- --------
Income from investment operations:
Net investment income 0.27+ 0.12
Net realized and unrealized gain 1.78 2.10
------- --------
Total from investment operations 2.05 2.22
------- --------
Less distributions to shareholders:
From net investment income (0.39) (0.09)
In excess of net investment income (0.01) --
From net realized gains (6.99) (0.88)
------- --------
Total distributions (7.39) (0.97)
------- --------
Net asset value, end of period $ 7.69(a) $ 13.03
======= ========
Total Return (b) 16.80% 19.25%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 1,357
Net expenses to average daily net assets 0.38%* 0.61%*
Net investment income to average daily net assets 2.67%* 1.97%*
Portfolio turnover rate 150% 104%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.04 $ 0.01
</TABLE>
+ Computed using average shares outstanding throughout the period.
* Annualized.
(a) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(b) 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. 5
<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, 1998 ---------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
--------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.53 $13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38
-------- ------- -------- -------- -------- --------
Income from investment operations:
Net investment income (c) 0.08 0.29+ 0.26 0.29 0.28 0.29
Net realized and unrealized
gain (loss) (0.76) 2.61 2.20 3.90 0.49 1.21
-------- ------- -------- -------- -------- --------
Total from investment
operations (0.68) 2.90 2.46 4.19 0.77 1.50
-------- ------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.40) (0.22) (0.29) (0.27) (0.30)
In excess of net
investment income -- (0.01) -- -- -- --
From net realized gains (2.92) (6.99) (2.84) (1.33) (0.70) (0.32)
-------- ------- -------- -------- -------- --------
Total distributions (2.92) (7.40) (3.06) (1.62) (0.97) (0.62)
-------- ------- -------- -------- -------- --------
Net asset value, end
of period $ 4.93 $ 8.53 $ 13.03 $ 13.63 $ 11.06 $ 11.26
======== ======= ======== ======== ======== ========
Total Return (a) (14.77)% 29.61% 20.88% 38.90% 7.56% 14.64%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $15,121 $70,823 $226,711 $211,319 $207,291 $167,028
Net expenses to average
daily net assets (b) 0.00%* 0.27% 0.48% 0.48% 0.48% 0.48%
Net investment income to
average daily net 1.45%* 2.53% 1.99% 2.27% 2.61% 2.56%
assets (c)
Portfolio turnover rate 5% 150% 104% 84% 101% 53%
Fees and expenses
voluntarily waived or
borne by the Manager
consisted of the
following per share
amounts: $ 0.03 $ 0.04 $ 0.02 $ 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) On August 20, 1997, the Fund revised its voluntary expense waiver. See Note
2
(c) 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 U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Sector Fund (the "Fund") is a series of GMO Trust (the "Trust").
The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end, non-diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares ceased
operations and all shares were exchanged for Class III shares, and Class II
shares ceased to be offered. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Shares of underlying Funds are valued at their net asset value as reported
on each business day. Portfolio securities listed on a securities exchange
for which market quotations are available are valued at the last quoted
sale price on each business day, or if there is no such reported sale, at
the most recent quoted bid price. Unlisted securities for which market
quotations are readily available are valued at the most recent quoted bid
price. Short-term investments with a remaining maturity of sixty days or
less are valued at amortized cost which approximates market value. 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
7
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
that the market value of the underlying assets remains sufficient to
protect the Fund in the event of default by the seller. Collateral for
certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the Fund and the
counterparty. In connection with transactions in repurchase agreements, if
the seller defaults and the value of the collateral declines or if the
seller enters insolvency proceedings, realization of collateral by the Fund
may be delayed or limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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. Dividends representing a return
of capital are reflected as a reduction of cost.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated 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. 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).
8
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 by the
Fund as paid-in capital. Purchase premiums are included as part of each
class' "shares sold" as summarized in Note 5. For the six months ended
August 31, 1998, the Fund received no 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .15% for Class III
shares. The Fund will invest in Class III shares of each underlying Fund
being offered. Like the management fee (as described below), the
shareholder service fee will be waived (but not below zero) to the extent
of the indirect shareholder service fees paid in connection with the Fund's
investment in shares of underlying Funds.
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. 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.
For the six months ended August 31, 1998, operating expenses (excluding
shareholder service fees and fund expenses) incurred indirectly by the Fund
were 0.36% 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, 1998 was $96. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
9
<PAGE>
GMO U.S. Sector Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $1,599,135 and $56,001,905, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
$17,777,208 $0 $2,631,312 $2,631,312
</TABLE>
4. Principal shareholder
At August 31, 1998, 74.3% of the outstanding shares of the Fund were held
by one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997
Class I: to January 9, 1998
------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 9,272 $ 102,631
Shares issued to shareholders
in reinvestment of
distributions 104,677 926,870
Shares repurchased (218,098) (1,691,358)
============== =============
Net decrease (104,149) $ (661,857)
============== =============
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
------------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold $ -- 1,374,373 $ 15,598,383
Shares issued to shareholders
in reinvestment of distributions 986,846 6,069,104 10,762,767 97,835,045
Shares repurchased (6,220,374) (55,846,310) (21,232,535) (210,923,853)
========= ============= ========== ==============
Net decrease (5,233,528) $ (49,777,206) (9,095,395) $ (97,490,425)
========= ============= ========== ==============
</TABLE>
10
<PAGE>
GMO Small Cap Growth Fund
(A Series Of Gmo Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments
(Showing Percentage of Total Net Assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.4%
Advertising -- 0.2%
19,500 Snyder Communications Inc 587,438
-----------
Aerospace -- 0.6%
15,100 AAR Corp 334,088
15,100 Cordant Technologies Inc 537,938
28,400 Orbital Sciences Corp * 532,500
-----------
1,404,526
-----------
Automotive -- 0.9%
14,600 Arvin Industries Inc 551,150
37,800 Meritor Automotive Inc 670,950
16,500 National R.V. Holdings Inc 325,875
21,000 United Automotive Group Inc 279,563
28,200 Wabash National Corp 447,675
-----------
2,275,213
-----------
Banking and Financial Services -- 6.2%
25,000 Americredit 623,438
17,400 Amresco Inc * 215,325
7,920 BOK Financial Corporation 340,560
3,200 Carolina First Corp 66,000
7,700 Commerce Bancorp Inc 270,463
16,200 Dime Bancorp Inc 307,800
18,400 Downey Financial Corp 424,350
13,700 Eaton Vance Corp 544,575
17,400 Financial Security Assurance Holdings Ltd 859,125
2,200 First Citizens Bancshares, Class A 183,700
18,600 First Federal Financial Corp 274,350
14,100 FirstBank Puerto Rico 336,638
3,400 Fund American Enterprises Holdings 435,200
31,700 Golden State Bancorp 503,238
16,800 Jefferies Group Inc 479,850
18,033 Legg Mason Inc 856,568
14,000 Metris Companies Inc 826,000
11,600 National Bancorp of Alaska Inc 350,900
85,400 National Commerce Bancorp 1,430,449
41,450 Northfork Bancorp 787,550
14,000 Park District National Corp 1,336,999
1,500 Queens County Bancorp Inc 53,250
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(Showing Percentage of Total Net Assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services -- Continued
33,400 Raymond James Financial Corp 574,063
4,700 Resource Bancshares Mortgage Group Inc 74,025
20,300 Ryland Group Inc 400,925
17,700 SEI Investments Co 1,101,824
6,700 Sumitomo Bank Of California 252,925
33,200 The Trust Company of N. J. 784,350
1,000 Value Line Inc 34,750
-----------
14,729,190
-----------
Chemicals -- 1.0%
23,000 Crompton & Knowles Corp 336,375
19,700 Macdermid Inc 546,675
61,100 NL Industries Inc 1,214,362
18,200 Wellman Inc 208,163
-----------
2,305,575
-----------
Communications -- 0.6%
35,000 NTL Inc * 1,397,812
-----------
Computer and Office Equipment -- 2.6%
43,600 Apple Computer Inc 1,359,774
35,450 Concord EFS Inc 700,138
16,100 Lexmark International Group Inc * 975,055
8,600 SCM Microsystems Inc 359,588
69,100 Sterling Software Inc 1,420,868
20,800 Symbol Technologies Inc 852,800
26,900 Telxon Corp 460,663
-----------
6,128,886
-----------
Construction -- 2.8%
30,100 Centex Corp 1,064,787
15,200 Granite Construction Inc 361,000
50,400 Horton (DR) Inc 806,400
32,400 Johns Manville Corp 443,475
43,600 Kaufman & Broad Home Corp 931,949
53,700 McDermott International Inc 1,077,355
33,200 Pulte Corp 958,649
43,600 Standard Pacific Corp 515,025
17,600 Texas Industries Inc 636,900
-----------
6,795,540
-----------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- 4.4%
43,100 Burlington Industries Inc * 409,450
16,800 Department 56 Inc * 495,600
28,600 Fossil Inc 471,900
46,800 Furniture Brands International Inc * 1,047,149
14,600 HA-LO Industries Inc 339,450
8,400 Insight Enterprises Inc 357,000
16,800 Jones Apparel Group Inc 325,500
25,400 Knoll Inc 658,813
11,000 La-Z-Boy Chair Co 579,563
31,000 Miller Herman Inc 635,500
40,400 O'Sullivan Industries Holdings Inc 378,750
22,400 Oneida LTD 456,400
20,100 Osh Kosh B Gosh, Class A 733,650
13,100 Oxford Industries Inc 354,519
20,200 Pinnacle Systems Inc 608,525
25,950 PSS World Medical Inc * 398,981
10,100 Technology Data Corp * 381,906
9,100 Unifi Inc * 202,475
35,240 US Industries Inc 488,955
18,900 VWR Scientific Products Corp 467,775
12,700 Warnaco Group Inc, Class A 346,075
14,300 Windmere Corp 339,625
-----------
10,477,561
-----------
Electronic Equipment -- 3.1%
13,400 Amphenol Corp, Class A 399,488
27,700 Antec Corp * 444,931
17,500 Cable Design Technologies 246,094
19,100 California Microwave Inc 205,325
20,000 CTS Corp 567,500
19,800 Dallas Semiconductor Corp 535,838
30,300 DSP Communications Inc * 346,541
36,500 General Instrument Corp * 725,438
19,400 Genlyte Group Inc 329,800
16,300 PMC-Sierra Inc 498,169
30,800 Premisys Communications Inc 261,800
7,200 QLogic Corp 341,100
9,500 Siliconix Inc 160,313
26,850 SLI Inc 369,188
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(Showing Percentage of Total Net Assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Electronic Equipment -- Continued
31,100 Tekelec 561,744
28,500 Transwitch Corp 448,875
30,900 Trimble Navigation Limited 316,725
47,700 Xylan Corp 727,425
-----------
7,486,294
-----------
Food And Beverage -- 4.0%
9,300 Agribrands International Inc 270,863
23,200 Canadnaigua Wine Co, Class B 956,999
100,600 Darden Restaurants Inc 1,559,299
15,400 Dean Foods Co 677,600
3,900 Earthgrains Co 107,250
19,700 Michael Foods Inc 487,575
14,800 Pilgrims Pride Corp 289,525
32,800 Ralcorp Holdings Inc 633,450
32,700 Ryan's Family Steak Houses Inc * 333,131
800 Seaboard Corp 223,200
22,200 Smithfield Foods Inc 405,150
8,100 Suiza Foods Corp 391,838
64,170 Tootsie Roll Industries Inc 2,165,737
19,400 Triarc Companies * 289,788
24,900 Universal Corp 784,350
-----------
9,575,755
-----------
Health Care -- 4.4%
23,700 Arterial Vascular Engineering Inc 829,500
15,400 Concentra Managed Care Inc 197,313
51,100 Coventry Health Care Inc 229,950
10,400 Express Scripts Inc, Class A * 699,400
29,800 Idexx Laboratories Inc 521,500
14,600 Lincare Holdings Inc 495,488
43,400 Mariner Post-Acute Network Inc 309,225
26,800 Medimmune Inc * 1,293,099
18,900 Medquist Inc 396,900
21,700 Orthodontic Centers of America 307,858
19,600 Osteotech Inc 448,350
12,300 Pediatrix Medical Group Inc 478,931
35,500 Safeskin Corp 1,198,124
9,500 Sofamor Denek Group Inc * 792,656
21,800 Steris Corp 520,475
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Health Care -- Continued
42,300 Sunrise Technologies International Inc 179,775
59,925 Total Renal Care Holdings 1,138,574
10,700 Visx Inc 513,600
-----------
10,550,718
-----------
Insurance -- 4.0%
3,300 Alleghany Corp 686,400
16,700 Commerce Group Inc 438,375
30,000 Crawford and Co 528,750
5,700 Delphi Financial Group Inc 237,975
27,400 Enhance Financial Services Group Inc 688,425
32,200 Everest Re Holdings Inc 1,126,999
27,300 Fidelity National Financial Inc 755,869
66,800 First American Financial Corp 1,720,099
18,900 Fremont General Corp 807,975
17,300 Horace Mann Educators Corp 482,238
14,700 John Alden Financial Corp 329,831
7,200 Landamerica Financial Group 357,750
19,900 Presidential Life Corp 395,513
14,400 Protective Life Corp 444,600
30,100 Reliance Group Holdings Inc 380,013
3,100 Trigon Healthcare Inc * 85,638
-----------
9,466,450
-----------
Machinery -- 3.8%
14,700 Astec Industries 518,175
6,400 Camco International Inc 321,600
8,300 Cooper Cameron Corp * 176,375
13,400 Dycom Industries Inc 370,175
23,800 Federal Mogul Corp 1,270,324
15,100 Gleason Corp 332,200
30,950 Graco Inc 769,881
28,900 Helix Technology Corp 296,225
22,200 JLG Industries Inc 326,063
18,200 Kaydon Corp 492,538
55,200 Mohawk Industries Inc 1,466,249
30,400 MSC Industrial Direct Co 640,300
8,800 SPS Technologies Inc 367,400
15,800 Tennant Co 630,025
24,500 Terex Corp 385,875
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Machinery -- continued
14,100 Tractor Supply Company 278,475
66,800 Varco International Inc 475,950
-----------
9,117,830
-----------
Manufacturing -- 3.6%
9,500 ACX Technologies Inc * 150,219
12,200 Aeroquip-Vickers Inc 491,813
26,300 Applied Power Inc, Class A 652,569
15,300 Ball Corp 571,838
37,000 Blyth Industries Inc 848,688
30,000 Champion Enterprises Inc * 701,250
31,600 General Cable Corp 632,000
60,100 Gentex Corp 694,906
16,125 Manitowoc Co Inc 424,289
9,300 Mine Safety Appliances 686,456
24,800 Owens Corning 869,550
6,900 Sequa Corp, Class A * 440,306
26,400 Tredegar Industries 425,700
23,000 Trinity Industries Inc * 695,750
27,700 Zapata Corp 320,281
-----------
8,605,615
-----------
Metals and Mining -- 1.0%
7,900 Nacco Industries Inc, Class A 752,475
2,200 Reliance Steel and Aluminum Co 67,100
601,700 Sunshine Mining & Refining Co 376,063
4,400 Wesco Financial Corp 1,252,899
-----------
2,448,537
-----------
Oil and Gas -- 0.7%
19,900 BJ Services Co 251,238
29,200 Cal Dive International Inc 375,950
9,900 K N Energy Inc 387,338
29,300 Pooled Funds Energy Services Co 208,763
26,400 RPC Inc 245,850
16,300 Veritas DGC Inc * 244,500
-----------
1,713,639
-----------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Paper and Allied Products -- 1.0%
43,900 Jefferson Smurfit Corp * 493,875
22,400 Mail-Well Inc 372,400
39,800 Playtex Products Inc 425,363
18,000 United Stationers Inc 1,066,499
-----------
2,358,137
-----------
Pharmaceuticals -- 3.8%
21,900 Alpharma Inc 520,125
7,800 Amerisource Health Corp * 367,088
24,600 Bergen Brunswig Corp, Class A 839,475
14,500 Biomatrix Inc 635,281
85,700 Gensia Sicor Inc 235,675
16,500 Henry Schein Inc 635,250
30,050 ICN Pharmaceuticals Inc 462,019
18,200 IDEC Pharmaceuticals Corp 327,600
12,100 Immnunex Corp * 612,563
73,900 Ivax Corp 572,725
1,200 Medicis Pharmaceutical Corp, Class A 39,300
16,700 Mylan Laboratories Inc 382,013
64,500 NBTY Inc 588,563
66,800 Rexall Sundown Inc 1,219,099
35,100 Roberts Pharmaceutical Corp 601,088
22,000 Twinlab Corp 640,750
10,100 Watson Pharmaceutical Inc 455,131
-----------
9,133,745
-----------
Primary Materials -- 1.6%
20,100 Centec Construction Products 776,363
13,450 Elcor Corp 312,713
15,260 EVI Weatherford Inc 232,715
15,500 Kuhlman Corp 366,188
8,000 Lone Star Industries 481,000
12,500 Martin Marietta Materials Inc 532,813
11,300 Southdown Inc 477,425
18,100 USG Corp 778,300
-----------
3,957,517
-----------
Primary Processing -- 0.8%
100,900 Armco Inc 416,213
105,200 Bethlehem Steel Corp * 756,125
30,000 Lone Star Technologies Inc 298,110
20,500 Mueller Industries Inc 524,031
-----------
1,994,479
-----------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Printing and Publishing -- 1.1%
5,800 Consolidated Graphics Inc 290,363
28,200 Harte Hanks Communications 618,638
54,300 Hollinger International Inc 760,200
10,700 John Wiley and Sons, Class A 623,275
14,400 Valassis Communications Inc 429,300
-----------
2,721,776
-----------
Real Estate -- 0.5%
46,600 Lennar Corp 844,625
13,000 Penn Virginia Corp 281,125
-----------
1,125,750
-----------
Retail Trade -- 11.1%
7,400 99 Cents Only Stores 259,925
20,400 Abercrombie & Fitch Co * 877,199
30,450 American Eagle Outfitters 1,065,749
18,900 Ames Department Stores Inc 278,775
27,700 Barnes & Noble Inc 749,631
61,000 Best Buy Co Inc 2,401,874
37,800 Borders Group Inc * 715,838
47,600 Brinker International Inc * 815,150
29,850 Buckle Inc 585,806
33,280 Burlington Coat Factory Warehouse 700,960
49,500 Cato Corp, Class A 470,250
13,900 CEC Entertainment Inc 317,094
28,250 CKE Restaurants Inc 875,750
43,125 Dollar Tree Stores Inc 1,250,624
25,400 Dress Barn Inc * 441,325
38,400 Egghead Inc 230,400
23,000 Ethan Allen Interiors Inc 747,500
36,000 Family Dollar Stores Inc 456,750
34,500 Fingerhut Cos Inc 836,625
17,200 Finish Line Inc 148,350
24,300 Fruit of the Loom Inc * 545,231
42,900 Goodys Family Clothing Inc 772,200
14,700 Guitar Center Inc 276,544
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail Trade -- continued
332,500 Hanover Direct Inc 914,374
28,100 Linens N Things Inc 656,838
28,700 Michaels Stores Inc * 674,450
66,000 Musicland Stores Corp 618,750
41,800 OfficeMax Inc * 438,900
33,200 Outback Steakhouse Inc * 998,074
14,600 Pacific Sunwear of California 266,450
7,900 Payless ShoeSource Inc * 324,888
67,800 Pier 1 Imports Inc 673,763
52,700 Proffitts Inc 1,343,849
16,400 Shopko Stores Inc * 421,275
39,600 Sunglass Hut Inc 227,700
21,900 Talbots Inc 461,269
23,200 Transportation World Entertainment Corp 394,400
91,200 Valhi Inc 1,134,299
16,300 Whole Foods Market Inc * 674,413
19,800 Williams-Sonoma Inc 504,900
-----------
26,548,142
-----------
Services -- 8.0%
15,100 Abacus Direct Corp 617,213
23,800 Accustaff Inc 297,500
29,700 Acnielson Corp 595,856
21,900 Advo Inc 544,763
14,900 AMC Entertainment Inc 189,975
9,100 Anchor Gaming * 436,800
22,700 Apollo Group Inc 689,513
242,200 Aura Systems Inc 302,750
13,500 Boron Lepore and Associates Inc 405,000
23,050 Central Parking Corp 952,252
24,200 Computer Learning Center 114,950
32,900 COR Therapeutics Inc 313,580
35,200 Electro Rental Corp 448,800
8,300 Equity Corp International 194,013
14,900 Gaylord Entertainment 397,644
21,400 Icos Corp 318,325
19,000 Labor Ready Inc 216,125
64,000 McGrath Rentcorp 1,147,999
9,600 Meredith Corp 322,200
34,100 Metamor Worldwide Inc 809,875
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Services -- continued
66,700 Metromedia International Group Inc 275,138
12,200 Metzler Group Inc 341,600
17,800 Oakwood Homes Corp 253,650
23,700 PMT Services Inc 402,900
18,100 Profit Recovery Group International Inc 341,638
40,300 Promus Hotel Corp * 1,239,224
15,900 Rental Way Inc 393,525
16,800 Renters Choice Inc 380,100
29,200 Res-Care Inc 425,225
17,200 Rio Hotel And Casino Inc 256,925
16,600 Romac International Inc 311,250
131,000 Safety-Kleen Corp 384,813
24,950 Sonic Corp 397,641
19,500 Speedway Motorsports Inc 316,875
13,700 SPS Transaction Services Corp 427,269
14,300 Staffmark Inc 255,613
40,900 Station Casinos Inc * 224,950
13,500 Sylvan Learning Systems Inc 288,563
62,600 United International Holdings Inc 641,650
43,800 United Video Satellite Group Inc 667,950
23,150 Volt Information Sciences Inc 468,788
19,200 Whittman-Hart Inc 360,000
13,000 XTRA Corp 765,375
-----------
19,135,795
-----------
Technology -- 13.0%
87,600 Acclaim Entertainment Inc 503,700
28,800 Affiliated Computer Services Inc 941,399
12,200 Aspect Development Inc 355,325
11,700 Aspen Technologies Inc 277,144
17,500 Avanti Corporation 225,313
45,400 BEA Systems Inc 692,350
6,900 Beckman Coulter Inc 382,088
12,200 Cambridge Technology Partners 396,500
24,700 Cerner Corp 544,944
51,000 Checkfree Holdings Corp 436,688
12,500 Ciber Inc 314,063
30,900 Citrix Systems Inc 1,780,612
14,200 CMG Information Services Inc 541,375
9,600 Cohu Inc 146,400
</TABLE>
10 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
16,400 Complete Business Solutions Inc 248,050
16,700 Computer Horizons Corp 390,363
18,200 CSG Systems International Inc 668,850
26,000 Dendrite International Inc 513,500
10,400 Documentum Inc 371,800
27,400 EG & G Inc 642,188
17,300 Electronic Arts Inc 659,563
12,100 Envoy Corp 263,175
40,100 FileNet Corp 656,638
67,600 Fore Systems Inc 1,166,099
8,800 HNC Software Inc 319,550
19,190 Hyperion Solutions Corp 537,320
31,500 Information Resources Inc * 307,125
133,000 Informix Corp 465,500
50,100 Inprise Corp 266,156
31,100 Input/Output Inc 303,225
20,100 Inso Corporation 311,550
17,800 Intelligroup Inc 372,688
15,600 International Telecomm Data Systems Inc 306,150
34,700 Intersolv Inc 381,700
8,800 Intuit Inc * 300,850
11,500 Jack Henry and Associates Inc 455,688
15,800 JDA Software Group Inc 189,600
19,600 Keane Inc 823,200
8,800 Lason Inc 356,950
35,900 Learning Company Inc 634,981
9,300 Legato Systems Inc 326,663
45,400 Macromedia Inc 570,338
37,900 Mastech Corp 778,136
14,900 Mercury Interactive Corp 501,013
13,300 Metro Informaton Svcs Inc 372,400
18,500 National Computer System Inc 404,688
8,800 Network Appliance Inc 366,850
11,300 Network Solutions Inc 290,975
18,700 Pixar Inc 538,794
33,800 Platinum Software Corp 405,600
36,500 Platinum Technology Inc 684,375
26,700 Progress Software Corp 482,269
9,500 Sapient Corp 371,094
6,400 Shared Medical Systems Corp 341,600
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments - (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Technology -- continued
30,600 Siebel Systems Inc 573,750
18,500 Splash Technology Holdings Inc 277,500
21,750 SPR Inc 315,375
27,800 Symantec * 455,225
31,000 Systems & Computer Technology Corp 422,375
18,900 Transaction Systems Archit, Class A 626,063
8,700 USCS International Inc 197,381
18,000 Veritas Software Corp 807,750
21,600 Viasoft Inc 140,400
32,000 Visio Corp 672,000
13,400 Waters Corp 721,925
-----------
31,094,899
-----------
Telecommunications -- 4.7%
20,100 Adelphia Communications Corp, Class A 693,450
32,200 Adtran Inc * 692,300
12,100 Aliant Communications Inc 299,475
36,400 Brightpoint Inc 329,875
84,800 Cablevision Systems Corp 2,872,599
28,200 Cellular Commerce International Inc 1,494,599
51,200 Century Communications Corp * 1,190,399
29,700 Commnet Cellular Inc 226,463
12,300 Commonwealth Telephone Enterprises Inc 265,988
17,100 Comsat Corp 372,994
17,600 Concentric Network Corp 281,600
98,400 Paging Network Inc * 713,400
43,200 Premiere Technologies Inc * 283,500
63,100 Skytel Communications Inc * 828,188
24,300 Western Wireless Corp, Class A 379,688
12,200 Winstar Communications Inc * 222,650
-----------
11,147,168
-----------
Textiles -- 1.1%
32,800 Interface Flooring Systems Inc 401,800
18,100 Pillowtex Corp 500,013
49,900 Shaw Industries Inc 754,738
34,800 Westpoint Stevens Inc 1,030,949
-----------
2,687,500
-----------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Transportation -- 5.7%
41,400 Airborne Freight Corp 807,300
74,600 Airtran Holdings Inc * 317,050
19,000 Alaska Airline Group Inc * 739,813
62,000 American West Holdings Corp, Class B 1,205,124
16,100 ASA Holdings Inc 551,425
10,600 Atlas Air Inc 251,750
25,200 CNF Transportation Inc 787,500
56,100 Comair Holdings Inc 1,427,043
24,800 Fleetwood Enterprises Inc 829,250
41,700 Fritz Companies Inc 333,600
16,100 Gatx Corp 531,300
38,900 Hunt (JB) Transportation Services Inc 658,869
13,100 M.S. Carriers Inc 280,013
26,900 Mesaba Holdings Inc 425,356
73,900 Navistar International Corp * 1,551,899
32,400 Skywest Inc 680,400
60,900 Trans World Airlines Inc 399,656
13,000 Travel Services Inc 282,750
32,400 Viad Corp 672,300
25,400 Westinghouse Air Brake Co 512,763
27,500 Yellow Corp * 328,281
-----------
13,573,442
-----------
Utilities -- 1.1%
12,700 BEC Energy 503,238
19,600 Central Maine Power Co 341,775
20,100 Eastern Utilities Associates 498,731
18,800 IPALCO Enterprises Inc 827,200
1,200 Montana Power Co 46,800
17,500 UGI Corp 385,000
-----------
2,602,744
-----------
TOTAL COMMON STOCKS (COST $294,034,405) 233,147,673
-----------
RIGHTS AND WARRANTS -- 0.1%
Banking and Financial Services -- 0.1%
42,300 Golden State Bancorp Warrants, Expires 1/1/01 * 190,350
-----------
TOTAL RIGHTS AND WARRANTS (COST $212,509) 190,350
-----------
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued) (showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value Description Value ($)
($)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS -- 20.7%
Cash Equivalents -- 16.5%
$16,572,841 BankBoston Eurodollar Time Deposit, 5.8925%
due 9/1/98(a) 16,572,841
11,800,000 Merrimac Cash Fund Premium Class(a) 11,800,000
$11,000,000 Prudential Securities Group Inc, Master Note, 11,000,000
5.94% due 9/1/98(a)
------------
39,372,841
------------
U.S. Government -- 0.2%
$ 500,000 U.S. Treasury Bill, 4.875%, due 11/12/98(b) 495,190
------------
Repurchase Agreement -- 4.0%
$ 9,511,771 Salomon Smith Barney Inc. Repurchase
Agreement, dated 8/31/98, due 9/1/98, with a
maturity value of $9,513,140 and an effective
yield of 5.18%, collaterallized by a U.S.
Treasury Obligation with a rate of 5.875%, a
maturity date of 11/15/99 and a market value
of $9,702,006. 9,511,771
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $49,379,737) 49,379,802
------------
TOTAL INVESTMENTS -- 118.2%
(COST $343,626,651) 282,717,825
Other Assets and Liabilities (net) -- (18.2)% (43,466,064)
------------
TOTAL NET ASSETS-- 100% $239,251,761
============
</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.
14 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $343,626,651) (Note 1) $282,717,825
Receivable for investments sold 13,023,933
Dividends and interest receivable 116,520
Receivable for expenses waived or borne by Manager (Note 2) 56,726
-------------
Total assets 295,915,004
-------------
Liabilities:
Payable for investments purchased 16,928,375
Payable upon return of securities loaned (Note 1) 39,372,841
Payable for Fund shares repurchased 43,750
Payable to affiliate for (Note 2):
Management fee 122,701
Shareholder service fee 35,176
Payable for variation margin on open futures contracts (Notes 1 and 6) 95,767
Accrued expenses 64,633
-------------
Total liabilities 56,663,243
-------------
Net assets $239,251,761
=============
Net assets consist of:
Paid-in capital $281,162,691
Accumulated undistributed net investment income 106,116
Accumulated undistributed net realized gain 18,912,302
Net unrealized depreciation (60,929,348)
=============
$239,251,761
=============
Net assets attributable to:
Class III shares $239,251,761
=============
Shares outstanding:
Class III 26,695,840
=============
Net asset value per share:
Class III $ 8.96
=============
</TABLE>
See accompanying notes to the financial statements. 15
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends $ 869,915
Interest (including securities lending income of $143,130) 544,748
-------------
Total income 1,414,663
-------------
Expenses:
Management fee (Note 2) 970,045
Custodian and transfer agent fees 66,411
Registration fees 33,317
Audit fees 16,097
Legal fees 4,913
Trustees fees (Note 2) 1,745
Miscellaneous 1,572
Fees waived or borne by Manager (Note 2) (453,870)
-------------
640,230
Shareholder service fee (Note 2)
Class III 291,013
-------------
Net expenses 931,243
-------------
Net investment income 483,420
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 21,731,448
Closed futures contracts (1,732,866)
-------------
Net realized gain 19,998,582
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (95,273,431)
Open futures contracts (25,892)
-------------
Net unrealized loss (95,299,323)
-------------
Net realized and unrealized loss (75,300,741)
-------------
Net decrease in net assets resulting from operations $(74,817,321)
=============
</TABLE>
16 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
August 31, Year Ended
1998 February 28,
(Unaudited) 1998
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 483,420 $ 1,444,235
Net realized gain 19,998,582 39,817,641
Change in net unrealized appreciation (depreciation) (95,299,323) 37,771,985
------------- -------------
Net increase (decrease) in net assets resulting from
operations (74,817,321) 79,033,861
------------- -------------
Distributions to shareholders from:
Net investment income
Class III (377,304) (1,617,385)
------------- -------------
Total distributions from net investment income (377,304) (1,617,385)
------------- -------------
In excess of net investment income
Class III -- (159,172)
------------- -------------
Total distributions in excess of net investment -- (159,172)
income
------------- -------------
Net realized gains
Class III (10,987,254) (29,775,910)
------------- -------------
Total distributions from net realized gains (10,987,254) (29,775,910)
------------- -------------
(11,364,558) (31,552,467)
------------- -------------
Net share transactions: (Note 5)
Class III (74,179,353) 192,233,498
------------- -------------
Increase (decrease) in net assets resulting from net (74,179,353) 192,233,498
share transactions
------------- -------------
Total increase (decrease) in net assets (160,361,232) 239,714,892
Net assets:
Beginning of period 399,612,993 159,898,101
------------- -------------
End of period (including accumulated undistributed net
investment income of $106,116 and $0, respectively) $239,251,761 $399,612,993
============= =============
</TABLE>
See accompanying notes to the financial statements. 17
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended February 28,
----------------------------
(Unaudited) 1998 1997*
----------- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.28 $ 9.82 $ 10.00
--------- -------- --------
Income from investment operations:
Net investment income 0.01 0.05 0.01
Net realized and unrealized gain (2.90) 3.43 (0.19)
(loss)
--------- -------- --------
Total from investment operations (2.89) 3.48 (0.18)
--------- -------- --------
Less distributions to shareholders:
From net investment income (0.01) (0.06) --
In excess of net investment income -- (0.01) --
From net realized gains (0.42) (0.95) --
--------- -------- --------
Total distributions (0.43) (1.02) --
--------- -------- --------
Net asset value, end of period $ 8.96 $ 12.28 $ 9.82
========= ======== ========
Total Return (a) (24.37)% 36.66% (1.80)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $239,252 $399,613 $159,898
Net expenses to average daily net 0.48%** 0.48% 0.48%**
assets
Net investment income to average
daily net assets 0.25%** 0.47% 0.70%**
Portfolio turnover rate 59% 132% 13%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per $ 0.01 $ 0.03 $ 0.01
share amounts:
</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.
* Period from December 31, 1996 (commencement of operations) to February 28,
1997.
** Annualized.
18 See accompanying notes to the financial statements.
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Small Cap Growth Fund (the "Fund"), is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of 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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
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
19
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
price established each day by the board of trade or exchange on which they
are traded. See Note 6 for all open futures contracts as of August 31,
1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund loaned securities having a market
value of $37,793,896, collateralized by cash in the amount of $39,372,841,
which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
20
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .50%
of the amount invested or redeemed. All purchase premiums and redemption
fees are paid to and recorded by the Fund as paid-in capital. Purchase
premiums are included as part of "shares sold" and redemption fees are
included as part of "shares repurchased", respectively, as summarized in
Note 5. For the six months ended August 31, 1998, the Fund received
$163,784 in purchase premiums and $139,633 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 Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $1,745. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
21
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $213,257,804 and $300,801,934, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
------------------ ------------------- ------------------ ---------------------
<S> <C> <C> <C>
$343,626,651 $9,994,645 $70,903,471 $60,908,826
</TABLE>
4. Principal shareholders
At August 31, 1998, 33.4% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
----------------------------- -----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 2,625,566 $ 32,756,903 17,993,943 $ 216,188,799
Shares issued to shareholders
in reinvestment of 897,391 11,058,880 2,786,345 30,554,838
distributions
Shares repurchased (9,374,750) (117,995,136) (4,511,400) (54,510,139)
============= ============== ============= ==============
Net increase (decrease) (5,851,793) $ (74,179,353) 16,268,888 $ 192,233,498
============= ============== ============= ==============
</TABLE>
22
<PAGE>
GMO Small Cap Growth Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contract
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
2 Russell 2000 September 1998 $336,500 $ (20,522)
=================
</TABLE>
At August 31, 1998, the Fund had sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
23
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 98.0%
New Zealand -- 1.5%
NZD 1,000,000 New Zealand Index Linked Bond 4.50%, due 2/15/16 488,012
-------------
United States -- 96.5%
U.S. Government -- 71.3%
USD 24,320,123 U.S. Treasury Inflation Indexed Note, 3.38%, due
1/15/07 23,514,518
-------------
U.S. Government Agency -- 25.2%
USD 8,625,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02 8,301,563
-------------
Total United States 31,816,081
-------------
TOTAL DEBT OBLIGATIONS (COST $32,834,405) 32,304,093
-------------
SHORT-TERM INVESTMENT -- 1.6%
Repurchase Agreement -- 1.6%
USD 539,464 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $539,542
and an effective yield of 5.18%, collateralized by a
U.S. Treasury Obligation with a rate of 11.25%,
maturity date of 2/15/15 and market value of $550,254. 539,464
-------------
TOTAL SHORT-TERM INVESTMENT (COST $539,464) 539,464
-------------
TOTAL INVESTMENTS -- 99.6%
(Cost $33,373,869) 32,843,557
Other Assets and Liabilities (net)-- 0.4% 116,265
-------------
TOTAL NET ASSETS-- 100% $32,959,822
=============
</TABLE>
Currency Abbreviations
NZD - New Zealand Dollar
USD - United States Dollar
See accompanying notes to the financial statements. 1
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $33,373,869) (Note 1) $32,843,557
Interest receivable 124,312
Receivable for open forward foreign currency contracts (Notes 1 and 6) 9,479
Receivable for expenses waived or borne by Manager (Note 2) 7,601
------------
Total assets 32,984,949
------------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 6,936
Shareholder service fee 4,060
Accrued expenses 14,131
------------
Total liabilities 25,127
------------
Net assets $32,959,822
============
Net assets consist of:
Paid-in capital $32,620,054
Accumulated undistributed net investment income 866,155
Accumulated undistributed net realized loss (5,238)
Net unrealized depreciation (521,149)
============
$32,959,822
============
Net assets attributable to:
Class III shares $32,959,822
============
Shares outstanding:
Class III 3,224,287
============
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)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest 914,571
---------
Total income 914,571
---------
Expenses:
Management fee (Note 2) 39,843
Audit fees 14,057
Registration fees 5,265
Custodian and transfer agent fees 4,619
Legal fees 370
Trustees fees (Note 2) 93
Miscellaneous 89
Fees waived or borne by Manager (Note 2) (48,399)
---------
15,937
Shareholder service fee (Note 2)
Class III 23,906
---------
Net expenses 39,843
---------
Net investment income 874,728
---------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (81,887)
Foreign currency, forward contracts and foreign currency
related transactions 76,649
---------
Net realized loss (5,238)
---------
Change in net unrealized appreciation (depreciation) on:
Investments (301,467)
Foreign currency, forward contracts and foreign currency
related transactions 690
---------
Net unrealized loss (300,777)
---------
Net realized and unrealized loss (306,015)
---------
Net increase in net assets resulting from operations $568,713
=========
</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
- --------------------------------------------------------------------------------
[CAPTION]
<TABLE>
Six Months Ended Period from March 31, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
---------------- -------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 874,728 $ 648,701
Net realized gain (loss) (5,238) 33,304
Change in net unrealized depreciation (300,777) (220,372)
----------- -----------
Net increase in net assets resulting 568,713 461,633
from operations ----------- -----------
Distributions to shareholders from:
Net investment income
Class III -- (648,701)
----------- -----------
Total distributions from net
investment income -- (648,701)
----------- -----------
In excess of net investment
income
Class III -- (47,606)
----------- -----------
Total distributions in excess of net
investment income -- (47,606)
----------- -----------
Net realized gains
Class III -- (4,126)
----------- -----------
Total distributions from net
realized gains -- (4,126)
----------- -----------
Return of Capital
Class III -- (46,228)
----------- -----------
Total distributions from return of
capital -- (46,228)
----------- -----------
-- (746,661)
----------- -----------
Net share transactions: (Note 5)
Class III 6,731,032 25,945,105
----------- -----------
Increase in net assets resulting from
net share transactions 6,731,032 25,945,105
----------- -----------
Total increase in net assets 7,299,745 25,660,077
Net assets:
Beginning of period 25,660,077 --
----------- -----------
End of period (including accumulated
undistributed net investment income
of $866,155 and distributions in
excess of net investment income of $32,959,822 $25,660,077
$8,573, respectively) =========== ===========
</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 each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from March 31, 1997
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
----------------- --------------------------
<S> <C> <C>
Net asset value, beginning of period $10.04 $ 10.00
------- --------
Income from investment operations:
Net investment income 0.27 0.42+
Net realized and unrealized loss (0.09) (0.04)
------- --------
Total from investment operations 0.18 0.38
------- --------
Less distributions to shareholders:
From net investment income -- (0.30)
In excess of net investment income -- (0.02)
From net realized gains -- --(a)
From tax return of capital -- (0.02)
------- --------
Total distributions -- (0.34)
------- --------
Net asset value, end of period $10.22 $ 10.04
======= ========
Total Return (b) 1.79% 3.77%
Ratios/Supplemental Data:
Net assets, end of period (000's) $32,960 $ 25,660
Net expenses to average daily net assets 0.25%* 0.25%*
Net investment income to average daily net
assets 5.49%* 4.48%*
Portfolio turnover rate 37% 9%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: $ 0.02 $ 0.04
</TABLE>
(a) The per share distribution from net realized gains was $.002
(b) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
* Annualized.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 5
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. A bond will be deemed to be
"linked" to general measures of inflation if, by such bond's terms,
principal or interest components change with general movements of inflation
in the country of issue.
Inflation indexed securities issued by the U.S. Treasury are fixed income
securities whose principal value is periodically adjusted according to the
rate of inflation. Inflation indexed bonds issued by a foreign government
are generally adjusted to reflect a comparable inflation index.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees or other persons acting
at their direction.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized
6
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 and forward cross
currency contracts in connection with settling planned purchases or sales
of securities or to hedge the currency exposure associated with some or all
of the Fund's portfolio securities. A forward currency contract is an
agreement between two parties to buy and sell a currency at a set price on
a future date. The market value of a forward currency contract fluctuates
with changes in forward currency exchange rates. Forward currency contracts
are marked to market daily and the change in value is recorded by the Fund
as an unrealized gain or loss. Realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed are recorded upon delivery or receipt
of the currency or, if a forward currency contract is offset by entering
into another forward currency contract with the same broker, upon
settlement of the net gain or loss. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currency the Fund has committed to buy or sell is shown
under Note 6 and represents the currency exposure the Fund has acquired or
hedged through a currency contract as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund had no securities on loan.
7
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis. Interest income
on the U.S. Treasury inflation indexed securities is accrued daily based
upon the inflation adjusted principal. Additionally, any increase in the
principal or face amount of the securities adjusted for inflation is
recorded as income.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases and fee on redemptions of Fund shares is .10%
of the amount invested or redeemed. These fees will be reduced by 50% with
respect to any portion of a purchase or redemption that is offset by a
corresponding redemption or purchase, respectively, occurring on the same
day. In addition, the purchase premium or redemption fee for the Fund will
be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares
or if the purchase or redemption is part of a transfer from or to another
Fund where the Manager is able to transfer securities among the Funds to
effect the transaction. All purchase premiums and redemption fees are paid
to and recorded by the Fund as paid-in capital. Purchase premiums are
included as part of "shares sold" and redemption fees are included as part
of "shares repurchased", respectively, as summarized in Note 5. For the six
months
8
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ended August 31, 1998, the Fund received $10,663 in purchase premiums and
$3,867 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 .25% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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 six months ended August 31, 1998 was $93. 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, 1998, 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 $ 18,255,591 $ 11,204,137
Investments (non-U.S. Government securities) - -
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- --------------------- ---------------------- --------------------
<S> <C> <C> <C>
$33,373,869 $3,168 $533,480 $530,312
</TABLE>
4. Principal shareholders
At August 31, 1998, 32.9% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
9
<PAGE>
GMO Inflation Indexed Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums and redemption fees received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 31, 1997
Six Months Ended (commencement of
Class III: August 31, 1998 operations) to February 28, 1998
------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 1,054,732 $ 10,663,197 2,662,887 $ 27,016,765
Shares issued to shareholders
in reinvestment of -- -- 33,789 338,906
distributions
Shares repurchased (387,380) (3,932,165) (139,741) (1,410,566)
--------------- --------------- ------------- ---------------
Net increase 667,352 $ 6,731,032 2,556,935 $ 25,945,105
=============== =============== ============= ===============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contract sold
<TABLE>
<CAPTION>
Settlement Units of Net Unrealized
Date Deliver Currency Value Appreciation
-------------- ---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
10/1/98 NZD 1,000,000 $ 495,521 $ 9,479
============
</TABLE>
10
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 91.0%
Advertising -- 0.4%
208,000 Interpublic Group Inc 11,856,000
-------------
Aerospace -- 0.1%
34,900 Northrop Grumman Corp 2,211,788
-------------
Automotive -- 4.2%
292,200 Chrysler Corp 13,039,425
36,700 Dana Corp 1,438,181
1,516,000 Ford Motor Co 66,703,999
664,800 General Motors Corp 38,392,199
39,900 General Motors Corp, Class H 1,441,388
95,200 Genuine Parts Co 2,980,950
3,600 ITT Industries Inc 108,450
64,800 Lear Corp* 2,628,450
-------------
126,733,042
-------------
Banking and Financial Services -- 11.6%
183,600 Ahmanson (HF) & Co 9,788,175
254,750 Amsouth Bancorp 8,757,031
547,770 Banc One Corp 20,815,260
358,400 BankAmerica Corp 22,959,999
32,600 BB&T Corp 918,913
197,499 Bear Stearns Inc 7,295,119
145,616 Chase Manhattan Corp 7,717,648
35,600 Citicorp 3,849,250
57,300 Comerica Inc 2,993,925
300,900 Countrywide Credit Industry Inc 11,264,944
379,500 Dime Bancorp Inc 7,210,500
94,600 Donaldson Lufkin & Jenrette 3,311,000
223,100 Edwards (AG) Inc 6,051,588
303,300 Federal Home Loan Mortgage Corp 11,980,350
90,600 Federal National Mortgage Association 5,147,213
28,200 First Chicago NBD Corp 1,787,175
289,200 First Union Corp 14,026,200
240,400 Franklin Resources Inc 7,752,900
43,100 Golden West Financial Corp 3,280,988
35,300 Greenpoint Financial Corp 889,119
116,400 Lehman Brothers Holding Inc 4,583,250
642,500 MBNA Corp 15,098,750
174,700 Merrill Lynch 11,530,200
See accompanying notes to the financial statements. 1
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Banking and Financial Services -- continued
33,500 MGIC Investment Corp 1,390,250
551,012 Morgan Stanley Dean Witter & Co 31,993,133
160,700 National City Corp 9,441,125
438,744 NationsBank Corp 25,008,407
189,700 Northfork Bancorp 3,604,300
47,200 Old Kent Financial Corp 1,522,200
254,500 Paine Webber Group Inc 8,843,875
161,700 Providian Financial Corp 10,379,119
249,000 Star Banc Corp 13,663,875
67,600 State Street Corp 3,519,425
47,200 Suntrust Banks Inc 2,643,200
300,207 Travelers Group Inc 13,321,686
715,500 U.S. Bancorp 24,416,437
194,505 Washington Mutual Inc 6,224,160
35,200 Wells Fargo & Co 9,922,000
-------------
354,902,689
-------------
Chemicals -- 0.8%
128,400 Eastman Chemical Co 6,620,625
120,300 Great Lakes Chemical Corp 4,706,738
70,800 Praxair Inc 2,539,950
274,900 Union Carbide Corp 11,047,544
-------------
24,914,857
-------------
Computer and Office Equipment -- 2.7%
248,000 Electronic Data Systems Corp 8,308,000
369,000 EMC Corp 16,674,188
318,900 Gateway 2000 Inc* 15,087,956
457,700 HBO & Co 9,726,125
86,300 IBM Corp 9,719,538
113,400 Lexmark International Group Inc* 6,867,788
468,400 Micron Technology Inc* 10,656,100
50,800 Pitney Bowes Inc 2,520,950
667,900 Unisys Corp* 11,980,456
-------------
81,821,563
-------------
Construction -- 1.9%
104,400 Georgia-Pacific Corp 4,476,150
1,123,100 Home Depot Inc 43,239,349
284,500 Lowes Co Inc 9,975,281
-------------
57,690,780
-------------
2 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Consumer Goods -- 2.3%
84,200 Black and Decker Corp 3,504,825
174,700 Eastman Kodak Co 13,648,438
110,400 Fortune Brands Inc 3,042,900
121,700 Hasbro Inc 3,810,731
81,400 Johnson Controls 3,484,938
278,100 Mattel Co 9,003,488
346,700 Maytag Corp 14,951,438
24,300 Newell Co 1,160,325
106,700 Nike Inc, Class B 3,701,156
208,000 VF Corp 7,878,000
114,900 Whirlpool Corp 5,701,913
-------------
69,888,152
-------------
Electronic Equipment -- 1.1%
499,300 General Instrument Corp* 9,923,588
94,600 Harris Corp 3,015,375
58,100 Litton Industries* 2,788,800
100,000 Motorola Inc 4,306,250
297,000 Raytheon Co, Class B 13,550,625
-------------
33,584,638
-------------
Food and Beverage -- 1.9%
472,000 Anheuser Busch Cos Inc 21,770,999
321,785 Archer Daniels Midland Co 4,826,780
92,900 Bestfoods 4,662,419
59,600 Dole Food Co 2,577,700
35,400 McDonald's Corp 1,984,613
215,100 Seagrams Co Ltd 6,641,213
151,500 Unilever NV ADR 9,601,313
94,200 Wrigley (William Jr) Co 7,300,500
-------------
59,365,537
-------------
Health Care -- 4.4%
33,000 Becton Dickinson & Co 1,099,313
263,600 Columbia HCA Healthcare Corp 5,947,475
102,100 Hillenbrand Industries Inc 5,468,731
1,249,600 Johnson & Johnson 86,222,399
143,800 Medtronic Inc 7,387,725
350,000 Pharmacia & Upjohn Inc 14,546,875
202,000 United Healthcare Corp 7,297,250
147,600 Wellpoint Health Network* 7,878,150
-------------
135,847,918
-------------
See accompanying notes to the financial statements. 3
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Insurance -- 3.4%
44,900 Aetna Life and Casualty Co 2,702,419
103,700 AMBAC Inc 4,893,344
86,500 Cincinnati Financial Corp 2,908,563
108,700 CNA Financial Corp 3,981,138
513,336 Conseco Inc 14,180,907
249,900 Equitable Companies Inc 14,291,156
217,400 Loews Corp 18,343,125
600 MBIA Inc 33,675
32,600 Mercury General Corp 1,191,938
83,700 Old Republic International Corp 1,867,556
32,800 Pacificare Health Systems, Class B* 2,066,400
171,300 Safeco Corp 6,959,063
307,700 Saint Paul Cos Inc 9,404,081
343,500 Torchmark Corp 12,280,125
91,909 Transamerica Corp 9,426,417
-------------
104,529,907
-------------
Machinery -- 0.5%
30,700 American Standard Co* 1,201,138
461,600 Applied Materials Inc 11,338,050
57,200 Case Corp 1,544,400
-------------
14,083,588
-------------
Manufacturing -- 1.6%
126,700 American Greetings Corp 4,640,388
82,100 International Game Technology 1,590,688
98,800 Minnesota Mining and Manufacturing Co 6,767,800
373,900 Owens Illinois Inc* 11,661,006
65,900 Rockwell International Corp 2,388,875
45,600 Temple Inland Inc 2,043,450
81,200 Tyco International Ltd 4,506,600
81,600 United Technologies Corp 5,921,100
-------------
49,239,445
-------------
Metals and Mining -- 0.2%
149,500 Phelps Dodge Corp 6,690,125
-------------
4 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Oil and Gas -- 5.1%
59,400 Amerada Hess Corp 2,918,025
236,000 Amoco Corp 10,693,750
211,300 Apache Corp 4,833,488
577,200 Atlantic Richfield Co 33,477,599
84,900 Burlington Resources Inc 2,509,856
63,800 Chevron Corp 4,725,188
63,850 Columbia Energy Group 3,176,538
600 Enron Corp 25,388
222,500 Enron Oil & Gas 2,892,500
108,900 Exxon Corp 7,126,144
7,600 Kerr-McGee Corp 293,550
128,200 Mobil Corp 8,861,825
644,400 Occidental Petroleum Corp 11,921,400
54,000 Pennzoil Co 1,930,500
222,700 Phillips Petroleum Co 9,088,944
14,000 Sonat Inc 378,875
315,000 Texaco Inc 17,502,188
449,200 Union Pacific Resources Group 3,846,275
379,200 Unocal Corp 11,873,700
560,500 USX - Marathon Group 14,573,000
96,900 Vastar Resources Inc 3,682,200
2,100 Williams Co Inc 48,300
-------------
156,379,233
-------------
Paper and Allied Products -- 0.2%
119,800 Mead Corp 3,279,525
160,060 Sonoco Products Co 4,101,538
-------------
7,381,063
-------------
Pharmaceuticals -- 7.4%
1,956,600 Abbott Laboratories 75,329,099
157,000 American Home Products Corp 7,869,625
435,200 Amgen Inc* 26,492,799
72,800 Bristol Myers Squibb Co 7,125,300
142,300 Merck & Co Inc 16,497,906
183,600 Mylan Laboratories Inc 4,199,850
587,400 Pfizer Inc 54,628,199
266,000 Schering Plough Corp 22,875,999
3,900 Warner Lambert Co 254,475
238,300 Watson Pharmaceutical Inc 10,738,394
-------------
226,011,646
-------------
See accompanying notes to the financial statements. 5
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Primary Materials--0.5%
203,100 Crown Cork & Seal Inc 6,651,525
152,800 Rubbermaid Inc 3,886,850
30,600 Vulcan Materials Co 3,411,900
-------------
13,950,275
-------------
Primary Processing--0.4%
50,000 Dow Chemical Co 3,900,000
158,400 Nucor Corp 5,692,500
183,600 USX-US Steel Group Inc 3,844,125
-------------
13,436,625
-------------
Printing and Publishing--0.5%
23,500 A.H. Belo Corp 434,750
144,700 Dow Jones and Co Inc 7,207,869
80,500 Gannett Co Inc 4,749,500
26,200 New York Times Co, Class A 759,800
5,500 Washington Post Co, Class B 2,818,750
-------------
15,970,669
-------------
Refining--0.3%
246,200 Royal Dutch Petroleum 9,786,450
-------------
Retail Trade--7.6%
384,900 Albertsons Inc 19,461,506
129,300 American Stores Co 3,749,700
266,100 Autozone Inc * 6,901,969
246,800 Best Buy Co Inc 9,717,750
314,300 Dayton Hudson Corp 11,314,800
213,400 Dillards Department Stores Inc 6,161,925
40,400 Family Dollar Stores Inc 512,575
658,250 Gap Inc 33,611,890
619,800 Kmart Corp * 7,902,450
342,100 Kroger Co * 15,394,500
582,700 Limited Inc 12,163,863
139,300 Office Depot Inc * 3,552,150
5,000 Penney (JC) Co Inc 247,813
17,400 Rite Aid Corp 629,663
268,100 Tandy Corp 14,628,206
213,200 Toys R Us Inc * 3,957,525
1,344,900 Wal Mart Stores Inc 79,012,874
89,600 Winn-Dixie Stores Inc 3,337,600
-------------
232,258,759
-------------
6 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Services-- 0.3%
13,000 BHC Communications Inc, Class A 1,514,500
54,400 Cendant Corp * 629,000
3,900 Clear Channel Communications Inc 175,500
61,800 Marriott International Inc, Class A 1,734,263
103,700 Robert Half International Inc 4,977,600
1,100 Supervalu Inc 22,344
5,300 Time Warner Inc 425,988
-------------
9,479,195
-------------
Technology--9.1%
311,400 BMC Software Inc 13,176,113
97,400 Cadence Design Systems Inc 2,057,575
73,200 Ceridian Corp * 3,550,200
630,800 Cisco Systems Inc 51,646,749
249,704 Compaq Computer Corp 6,976,106
148,800 Computer Sciences Corp 8,416,500
98,900 Dell Computer Corp 9,890,000
176,400 Grainger (WW) Inc 6,912,675
984,100 Intel Corp 70,055,618
916,600 Microsoft Corp 87,936,312
722,100 Novell Inc * 6,859,950
284,400 Seagate Technology Corp * 4,977,000
170,500 Storage Technology Corp 3,708,375
3,600 Xerox Corp 316,125
-------------
276,479,298
-------------
Telecommunications--10.2%
224,100 Airtouch Communications Inc * 12,605,625
79,400 Alltel Corp 3,582,925
459,000 Ameritech Corp 21,630,374
1,351,700 AT & T Corp 67,753,962
548,414 Bell Atlantic Corp 24,198,767
215,500 Bellsouth Corp 14,775,219
298,100 CBS Corp 7,750,600
215,500 Century Telephone Enterprises Inc 9,778,313
58,300 Comcast Corp 2,178,963
692,800 GTE Corp 34,639,999
150,800 MCI Communications Corp 7,540,000
See accompanying notes to the financial statements. 7
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Telecommunications--continued
658,102 SBC Communications 25,007,875
134,300 Southern New England Telecommunications Corp 8,704,319
319,900 Sprint Corp 21,453,293
123,600 Tele-Communications, Class A * 4,078,800
560,300 US West Inc 29,135,599
355,100 Viacom Inc, Class B * 17,621,838
-------------
312,436,471
-------------
Tobacco--1.5%
1,081,200 Philip Morris Cos Inc 44,937,374
-------------
Transportation--2.6%
204,400 AMR Corp 11,139,800
349,500 Burlington Northern Santa Fe Railroad Co 32,525,343
123,800 CSX Corp 4,673,450
187,300 Kansas City Southern Industries 6,157,488
239,250 Southwest Airlines Inc 4,261,641
65,700 UAL Corp * 3,962,531
276,200 USAir Group Inc * 16,088,650
-------------
78,808,903
-------------
Utilities--8.2%
355,100 AES Corp * 9,676,475
1,200 Allegheny Energy Inc 31,950
900 Ameren Corp 35,606
257,400 American Electric Power Inc 11,647,350
258,700 Baltimore Gas and Electric Co 7,971,194
2,300 Calenergy Inc * 58,506
259,900 Carolina Power and Light Co 11,191,944
1,300 Central & South West Corp 33,963
333,900 Cinergy Corp 11,603,025
149,100 CMS Energy Corp 6,308,794
530,600 Coastal Corp 13,795,600
445,300 Consolidated Edison Inc 21,068,256
195,600 Dominion Resources Inc 8,154,075
256,950 DPL Inc 4,625,100
132,800 DQE Inc 4,739,300
800 DTE Energy Co 33,700
338,900 Duke Power Co 21,138,887
5,300 Dynegy Inc 50,681
607,700 Edison International 17,281,469
8 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Utilities--continued
23,400 El Paso Energy Corp 580,613
800 Energy East Corp 36,000
1,200 Entergy Corp 34,575
370,200 Firstenergy Corp 10,689,525
184,800 Florida Progress Corp 7,796,250
293,300 FPL Group Inc 19,522,781
1,700 General Public Utilities Inc 63,856
2,300 Houston Industries Inc 66,269
2,600 MCN Corp 45,663
65,000 New Century Energies Inc 2,998,125
800 New England Electric System 32,300
2,100 Niagara Mohawk Power Corp * 32,550
157,300 Nipsco Industries Inc 4,601,025
2,400 Northern States Power Co 63,600
367,200 Pacificorp 8,284,950
1,100 Peco Energy Co 37,675
595,500 PG & E Corp 19,130,438
202,900 Pinnacle West Capital Corp 8,762,744
2,700 Potomac Electric Power Co 66,150
1,500 PP & L Resources Inc 35,344
1,000 Public Service Enterprise Group Inc 36,625
2,500 Puget Sound Power and Light Co 62,813
196,900 Scana Corp 6,042,369
2,500 Sempra Energy * 63,594
2,500 Southern Co 70,313
2,400 Teco Energy Inc 63,750
800 Texas Utilities Co 34,000
900 Unicom Corp 32,063
1,600 Western Resources Inc 64,500
393,500 Wisconsin Energy Corp 11,436,094
---------------
250,232,429
---------------
TOTAL COMMON STOCKS (Cost $2,724,648,671) 2,780,908,419
---------------
RIGHTS AND WARRANTS--0.0%
Oil and Gas--0.0%
1,600 Petrofina SA Warrants Expires 8/05/03 6,900
---------------
TOTAL RIGHTS AND WARRANTS (Cost $7,600) 6,900
-------------
See accompanying notes to the financial statements. 9
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Schedule of Investments (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares/
Par Value ($) Description Value ($)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--16.4%
Cash Equivalents--5.5%
$ 17,409,921 BankBoston Eurodollar Time Deposit, 5.8925%
due 9/1/98/(a)/ 17,409,921
28,435,247 Merrimac Cash Fund Premium Class/(a)/ 28,435,247
$121,000,000 Prudential Securities Group Inc, Master Note,
5.94% due 9/1/98/(a)/ 121,000,000
---------------
166,845,168
---------------
U.S. Government--0.5%
$ 14,750,000 U.S. Treasury Bill, 4.875%, due 11/12/98/(b)/ 14,608,105
---------------
Repurchase Agreements--10.4%
$164,368,852 Salomon Smith Barney Inc. Repurchase
Agreement, dated 8/31/98, due 9/1/98, with a
maturity value of $164,392,503 and an
effective yield of 5.18%, collateralized by
U.S. Treasury Obligations with rates ranging
from 5.375% to 11.25%, maturity dates ranging
from 6/30/00 to 2/15/15 and an aggregate
market value of $167,656,229. 164,368,852
$153,664,187 Prudential Securities Inc. Repurchase
Agreement, dated 8/31/98, due 9/1/98, with a
maturity value of $153,686,255 and an
effective yield of 5.17%, collateralized by
U.S. Treasury Obligations and U.S. Government
Agency Obligations with rates ranging from
0.00% to 11.00%, maturity dates ranging from
6/01/07 to 5/01/35 and an aggregate market
value of $156,738,740. 153,664,187
---------------
318,033,039
---------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $499,484,357) 499,486,312
---------------
TOTAL INVESTMENTS--107.4%
(COST $3,224,140,628) 3,280,401,631
Other Assets and Liabilities (net)--(7.4)% (225,065,362)
---------------
TOTAL NET ASSETS--100% $3,055,336,269
===============
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 U.S. Core Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $2,906,107,589) (Note 1) $ 2,962,368,592
Repurchase agreements, at value (cost $318,033,039) (Note 1) 318,033,039
Receivable for investments sold 109,186,433
Dividends and interest receivable 6,135,909
Receivable for expenses waived or borne by Manager (Note 2) 637,313
Receivable for Fund shares sold 195,683
---------------
Total assets 3,396,556,969
---------------
Liabilities:
Payable for investments purchased 92,326,425
Payable upon return of securities loaned (Note 1) 166,845,168
Payable for Fund shares repurchased 25,047,518
Payable to affiliate for (Note 2):
Management fee 1,544,200
Shareholder service fee 380,780
Payable for open swap contracts (Notes 1 and 6) 35,451,534
Payable for variation margin on open futures contracts (Notes 1 and 6) 19,372,013
Accrued expenses 253,062
---------------
Total liabilities 341,220,700
---------------
Net assets $ 3,055,336,269
===============
Net assets consist of:
Paid-in capital $ 2,630,722,046
Accumulated undistributed net investment income 9,078,421
Accumulated undistributed net realized gain 428,147,976
Net unrealized depreciation (12,612,174)
===============
$ 3,055,336,269
===============
Net assets attributable to:
Class II shares $ 28,981,795
===============
Class III shares $ 1,932,153,255
===============
Class IV shares $ 1,094,201,219
===============
Shares outstanding:
Class II 1,748,004
===============
Class III 116,466,487
===============
Class IV 65,961,751
===============
Net asset value per share:
Class II $ 16.58
===============
Class III $ 16.59
===============
Class IV $ 16.59
===============
</TABLE>
See accompanying notes to the financial statements. 11
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $117,516) $ 27,502,206
Interest (including securities lending income of $219,009) 7,625,754
-------------
Total income 35,127,960
-------------
Expenses:
Management fee (Note 2) 9,695,352
Custodian and transfer agent fees 264,224
Registration fees 89,920
Legal fees 47,715
Audit fees 24,197
Trustees fees (Note 2) 15,646
Miscellaneous 13,936
Fees waived or borne by Manager (Note 2) (4,056,769)
-------------
6,094,221
Shareholder service fee (Note 2)
Class II 30,852
Class III 1,748,711
Class IV 700,248
-------------
Net expenses 8,574,032
-------------
Net investment income 26,553,928
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 442,898,815
Closed futures contracts 21,830,834
Closed swap contracts (33,311,315)
-------------
Net realized gain 431,418,334
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (725,630,234)
Open futures contracts (49,785,806)
Open swap contracts (19,207,906)
-------------
Net unrealized loss (794,623,946)
-------------
Net realized and unrealized loss (363,205,612)
-------------
Net decrease in net assets resulting from operations $(336,651,684)
=============
12 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 26,553,928 $ 56,402,615
Net realized gain 431,418,334 612,092,124
Change in net unrealized appreciation (depreciation) (794,623,946) 380,077,253
-------------- -------------
Net increase (decrease) in net assets resulting from operations (336,651,684) 1,048,571,992
-------------- -------------
Distributions to shareholders from:
Net investment income
Class I -- (154,654)
Class II (202,162) (635,110)
Class III (17,494,080) (50,102,134)
Class IV (10,668,574) --
-------------- -------------
Total distributions from net investment income (28,364,816) (50,891,898)
-------------- -------------
Net realized gains
Class I -- (3,363,020)
Class II (2,314,423) (12,616,955)
Class III (158,134,823) (918,932,927)
Class IV (89,907,769) --
-------------- -------------
Total distributions from net realized gains (250,357,015) (934,912,902)
-------------- -------------
(278,721,831) (985,804,800)
-------------- -------------
Net share transactions: (Note 5)
Class I -- (7,566,242)
Class II 18,395,075 (50,419,336)
Class III 5,963,933 (643,189,534)
Class IV (58,245,365) 1,217,792,446
-------------- -------------
Increase (decrease) in net assets resulting from net share
transactions (33,886,357) 516,617,334
-------------- -------------
Total increase (decrease) in net assets (649,259,872) 579,384,526
Net assets:
Beginning of period 3,704,596,141 3,125,211,615
-------------- -------------
End of period (including accumulated undistributed net investment
income of $9,078,421 and $10,889,309, respectively) $3,055,336,269 $3,704,596,141
============== ==============
</TABLE>
See accompanying notes to the financial statements. 13
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class I share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
March 1, 1997 Period from July 2, 1996
to January 9, (commencement of operations)
1998 to February 28, 1997
--------------- ----------------------------
<S> <C> <C>
Net asset value, beginning of period $20.12 $ 18.97
------- --------
Income from investment operations:
Net investment income 0.27 + 0.20
Net realized and unrealized gain 3.60 2.88
------- --------
Total from investment operations 3.87 3.08
------- --------
Less distributions to shareholders:
From net investment income (0.28) (0.19)
From net realized gains (6.05) (1.74)
------- --------
Total distributions (6.33) (1.93)
------- --------
Net asset value, end of period $17.66/(a)/ $ 20.12
======= ========
Total Return/(b)/ 20.54% 16.84%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 9,104
Net expenses to average daily net assets 0.61%* 0.61%*
Net investment income to average daily net
assets 1.56%* 1.55%*
Portfolio turnover rate 60% 107%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.04 $ 0.02
</TABLE>
+ Computed using average shares outstanding throughout the period.
/(a)/All Class I shares of the Fund were exchanged for Class II shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
/(b)/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 U.S. Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class II share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
June 7, 1996
Six Months (commencement
Ended Period from Period from of
August 31, January 9, 1998 March 1, 1997 operations)
1998 to February 28, to November 17, to February
(Unaudited) 1998 1997 28, 1997
------------ ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 19.98 $ 17.65 $20.10 $20.12
-------- -------- ------- -------
Income from investment operations:
Net investment income 0.14+ 0.04+ 0.24+ 0.25
Net realized and unrealized
gain (loss) (1.90) 2.29 3.99 2.92
-------- -------- ------- -------
Total from investment
operations (1.76) 2.33 4.23 3.17
-------- -------- ------- -------
Less distributions to shareholders:
From net investment income (0.16) 0.00 (0.22) (0.30)
From net realized gains (1.48) 0.00 (3.90) (2.89)
-------- -------- ------- -------
Total distributions (1.64) 0.00 (4.12) (3.19)
-------- -------- ------- -------
Net asset value, end of period $ 16.58 $ 19.98 $20.21 $20.10
======== ======== ======= =======
Total Return/(a)/ (10.20)% 13.20% 23.00% 17.46%
Ratios/Supplemental Data:
Net assets, end of period
(000's) $28,982 $16,958 $2,037 $64,763
Net expenses to average daily
net assets 0.55%* 0.55%* 0.55%* 0.55%*
Net investment income to
average daily net assets 1.40%* 1.53%* 1.66%* 1.63%*
Portfolio turnover rate 42% 60% 60% 107%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the
following per share
amounts: $ 0.02 $ 0.01 $ 0.03 $ 0.03
</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 U.S. 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, 1998 ---------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
--------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.99 $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment
income 0.15 0.35 0.36 0.41 0.41 0.42
Net realized and
unrealized gain
(loss) (1.91) 5.89 3.58 5.49 0.66 1.59
---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations (1.76) 6.24 3.94 5.90 1.07 2.01
---------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment
income (0.16) (0.32) (0.39) (0.42) (0.39) (0.43)
From net realized
gains (1.48) (6.05) (2.89) (1.47) (1.01) (1.53)
---------- ---------- ---------- ---------- ---------- ----------
Total
distributions (1.64) (6.37) (3.28) (1.89) (1.40) (1.96)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end
of period $ 16.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45 $ 15.78
========== ========== ========== ========== ========== ==========
Total Return/(a)/ (10.19)% 36.69% 22.05% 39.08% 7.45% 13.36%
Ratios/Supplemental Data:
Net assets, end of
period (000's) $1,932,153 $2,317,103 $3,051,344 $3,179,314 $2,309,248 $1,942,005
Net expenses to
average daily net
assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment
income to average
daily net assets 1.42%* 1.67% 1.78% 2.25% 2.63% 2.56%
Portfolio turnover
rate 42% 60% 107% 77% 99% 40%
Fees and expenses
voluntarily
waived or borne
by the Manager
consisted of the
following per
share amounts: $ 0.02 $ 0.05 $ 0.04 $ 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.
* Annualized.
16 See accompanying notes to the financial statements.
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout the period)
- --------------------------------------------------------------------------------
Period from
January 9, 1998
(commencement of
Six Months Ended operations)
August 31, 1998 to February 28,
(Unaudited) 1998
----------- ---------------
Net asset value, beginning of period $ 19.99 $ 17.65
----------- -----------
Income from investment operations:
Net investment income 0.15 0.04+
Net realized and unrealized gain (loss) (1.90) 2.30
----------- -----------
Total from investment operations (1.75) 2.34
----------- -----------
Less distributions to shareholders:
From net investment income (0.17) 0.00
From net realized gains (1.48) 0.00
----------- -----------
Total distributions (1.65) 0.00
----------- -----------
Net asset value, end of period $ 16.59 $ 19.99
=========== ===========
Total Return/(a)/ (10.16)% 13.26%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,094,201 $1,370,535
Net expenses to average daily net assets 0.435%* 0.435%*
Net investment income to average daily net 1.46%* 1.670%*
assets
Portfolio turnover rate 42% 60%
Fees and expenses voluntarily waived or
borne by the Manager consisted of the
following per share amount: $ 0.02 $ 0.01
* Annualized.
+ Computed using average shares outstanding throughout the period.
/(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. 17
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO U.S. Core Fund (the "Fund"), formerly named the GMO Core Fund is a
series of GMO Trust (the "Trust"). The Fund is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
management investment company. The Fund is advised and managed by Grantham,
Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was
established as a Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust
permits the Trustees to create an unlimited number of series ("Funds"),
each of which issues a separate series of shares, and to subdivide a series
of shares into classes.
The Fund seeks 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II, and Class III. Effective January 9, 1998, Class I shares
ceased operations and all shares were exchanged for Class II shares.
Additionally, Class IV commenced operations on January 9, 1998. The
principal economic difference among the classes of shares is the level of
shareholder service fee borne by the classes. Eligibility for and automatic
conversion between the various classes of shares is generally based on the
total amount of assets invested with GMO, as more fully outlined in the
Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on 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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S.
18
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to qualified brokers. The loans are
collateralized at all times with cash or securities with a market value at
least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At August 31, 1998, the Fund loaned securities having a market
value of $161,069,347, collateralized by cash in the amount of
$166,845,168, 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. The Fund also enters into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the
19
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
measurement period are recorded as realized gain or loss in the Statement
of Operations. Entering into these agreements involves, to varying degrees,
elements of credit and market risk in excess of the amounts recognized on
the Statement of Assets and Liabilities. Such risks involve the possibility
that there is no liquid market for these agreements, that the counterparty
to the agreements may default on its obligation to perform, or that there
may be unfavorable changes in the price of the security or index underlying
these transactions. See Note 6 for a summary of all open swap agreements as
of August 31, 1998.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions. The Fund declares separate dividends from net investment
income on each class of shares.
Income 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 of shares of the Fund based on the relative net
assets of each class. Shareholder service fees, which are directly
attributable to a class of shares, are charged to that class' operations.
20
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. This fee is allocated relative to each class' net assets
on the share transaction date. Purchase premiums are included as part of
each class' "shares sold", as summarized in Note 5. For the six months
ended August 31, 1998, the Fund received $301,283 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .22%
for Class II shares, .15% for Class III shares, and .105% for Class IV
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $15,646. 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, 1998,
aggregated $1,393,885,187 and $1,717,598,131, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and deprecation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
- ---------------------- ------------------- ------------------ ---------------
$3,224,140,628 $301,604,040 $245,343,037 $56,261,003
21
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
4. Principal shareholder
At August 31, 1998, 11.4% of the outstanding shares of the Fund was held by
one shareholder.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997 to
Class I: January 9, 1998
---------------------------------
Shares Amount
--------------- --------------
<S> <C> <C>
Shares sold 99,736 $ 2,066,431
Shares issued to shareholders in
reinvestment of distributions 185,582 3,406,784
Shares repurchased (737,826) (13,039,457)
--------------- ---------------
Net decrease (452,508) $ (7,566,242)
=============== ===============
<CAPTION>
Period from March 1, 1997 to
November 17, 1997 and from
Six Months Ended January 9, 1998 to
Class II: August 31, 1998 February 28, 1998
---------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares sold 895,910 $ 18,403,737 848,657 $ 15,209,664
Shares issued to shareholders
in reinvestment of
distributions 122,270 2,439,338 715,803 13,252,065
Shares repurchased (118,833) (2,448,000) (3,937,206) (78,881,065)
--------------- ---------------- --------------- ---------------
Net increase (decrease) 899,347 $ 18,395,075 (2,372,746) $ (50,419,336)
=============== ================ =============== ===============
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
--------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 6,153,124 $ 126,135,813 24,696,860 $ 486,032,574
Shares issued to shareholders
in reinvestment of
distributions 8,463,486 169,102,350 51,611,877 948,323,899
Shares repurchased (14,085,052) (289,274,230) (112,049,490) (2,077,546,007)
--------------- --------------- --------------- ----------------
Net increase (decrease) 531,558 $ 5,963,933 (35,740,753) $ (643,189,534)
=============== =============== =============== ================
</TABLE>
22
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions -- continued
<TABLE>
<CAPTION>
Period from January 9, 1998
Six Months Ended (commencement of operations)
Class IV: August 31, 1998 to February 28, 1998
--------------------------------- ---------------------------------
Shares Amount Shares Amount
--------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 5,406,027 108,663,152 68,811,049 $ 1,222,405,143
Shares issued to shareholders
in reinvestment of
distributions 4,990,038 99,777,429 -- --
Shares repurchased (13,007,595) (266,685,946) (237,768) (4,612,697)
--------------- ---------------- -------------- ----------------
Net increase (decrease) (2,611,530) (58,245,365) 68,573,281 $ 1,217,792,446
=============== ================ ============== ================
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- -------------- ------------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
782 S&P 500 September 1998 $186,507,000 $(30,941,708)
126 S&P 500 December 1998 $ 30,359,700 (2,479,935)
-------------------
$(33,421,643)
===================
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
23
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------- ------------ ----------------------------------------- -----------------
<S> <C> <C> <C>
$ 141,250,026/ 9/11/98 Agreement with Morgan Stanley Capital $ (16,909,476)
100,743,942 Services, Inc. dated 9/08/97 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 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.
13,924,003/ 9/23/98 Agreement with NatWest Securities (2,154,044)
12,928,415 Limited dated 9/16/97 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 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 counterparty's
notional amount multiplied by 6 month
LIBOR adjusted by a specified spread.
41,588,560/ 10/07/98 Agreement with Morgan Stanley Capital (4,766,203)
35,176,432 Services, Inc. dated 10/02/97 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 6 month
LIBOR adjusted by a specified spread and
to receive (pay) the counterpartie's
notional amount multiplied by the return
on the Russell 2000 Index (including
dividends) less the counterpartie's
notional amount multiplied by 6 month
LIBOR adjusted by a specified spread.
</TABLE>
24
<PAGE>
GMO U.S. Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------- ------------ ----------------------------------------- -----------------
<S> <C> <C> <C>
$ 144,976,578/ 5/18/99 Agreement with Morgan Stanley Capital $ (11,621,811)
99,058,233 Services, Inc. dated 5/13/98 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
-----------------
$ (35,451,534)
=================
</TABLE>
25
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Common Stocks -- 91.7%
Advertising -- 0.1%
10,000 Cordiant Communications Group PLC ADR 96,250
----------
Aerospace -- 0.1%
2,500 Boeing Company 77,344
----------
Automotive -- 2.3%
10,000 General Motors Corp 577,500
22,500 Mascotech Industries Inc 393,750
17,500 Michelin (CGDE), Class B 743,232
----------
1,714,482
----------
Banking and Financial Services -- 8.2%
10,000 American Express Co 780,000
35,000 Block (HR) Inc 1,369,374
32,500 Chase Manhattan Corp 1,722,499
10,000 Citicorp 1,081,250
22,500 Travelers Group Inc 998,438
1,200 Unibanco GDR 18,000
----------
5,969,561
----------
Chemicals -- 0.4%
1,500 Du Pont (EI) De Nemours & Co 86,531
5,000 Engelhard Corp 91,875
7,500 Wellman Inc 85,781
----------
264,187
----------
Computer and Office Equipment -- 3.5%
15,000 Electronic Data Systems Corp 502,500
16,500 IBM Corp 1,858,312
35,000 Intergraph Corp * 220,938
----------
2,581,750
----------
Consumer Goods -- 2.5%
15,000 Eastman Kodak Co 1,171,874
15,000 Maytag Corp 646,875
----------
1,818,749
----------
Electronic Equipment -- 0.9%
50,000 International Rectifier Corp * 212,500
20,000 National Semiconductor Corp * 182,500
17,500 Stewart & Stevenson Services Corp 228,594
----------
623,594
----------
See accompanying notes to the financial statements. 1
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Food and Beverage -- 4.4%
25,000 Anheuser Busch Cos Inc 1,153,124
20,000 Fresh Del Monte Produce Inc * 320,000
5,000 General Mills Co 327,188
15,000 Nestle SA ADR 1,390,748
----------
3,191,060
----------
Health Care -- 1.2%
10,000 Baxter International Inc 532,500
10,000 Haemonetics Corp * 156,875
25,000 Phycor Inc * 173,438
----------
862,813
----------
Insurance -- 4.0%
2,500 Aetna Life and Casualty Co 150,469
15,000 Allstate Corp 562,500
12,500 Chartwell Re Corp 328,906
25,000 Reliance Group Holdings Inc 315,625
25,000 Sedgwick Group ADR 415,625
55,000 TIG Holdings Inc 759,688
25,000 Willis Corroon Group Plc ADR 401,563
----------
2,934,376
----------
Machinery -- 1.9%
5,000 Baker Hughes Inc 91,250
15,000 Cincinnati Milacron Inc 290,625
2,500 FMC Corp * 129,375
25,000 Pall Corp 512,500
10,000 Stanley Works 393,750
----------
1,417,500
----------
Manufacturing -- 5.5%
10,000 Clayton Homes Inc 154,375
27,500 Corning Inc 677,188
15,000 General Electric Co 1,199,999
5,000 Griffon Corp * 44,375
31,000 Owens Corning 1,086,937
5,000 Rockwell International Corp 181,250
10,000 Tenneco Inc 316,875
5,000 United Technologies Corp 362,813
----------
4,023,812
----------
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, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Metals and Mining -- 0.7%
25,000 Amcol International Corp 293,750
10,000 Newmont Mining Corp 136,875
10,000 Placer Dome Inc 80,625
----------
511,250
----------
Oil and Gas -- 6.0%
5,000 Burlington Resources Inc 147,813
25,000 EEX Corp * 110,938
20,000 Enron Oil & Gas 260,000
100,000 Gulf Canada Resources Ltd 300,000
22,500 Mitchell Energy, Class B 315,000
40,000 Occidental Petroleum Corp 740,000
5,000 Texaco Inc 277,813
5,000 Total SA ADR 240,313
55,000 Union Pacific Resources Group 470,938
15,000 Unocal Corp 469,688
25,000 USX - Marathon Group 650,000
25,000 Westcoast Energy Inc 442,188
----------
4,424,691
----------
Paper and Allied Products -- 1.5%
7,500 Fort James Corp 218,438
5,000 International Paper Co 185,000
10,000 Kimberly Clark Corp 381,250
7,500 Weyerhaeuser Co 281,719
----------
1,066,407
----------
Pharmaceuticals -- 2.6%
22,500 Lilly (Eli) & Co 1,473,749
7,500 Smithkline Beecham PLC ADR 426,563
----------
1,900,312
----------
Printing and Publishing -- 0.3%
10,000 News Corporation Ltd ADR 240,625
----------
Real Estate -- 8.4%
37,500 Amli Residential Properties Trust 740,625
10,000 Equity Office Properties 226,875
5,000 Equity Residential Properties Trust 199,688
70,000 JP Realty Inc 1,408,749
See accompanying notes to the financial statements. 3
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate -- continued
22,500 Simon Debartolo Group Inc 653,906
5,000 Spieker Properties Inc 177,813
75,000 Summit Properties Inc 1,256,249
12,500 Tower Realty Trust Inc 263,281
37,500 United Dominion Realty Trust 435,938
35,000 Walden Residential Properties Inc 791,875
----------
6,154,999
----------
Retail Trade -- 6.2%
5,000 Dillards Department Stores Inc 144,375
25,000 Federated Department Stores * 1,089,062
25,000 Saks Holdings * 523,438
25,000 Sears Roebuck & Co 1,135,937
35,000 Toys R Us Inc * 649,688
17,500 Wal Mart Stores Inc 1,028,125
----------
4,570,625
----------
Services -- 5.7%
30,000 Browning Ferris Industries Inc 975,000
10,000 Hilton Hotels Corp 207,500
17,500 Manpower Inc 356,563
10,000 Pinkertons Inc * 148,750
50,000 Waste Management Inc 2,206,249
25,000 Waste Management International PLC ADR * 264,063
----------
4,158,125
----------
Technology -- 5.0%
5,000 Avnet Inc 236,250
45,000 Compaq Computer Corp 1,257,187
22,500 Data General Corp * 168,750
10,000 G TECH Holdings Corp * 262,500
37,500 Information Resources Inc * 365,625
25,000 Novell Inc * 237,500
42,500 Storage Technology Corp * 924,375
2,500 Xerox Corp 219,531
----------
3,671,718
----------
Telecommunications -- 4.6%
5,000 CBS Corp 130,000
7,500 Cox Communications, Class A * 315,000
35,000 GTE Corp 1,749,999
12,500 MediaOne Group Inc 512,500
12,500 US West Inc 650,000
----------
3,357,499
----------
4 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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<C> <S> <C>
Transportation -- 2.9%
7,500 AMR Corp * 408,750
25,000 Canadian Pacific 473,438
2,500 Delta Air Lines Inc 255,000
22,500 Ryder System Inc 530,156
2,500 UAL Corp * 150,781
5,000 USAir Group Inc * 291,250
----------
2,109,375
----------
Utilities -- 12.8%
20,000 Cinergy Corp 695,000
12,500 Dominion Resources Inc 521,094
50,000 DPL Inc 900,000
12,500 Duke Power Co 779,688
5,000 Entergy Corp 144,063
10,000 Firstenergy Corp 288,750
37,500 Houston Industries Inc 1,080,469
5,000 Illinova Corp 129,063
70,000 Niagara Mohawk Power Corp * 1,085,000
20,000 Pacificorp 451,250
25,000 Public Service Enterprise Group Inc 915,625
35,000 Texas Utilities Co 1,487,499
25,000 Unicom Corp 890,625
----------
9,368,126
----------
TOTAL COMMON STOCKS (COST $57,258,310) 67,109,230
----------
PREFERRED STOCKS -- 4.4%
Health Care -- 0.1%
12,500 Medpartners Inc 6.5% 74,219
----------
Metals and Mining -- 0.9%
37,500 Freeport McMoran Corp $0.34 667,969
----------
Oil and Gas -- 1.2%
17,500 Unocal Corp Convertible 6.25% 144A 872,813
----------
Primary Processing -- 0.6%
10,000 Armco Inc Convertible $3.625 427,500
----------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
Shares Description Value ($)
- --------------------------------------------------------------------------------
Real Estate -- 0.7%
25,000 Reckson Associates Realty Corp 7.625% 525,000
-----------
Transportation -- 0.9%
15,000 Union Pacific Capital Trust 6.25% 144A 667,500
-----------
TOTAL PREFERRED STOCKS (COST $4,256,469) 3,235,001
-----------
DEBT OBLIGATIONS -- 1.3%
Oil and Gas -- 1.3%
$1,000,000 Noram Energy Corp, 6.00% due 3/15/12 940,000
-----------
TOTAL DEBT OBLIGATIONS (COST $815,045) 940,000
-----------
SHORT-TERM INVESTMENTS -- 11.3%
Cash Equivalents -- 8.3%
$ 551,500 BankBoston Eurodollar Time Deposit, 5.8925% due 551,500
9/1/98(a)
3,500,000 Merrimac Cash Fund Premium Class(a) 3,500,000
$ 2,000,000 Prudential Securities Group Inc, Master Note, 2,000,000
5.94% due 9/1/98(a)
-----------
6,051,500
-----------
Repurchase Agreement -- 3.0%
$2,210,219 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/98, due 9/1/98, with a maturity value
of $2,210,537 and an effective yield of 5.18%,
collateralized by a U.S. Treasury Obligation with
a rate of 5.625%, maturity date of 12/31/99 and
market value of $2,254,423. 2,210,219
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $8,261,719) 8,261,719
-----------
TOTAL INVESTMENTS -- 108.7%
(COST $70,591,543) 79,545,950
Other Assets and Liabilities (net) -- (8.7)% (6,376,282)
-----------
TOTAL NET ASSETS -- 100% $73,169,668
===========
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
GDR - Global Despository Receipt
144A - Securities exempt from registration under rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional investors.
* Non-income producing security.
/(a)/ Represents investments of security lending collateral (Note 1).
See accompanying notes to the financial statements. 7
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, at value (cost $70,591,543) (Note 1) $79,545,950
Receivable for investments sold 667,118
Dividends and interest receivable 213,566
Receivable for expenses waived or borne by Manager (Note 2) 13,757
-----------
Total assets 80,440,391
-----------
Liabilities:
Payable for investments purchased 1,121,957
Payable upon return of securities loaned (Note 1) 6,051,500
Payable to affiliate for (Note 2):
Management fee 51,586
Shareholder service fee 9,453
Accrued expenses 36,227
-----------
Total liabilities 7,270,723
-----------
Net assets $73,169,668
===========
Net assets consist of:
Paid-in capital $41,540,434
Accumulated undistributed net investment income 411,862
Accumulated undistributed net realized gain 22,262,965
Net unrealized appreciation 8,954,407
===========
$73,169,668
===========
Net assets attributable to:
Class III shares $73,169,668
===========
Shares outstanding:
Class III 8,136,290
===========
Net asset value per share:
Class III $ 8.99
===========
8 See accompanying notes to the financial statements.
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of withholding taxes of $14,359) $1,315,079
Interest (including securities lending income of $9,732) 138,609
----------
Total income 1,453,688
----------
Expenses:
Management fee (Note 2) 440,573
Audit fees 15,731
Custodian and transfer agent fees 14,641
Legal fees 1,208
Registration fees 951
Trustees fees (Note 2) 552
Miscellaneous 462
Fees waived or borne by Manager (Note 2) (121,661)
----------
352,457
Shareholder service fee (Note 2)
Class III 88,115
----------
Net expenses 440,572
----------
Net investment income 1,013,116
----------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 22,419,881
Foreign currency, forward contracts and foreign
currency related transactions 49
----------
Net realized gain 22,419,930
----------
Change in net unrealized appreciation (depreciation) on:
Investments (28,810,829)
----------
Net unrealized loss (28,810,829)
----------
Net realized and unrealized loss (6,390,899)
----------
Net decrease in net assets resulting from operations $(5,377,783)
==========
See accompanying notes to the financial statements. 9
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,013,116 $ 3,498,576
Net realized gain 22,419,930 70,085,215
Change in net unrealized appreciation (depreciation) (28,810,829) (21,715,271)
----------- ------------
Net increase (decrease) in net assets resulting from operations (5,377,783) 51,868,520
----------- ------------
Distributions to shareholders from:
Net investment income
Class III (990,365) (4,080,386)
----------- ------------
Total distributions from net investment income (990,365) (4,080,386)
----------- ------------
Net realized gains
Class III (19,049,773) (60,475,201)
----------- ------------
Total distributions from net realized gains (19,049,773) (60,475,201)
----------- ------------
(20,040,138) (64,555,587)
----------- ------------
Net share transactions: (Note 5)
Class III (28,448,694) (92,859,874)
----------- ------------
Decrease in net assets resulting from net share transactions (28,448,694) (92,859,874)
----------- ------------
Total decrease in net assets (53,866,615) (105,546,941)
Net assets:
Beginning of period 127,036,283 232,583,224
----------- ------------
End of period (including accumulated undistributed net investment
income of $411,862 and $389,111, respectively) $73,169,668 $127,036,283
=========== ============
</TABLE>
10 See accompanying notes to the financial statements.
<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 August
31, 1998 Year Ended February 28/29,
----------- ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.92 $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71
-------- -------- -------- -------- -------- ---------
Income from investment operations:
Net investment income 0.11 0.35 0.33 0.37 0.34 0.27
Net realized and unrealized
gain (loss) (0.97) 3.90 2.53 3.26 0.55 1.64
-------- -------- -------- -------- -------- ---------
Total from investment
operations (0.86) 4.25 2.86 3.63 0.89 1.91
-------- -------- -------- -------- -------- ---------
Less distributions to shareholders:
From net investment income (0.10) (0.38) (0.32) (0.37) (0.32) (0.28)
From net realized gains (1.97) (8.28) (1.25) (0.76) (0.52) (0.85)
-------- -------- -------- -------- -------- ---------
Total distributions (2.07) (8.66) (1.57) (1.13) (0.84) (1.13)
-------- -------- -------- -------- -------- ---------
Net asset value, end of period $ 8.99 $ 11.92 $ 16.33 $ 15.04 $ 12.54 $ 12.49
======== ======== ======== ======== ======== =========
Total Return /(a)/ (9.73)% 30.43% 20.03% 29.95% 7.75% 16.78%
Ratios/Supplemental Data:
Net assets, end of period $73,170 $127,036 $232,583 $212,428 $182,871 $147,767
(000's)
Net expenses to average daily
net assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.75%
Net investment income to
average daily net assets 1.72%* 1.84% 2.15% 2.61% 2.84% 2.32%
Portfolio turnover rate 14% 21% 25% 34% 49% 65%
Fees and expenses voluntarily
waived or borne by the
Manager consisted of the $ 0.01 $ 0.04 $ 0.02 $ 0.01 $ 0.01 $ 0.01
following per share
amounts:
</TABLE>
/(a)/ Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
See accompanying notes to the financial statements. 11
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Fundamental Value Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks long-term capital growth through investment primarily in
equity securities.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of 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. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
12
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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, 1998, the Fund
loaned securities having a market value of $5,777,474, collateralized by
cash in the amount of $6,051,500, 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 net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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. Dividends representing a return
of capital are reflected as a reduction of cost.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated 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.
13
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded by the Fund as paid-in
capital. Purchase premiums are included as part of "shares sold" as
summarized in Note 5. For the six months ended August 31, 1998, the Fund
received no 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets at the annual rate of .15% for Class III
shares.
GMO has 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $552. 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, 1998,
aggregated $15,549,740 and $63,135,361, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Appreciation
---------------- ---------------- -------------------- -----------------
$70,591,543 $16,025,496 $7,071,089 $8,954,407
4. Principal shareholders
At August 31, 1998, 99.8% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
14
<PAGE>
GMO Fundamental Value Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
--------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 5,670 $ 100,000
Shares issued to shareholders
in reinvestment of
distributions 1,797,284 19,051,306 5,160,848 61,023,843
Shares repurchased (4,316,367) (47,500,000) (8,757,323) (153,983,717)
--------------- ---------------- --------------- ---------------
Net decrease (2,519,083) $ (28,448,694) (3,590,805) $ (92,859,874)
=============== ================ =============== ===============
</TABLE>
15
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS-- 100.0%
411,272 GMO Emerging Country Debt Fund 2,373,042
1,451,067 GMO Emerging Markets Fund 7,676,147
885,806 GMO Evolving Countries Fund 4,048,134
109,613 GMO Inflation Indexed Bond Fund 1,120,248
173,166 GMO International Bond Fund 1,764,560
2,343,085 GMO International Core Fund 48,408,130
266,266 GMO International Small Companies Fund 2,923,603
73,517 GMO U.S. Bond/Global Alpha A Fund 771,927
------------
TOTAL MUTUAL FUNDS (Cost $92,328,366) 69,085,791
------------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreement -- 0.0%
$ 10,135 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $10,136 and
an effective yield of 5.18%, collateralized by a U.S.
Treasury Obligation with a rate of 11.25%, maturity date of
2/15/15 and market value of $10,338. 10,135
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $10,135) 10,135
-----------
TOTAL INVESTMENTS-- 100.0%
(Cost $92,338,501) 69,095,926
Other Assets and Liabilities (net)-- 0.00% (14,099)
------------
TOTAL NET ASSETS-- 100% $69,081,827
============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $92,338,501) (Note 1) $69,095,926
Receivable for expenses waived or borne by Manager (Note 2) 1,643
------------
Total assets 69,097,569
------------
Liabilities:
Accrued expenses 15,742
------------
Total liabilities 15,742
------------
Net assets $69,081,827
============
Net assets consist of:
Paid-in capital $90,762,010
Accumulated undistributed net investment income 110,669
Accumulated undistributed net realized gain 1,451,723
Net unrealized depreciation (23,242,575)
============
$69,081,827
============
Net assets attributable to:
Class III shares $69,081,827
============
Shares outstanding:
Class III 8,716,302
============
Net asset value per share:
Class III $ 7.93
============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends from investment company shares $ 110,234
Interest 435
-------------
Total income 110,669
-------------
Expenses:
Registration fees 8,635
Custodian and transfer agent fees 7,917
Audit fees 7,870
Legal fees 1,188
Trustees fees (Note 2) 366
Miscellaneous 366
Fees waived or borne by Manager (Note 2) (26,342)
-------------
Net expenses --
-------------
Net investment income 110,669
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (416,370)
Realized gain distributions from investment company shares 2,445,695
-------------
Net realized gain 2,029,325
-------------
Change in net unrealized appreciation (depreciation) on investments (17,070,258)
-------------
Net realized and unrealized loss (15,040,933)
-------------
Net decrease in net assets resulting from operations $(14,930,264)
=============
</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
August 31, Year Ended
1998 February 28,
(Unaudited) 1998
--------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 110,669 $ 2,241,625
Net realized gain 2,029,325 8,051,936
Change in net unrealized appreciation
(depreciation) (17,070,258) (6,728,168)
----------- -----------
Net increase (decrease) in net assets
resulting from operations (14,930,264) 3,565,393
----------- -----------
Distributions to shareholders from:
Net investment income
Class I -- (195,254)
Class II -- (430,549)
Class III -- (1,615,822)
----------- -----------
Total distributions from net
investment income -- (2,241,625)
----------- -----------
In excess of net investment income
Class I -- (355)
Class II -- (783)
Class III -- (2,939)
----------- -----------
Total distributions in excess of
net investment income -- (4,077)
----------- -----------
Net realized gains
Class I -- (338,565)
Class II -- (872,870)
Class III (4,795,515) (3,087,812)
----------- -----------
Total distributions from net
realized gains (4,795,515) (4,299,247)
----------- -----------
(4,795,515) (6,544,949)
----------- -----------
Net share transactions: (Note 5)
Class I -- 1,138,414
Class II -- (13,394,265)
Class III 2,932,099 55,162,012
Increase in net assets resulting from
net share transactions 2,932,099 42,906,161
----------- -----------
Total increase (decrease) in net (16,793,680) 39,926,605
assets
Net assets:
Beginning of period 85,875,507 45,948,902
---------- -----------
End of period (including accumulated
undistributed net investment
income of $110,669 and $0,
respectively) $69,081,827 $85,875,507
=========== ===========
</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 January 9, 1998
------------------------------
<S> <C>
Net asset value, beginning of period $ 10.17
-------
Income from investment operations:
Net investment income (b) 0.45+
Net realized and unrealized loss (0.65)
-------
Total from investment operations (0.20)
-------
Less distributions to shareholders:
From net investment income (0.29)
In excess of net investment income --(d)
From net realized gains (0.58)
-------
Total distributions (0.87)
-------
Net asset value, end of period $ 9.10(c)
=======
Total Return (a) (2.40)%
Ratios/Supplemental Data:
Net assets, end of period (000's) --
Net expenses to average daily net assets 0.13%*
Net investment income to average daily net assets (b) 5.49%*
Portfolio turnover rate 16%
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.
(c) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(d) The per share distribution in excess of net investment income was $0.001.
+ 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>
Period from
March 1, 1997 Period from December 23, 1996
to January 9, (commencement of operations)
1998 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) 0.30+ --
Net realized and unrealized gain (loss) (0.74) 0.41
------- -------
Total from investment operations (0.44) 0.41
------- -------
Less distributions to shareholders:
From net investment income (0.29) (0.07)
In excess of net investment income --(e) --
From net realized gains (0.58) (0.03)
------- -------
Total distributions (0.87) (0.10)
------- -------
Net asset value, end of period $ 9.10(c) $ 10.41
======= =======
Total Return (a) (4.65) % 4.07 %
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $15,490
Net expenses to average daily net assets 0.07 %* 0.07 %*
Net investment income to average daily net assets (b) 3.23 %* (0.07)%*
Portfolio turnover rate 16 % 0 %
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share $ 0.01 (d)
amounts:
</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.
(c) All Class II shares of the fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
(e) The per share distribution in excess of net investment income was $0.001.
+ Computed using average shares outstanding throughout the period.
* Annualized.
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 Year Ended February 28,
August 31, 1998 --------------------------------
(Unaudited) 1998 1997 *
------------ ------ -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.18 $ 10.41 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income (b) 0.01 0.33+ 0.10
Net realized and unrealized gain (loss) (1.68) 0.31 0.41
-------- -------- --------
Total from investment operations (1.67) 0.64 0.51
-------- -------- --------
Less distributions to shareholders:
From net investment income -- (0.29) (0.07)
In excess of net investment income -- --(c) --
From net realized gains (0.58) (0.58) (0.03)
-------- -------- --------
Total distributions (0.58) (0.87) (0.10)
-------- -------- --------
Net asset value, end of period $ 7.93 $ 10.18 $ 10.41
======== ======== ========
Total Return (a) (17.40)% 6.73% 5.11%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 69,082 $ 85,876 $ 30,459
Net expenses to average daily net assets 0.00%** 0.00% 0.01%**
Net investment income to average daily net assets (b) 0.25%** 3.13% 3.60%**
Portfolio turnover rate 11% 16% 0.00%
Fees and expenses voluntarily waived or borne by the
Manager consisted of the following per share amounts: (d) $ 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.
(c) The per share distribution in excess of net investment income was $0.001.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Period from October 11, 1996 (commencement of operations) to
February 28, 1997.
** Annualized.
+ Computed using average shares outstanding throughout the period.
See accompanying notes to the financial statements. 7
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO International Equity Allocation Fund (the "Fund"), is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO EAFE-Lite Extended Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
shares of international equity and fixed income funds of the Trust.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares and
Class II shares ceased operations and all shares were exchanged for Class
III shares. 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
8
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the
value of the collateral declines or if the seller enters insolvency
proceedings, realization of collateral by the Fund may be delayed or
limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income 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. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. 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.
9
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 by the
Fund as paid-in capital. Purchase premiums are included as part of each
class' "shares sold" and redemption fees are included as part of each
class' "shares repurchased", respectively, as summarized in Note 5. For
the six months ended August 31, 1998, the Fund received $40,275 in
purchase premiums and $6,909 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
INVESTMENT RISK
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments 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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
and shareholder service fees from the underlying funds in which the Fund
invests. The Fund has adopted a Shareholder Service Plan under which the
Fund pays GMO a shareholder service fee for client and shareholder
service, reporting and other support. No shareholder service fee is
charged for Class III shares.
GMO has agreed to reimburse all expenses directly incurred by the Fund
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, 1998 was $366. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
10
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $9,746,226 and $9,042,864, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$92,338,501 $10,356 $23,252,931 $23,242,575
</TABLE>
4. Principal shareholders
At August 31, 1998, 42% of the outstanding shares of the Fund were held by
three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from April 1, 1997
Class I: (commencement of operations)
to January 9, 1998
----------------------------
Shares Amount
-------- ----------
<S> <C> <C>
Shares sold 679,610 $7,302,827
Shares issued to shareholders in reinvestment
of distributions 56,235 534,174
Shares repurchased (735,845) (6,698,587)
======== ==========
Net increase -- $1,138,414
======== ==========
</TABLE>
11
<PAGE>
GMO International Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions -- continued
<TABLE>
<CAPTION>
Period from March 1, 1997
Class II: to January 9, 1998
-------------------------------
Shares Amount
---------- -------------
<S> <C> <C>
Shares sold -- $ 64,521
Shares issued to shareholders in reinvestment
of distributions 135,087 1,304,202
Shares repurchased (1,622,588) (14,762,988)
========== ============
Net decrease (1,487,501) $(13,394,265)
========== ============
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
------------------------------- ---------------------------------
Shares Amount Shares Amount
----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 473,771 $ 5,034,315 5,640,062 $56,708,756
Shares issued to shareholders in reinvestment
of distributions 486,612 4,700,675 388,075 3,750,538
Shares repurchased (679,873) (6,802,891) (517,553) (5,297,282)
======== =========== ========= ===========
Net increase 280,510 $2,932,099 5,510,584 $55,162,012
======== =========== ========= ===========
</TABLE>
12
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of Gmo Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
Gmo Global Balanced Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value ($) Description Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
59,372 GMO Currency Hedged International Bond Fund 613,312
769,451 GMO Currency Hedged International Core Fund 7,656,037
1,944,228 GMO Domestic Bond Fund 20,258,856
532,267 GMO Emerging Country Debt Fund 3,071,183
537,391 GMO Emerging Markets Fund 2,842,796
580,822 GMO Evolving Countries Fund 2,654,357
190,330 GMO Growth Fund 685,187
288,354 GMO Inflation Indexed Bond Fund 2,946,982
372,424 GMO International Bond Fund 3,794,999
375,982 GMO International Core Fund 7,767,784
91,702 GMO International Small Companies Fund 1,006,890
576,462 GMO REIT Fund 5,516,745
443,174 GMO Small Cap Growth Fund 3,975,271
329,959 GMO Small Cap Value Fund 4,282,872
2,740,225 GMO U.S. Bond/Global Alpha A Fund 28,772,367
1,024,545 GMO U.S. Core Fund 16,997,203
246,216 GMO Value Fund 2,767,469
-------------
TOTAL MUTUAL FUNDS (COST $134,928,619) 115,610,310
-------------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreement -- 0.0%
$ 10,926 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $10,928 and
an effective yield of 5.18%, collateralized by a U.S.
Treasury Obligation with a rate of 11.25%, maturity date 10,926
of 2/15/15 and market value of $11,144.
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,926) 10,926
-------------
TOTAL INVESTMENTS -- 100.0%
(Cost $134,939,545) 115,621,236
Other Assets and Liabilities (net) -- 0.0% (10,996)
-------------
TOTAL NET ASSETS -- 100% $ 115,610,240
=============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $134,939,545) (Note 1) $115,621,236
Receivable for expenses waived or borne by Manager (Note 2) 2,697
Receivable for Fund shares sold 63,058
Miscellaneous receivable 222
------------
Total assets 115,687,213
------------
Liabilities:
Payable for investments purchased 63,000
Accrued expenses 13,973
------------
Total liabilities 76,973
------------
Net assets $115,610,240
============
Net assets consist of:
Paid-in capital $129,153,938
Accumulated undistributed net investment income 1,095,253
Accumulated undistributed net realized gain 4,679,358
Net unrealized depreciation (19,318,309)
------------
$115,610,240
============
Net assets attributable to:
Class III shares $115,610,240
============
Shares outstanding:
Class III 11,102,304
============
Net asset value per share:
Class III $ 10.41
============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends from investment company shares $ 1,094,790
Interest 463
-------------
Total income 1,095,253
-------------
Expenses:
Registration fees 16,580
Custodian and transfer agent fees 9,476
Audit fees 7,912
Legal fees 1,656
Trustees fees (Note 2) 552
Miscellaneous 460
Fees waived or borne by Manager (Note 2) (36,636)
-------------
Net expenses --
-------------
Net investment income 1,095,253
-------------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 37,311
Realized gain distributions from investment company shares 4,682,899
-------------
Net realized gain 4,720,210
-------------
Change in net unrealized appreciation (depreciation) on investments (18,852,523)
-------------
Net realized and unrealized loss (14,132,313)
-------------
Net decrease in net assets resulting from operations $(13,037,060)
=============
</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 Year Ended
August 31, 1998 February 28,
(Unaudited) 1998
---------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,095,253 $ 2,690,899
Net realized gain 4,720,210 9,989,345
Change in net unrealized
appreciation (depreciation) (18,852,523) (1,239,876)
------------ ------------
Net increase (decrease) in net
assets resulting from operations (13,037,060) 11,440,368
------------ ------------
Distributions to shareholders from:
Net investment income
Class I -- (612,518)
Class II -- (1,668,937)
Class III -- (409,444)
------------ ------------
Total distributions from net
investment income -- (2,690,899)
------------ ------------
In excess of net investment income
Class I -- (2,044)
Class II -- (5,570)
Class III -- (1,366)
------------ ------------
Total distributions in excess of
net investment income -- (8,980)
------------ ------------
Net realized gains
Class I -- (1,560,218)
Class II -- (4,205,151)
Class III (3,337,876) (1,039,983)
------------ ------------
Total distributions from net (3,337,876) (6,805,352)
realized gains
------------ ------------
(3,337,876) (9,505,231)
------------ ------------
Net share transactions: (Note 5)
Class I -- (5,680,394)
Class II -- (12,119,329)
Class III 16,705,610 109,936,573
------------ ------------
Increase in net assets resulting
from net share transactions 16,705,610 92,136,850
------------ ------------
Total increase in net assets 330,674 94,071,987
Net assets:
Beginning of period 115,279,566 21,207,579
------------ ------------
End of period (including accumulated
undistributed net investment
income of $1,095,253 and $0,
respectively) $115,610,240 $115,279,566
============ ============
</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>
Period from Period from July 29, 1996
March 1, 1997 (commencement of operations)
to January 9, 1998 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) 0.55+ 0.22
Net realized and unrealized gain 0.65 1.35
------- -------
Total from investment operations 1.20 1.57
------- -------
Less distributions to shareholders:
From net investment income (0.32) (0.22)
In excess of net investment income --(d) --
From net realized gains (0.83) (0.16)
------- -------
Total distributions (1.15) (0.38)
------- -------
Net asset value, end of period $11.24(c) $11.19
======= =======
Total Return (a) 10.70% 15.85%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $6,848
Net expenses to average daily net assets 0.13%* 0.15%*
Net investment income to average daily net 5.27%* 2.75%*
assets (b)
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.
(c) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(d) The per share distribution in excess of net investment income was $0.001.
+ Computed using average shares outstanding throughout the period.
* 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>
Period from Period from December 31,
March 1, 1997 1996
to January 9, (commencement of operations)
1998 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) 0.55+ --
Net realized and unrealized gain 0.66 0.33
------ -------
Total from investment operations 1.21 0.33
------ -------
Less distributions to shareholders:
From net investment income (0.33) --
In excess of net investment income -- (d) --
From net realized gains (0.83) --
------- -------
Total distributions (1.16) --
------- -------
Net asset value, end of period $11.24(c) $ 11.19
======= =======
Total Return (a) 10.73% 3.04%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $14,359
Net expenses to average daily net assets 0.07%* 0.07%*
Net investment income to average daily net 5.31%* (0.07)%*
assets (b)
Portfolio turnover rate 18% 33%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.01 $ 0.01
per share amounts:
</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.
(c) All Class II shares of the fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(d) The per share distribution in excess of net investment income was $0.001.
+ Computed using average shares outstanding throughout the period.
* 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,
Six Months Ended 1997
August 31, 1998 (commencement of
(Unaudited) operations)
to February 28,
1998
------------------- ---------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.87 $ 11.56
-------- --------
Income from investment operations:
Net investment income (b) 0.10 0.17+
Net realized and unrealized gain (loss) (1.23) 1.30
-------- --------
Total from investment operations (1.13) 1.47
-------- --------
Less distributions to shareholders:
From net investment income -- (0.33)
In excess of net investment income -- --(c)
From net realized gains (0.33) (0.83)
-------- --------
Total distributions (0.33) (1.16)
-------- --------
Net asset value, end of period $ 10.41 $ 11.87
======== ========
Total Return (a) (9.91)% 13.31%
Ratios/Supplemental Data:
Net assets, end of period (000's) $115,610 $115,280
Net expenses to average daily net assets 0.00%* 0.00%*
Net investment income to average daily net 1.79%* 1.91%*
assets (b)
Portfolio turnover rate 2% 18%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following (d) $ 0.01
per share amounts:
</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.
(c)The per share distribution in excess of net investment income was $0.001.
(d)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. 7
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Global Balanced Allocation Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares and
Class II shares ceased operations, and all shares were exchanged for Class
III shares. 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.
8
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds. In addition, the Fund will also
incur fees and expenses indirectly as a shareholder in
9
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 by the Fund as paid-in capital.
Purchase premiums are included as part of each class' "shares sold" and
redemption fees are included as part of each class' "shares repurchased",
respectively, as summarized in Note 5. For the six months ended August 31,
1998 the Fund received $29,255 in purchase premiums and $660 in redemption
fees. There is no premium for reinvested distributions or in-kind
transactions.
Investment risk
The Fund is subject to the investment risk associated with an investment in
the underlying funds, some of which may invest in foreign securities. There
are certain additional risks involved in investing in foreign securities
that are not inherent in investments in domestic securities. These risks
may involve adverse political and economic developments 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. The
risks described above apply to an even greater extent to investments in
emerging markets. The securities markets of emerging countries are
generally smaller, less developed, less liquid, and more volatile than the
securities markets of the U.S. and developed foreign markets.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory and
shareholder service fees from the underlying funds in which the Fund
invests. The Fund has adopted a Shareholder Service Plan under which the
Fund pays GMO a shareholder service fee for client and shareholder service,
reporting and other support. No shareholder service fee is charged for
Class III shares.
GMO has agreed to reimburse all expenses directly incurred by the Fund
until further notice (excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses).
10
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $552. 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, 1998,
aggregated $21,502,844 and $2,359,019, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------------- -------------------- ------------------ --------------------
$ 134,939,545 $530,045 $19,848,354 $19,318,309
<S> <C> <C> <C>
</TABLE>
4. Principal shareholders
At August 31, 1998, 53.6% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997
Class I: to January 9, 1998
--------------------------------
Shares Amount
-------------- ---------------
<S> <C> <C>
Shares sold 1,325,598 $ 16,081,830
Shares issued to shareholders
in reinvestment of distributions 185,366 2,100,511
Shares repurchased (2,123,092) (23,862,735)
============== ===============
Net decrease (612,128) $ (5,680,394)
============== ===============
</TABLE>
11
<PAGE>
GMO Global Balanced Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Period from March 1, 1997
Class II: to January 9, 1998
--------------------------------
Shares Amount
------------- ----------------
<S> <C> <C>
Shares sold 3,870,787 $ 45,813,645
Shares issued to shareholders in
reinvestment of distributions 471,399 5,347,162
Shares repurchased (5,625,582) (63,280,136)
============= ================
Net decrease (1,283,396) $ (12,119,329)
============= ================
</TABLE>
<TABLE>
<CAPTION>
Period from June 2, 1997
Six Months Ended (commencement of operations)
Class III: August 31, 1998 to February 28, 1998
------------------------------- --------------------------------
Shares Amount Shares Amount
-------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 1,177,926 $ 14,150,716 9,599,238 $ 108,707,411
Shares issued to shareholders in
reinvestment of distributions 281,915 3,337,876 127,806 1,450,793
Shares repurchased (65,498) (782,982) (19,083) (221,631)
============== =============== ============= ================
Net increase 1,394,343 $ 16,705,610 9,707,961 $ 109,936,573
============== =============== ============= ================
</TABLE>
12
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 91.1%
Advertising-- 0.4%
7,300 Interpublic Group Inc 416,100
-----------
Aerospace-- 0.1%
1,200 Northrop Grumman Corp 76,050
-----------
Automotive-- 4.2%
10,200 Chrysler Corp 455,175
1,300 Dana Corp 50,944
53,200 Ford Motor Co 2,340,799
23,500 General Motors Corp 1,357,124
1,400 General Motors Corp, Class H 50,575
3,500 Genuine Parts Co 109,594
2,200 Lear Corp * 89,238
-----------
4,453,449
-----------
Banking and Financial Services-- 11.9%
6,400 Ahmanson (HF) & Co 341,200
9,075 Amsouth Bancorp 311,953
19,180 Banc One Corp 728,840
12,600 BankAmerica Corp 807,187
600 BB&T Corp 16,913
6,935 Bear Stearns Inc 256,162
5,128 Chase Manhattan Corp 271,784
1,200 Citicorp 129,750
2,000 Comerica Inc 104,500
10,700 Countrywide Credit Industry Inc 400,581
13,900 Dime Bancorp Inc 264,100
3,400 Donaldson Lufkin & Jenrette 119,000
7,750 Edwards (AG) Inc 210,219
10,800 Federal Home Loan Mortgage Corp 426,600
3,200 Federal National Mortgage Association 181,800
1,100 First Chicago NBD Corp 69,713
10,100 First Union Corp 489,850
8,500 Franklin Resources Inc 274,125
1,500 Golden West Financial Corp 114,188
1,200 Greenpoint Financial Corp 30,225
4,100 Lehman Brothers Holding Inc 161,438
22,700 MBNA Corp 533,450
6,300 Merrill Lynch 415,800
1,200 MGIC Investment Corp 49,800
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Financial Services --
continued
19,445 Morgan Stanley Dean Witter & Co 1,129,024
5,700 National City Corp 334,875
15,406 NationsBank Corp 878,141
6,700 Northfork Bancorp 127,300
1,700 Old Kent Financial Corp 54,825
9,000 Paine Webber Group Inc 312,750
5,700 Providian Financial Corp 365,869
8,700 Star Banc Corp 477,413
2,400 State Street Corp 124,950
1,700 Suntrust Banks Inc 95,200
10,665 Travelers Group Inc 473,259
25,100 U.S. Bancorp 856,537
6,900 Washington Mutual Inc 220,800
1,200 Wells Fargo & Co 338,250
-----------
12,498,371
-----------
Chemicals-- 0.8%
4,600 Eastman Chemical Co 237,188
4,300 Great Lakes Chemical Corp 168,238
2,500 Praxair Inc 89,688
9,700 Union Carbide Corp 389,819
-----------
884,933
-----------
Computer and Office Equipment-- 3.1%
9,000 Electronic Data Systems Corp 301,500
12,900 EMC Corp * 582,919
11,300 Gateway 2000 Inc * 534,631
16,200 HBO & Co 344,250
3,000 IBM Corp 337,875
3,900 Lexmark International Group Inc * 236,194
16,600 Micron Technology Inc * 377,650
1,900 Pitney Bowes Inc 94,288
23,600 Unisys Corp * 423,325
-----------
3,232,632
-----------
Construction-- 1.9%
3,700 Georgia-Pacific Corp 158,638
39,400 Home Depot Inc 1,516,899
10,100 Lowes Co Inc 354,131
-----------
2,029,668
-----------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods-- 2.4%
3,000 Black and Decker Corp 124,875
6,100 Eastman Kodak Co 476,563
4,000 Fortune Brands Inc 110,250
4,450 Hasbro Inc 139,341
2,900 Johnson Controls 124,156
9,800 Mattel Co 317,275
12,300 Maytag Corp 530,438
900 Newell Co 42,975
3,700 Nike Inc, Class B 128,344
7,300 VF Corp 276,488
4,100 Whirlpool Corp 203,463
-----------
2,474,168
-----------
Electronic Equipment-- 1.1%
17,700 General Instrument Corp * 351,788
3,400 Harris Corp 108,375
2,100 Litton Industries * 100,800
3,500 Motorola Inc 150,719
10,500 Raytheon Co, Class B 479,063
-----------
1,190,745
-----------
Food and Beverage-- 2.0%
16,600 Anheuser Busch Cos Inc 765,674
11,340 Archer Daniels Midland Co 170,093
3,300 Bestfoods 165,619
2,100 Dole Food Co 90,825
1,200 McDonald's Corp 67,275
7,500 Seagrams Co Ltd 231,563
5,400 Unilever NV ADR 342,225
2,800 Wrigley (William Jr) Co 217,000
-----------
2,050,274
-----------
Health Care-- 4.6%
1,200 Becton Dickinson & Co 39,975
9,400 Columbia HCA Healthcare Corp 212,088
3,600 Hillenbrand Industries Inc 192,825
43,800 Johnson & Johnson 3,022,199
5,000 Medtronic Inc 256,875
12,500 Pharmacia & Upjohn Inc 519,531
7,200 United Healthcare Corp 260,100
5,100 Wellpoint Health Network * 272,213
-----------
4,775,806
-----------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Insurance-- 2.9%
1,600 Aetna Life and Casualty Co 96,300
3,700 AMBAC Inc 174,594
3,000 Cincinnati Financial Corp 100,875
3,900 CNA Financial Corp * 142,838
18,166 Conseco Inc 501,836
8,800 Equitable Companies Inc 503,250
1,200 Mercury General Corp 43,875
2,750 Old Republic International Corp 61,359
1,200 Pacificare Health Systems, Class B * 75,600
6,100 Safeco Corp 247,813
10,900 Saint Paul Cos Inc 333,131
12,100 Torchmark Corp 432,575
3,200 Transamerica Corp 328,200
-----------
3,042,246
-----------
Machinery-- 0.5%
1,100 American Standard Co * 43,038
16,300 Applied Materials Inc * 400,369
2,000 Case Corp 54,000
-----------
497,407
-----------
Manufacturing-- 1.3%
4,400 American Greetings Corp 161,150
2,900 International Game Technology 56,188
3,500 Minnesota Mining and Manufacturing Co 239,750
13,200 Owens Illinois Inc * 411,675
2,300 Rockwell International Corp 83,375
1,600 Temple Inland Inc 71,700
2,900 Tyco International Ltd 160,950
2,900 United Technologies Corp 210,431
-----------
1,395,219
-----------
Metals and Mining-- 0.2%
5,300 Phelps Dodge Corp 237,175
-----------
Oil and Gas-- 5.3%
2,100 Amerada Hess Corp 103,163
8,300 Amoco Corp 376,094
8,100 Apache Corp 185,288
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Oil and Gas-- continued
20,400 Atlantic Richfield Co 1,183,199
3,000 Burlington Resources Inc 88,688
2,200 Chevron Corp 162,938
2,400 Columbia Energy Group 119,400
8,200 Enron Oil & Gas 106,600
3,800 Exxon Corp 248,663
300 Kerr-McGee Corp 11,588
4,500 Mobil Corp 311,063
22,800 Occidental Petroleum Corp 421,800
2,000 Pennzoil Co 71,500
7,800 Phillips Petroleum Co 318,338
500 Sonat Inc 13,531
11,100 Texaco Inc 616,744
15,900 Union Pacific Resources Group 136,144
13,300 Unocal Corp 416,456
19,800 USX - Marathon Group 514,800
3,400 Vastar Resources Inc 129,200
-----------
5,535,197
-----------
Paper and Allied Products-- 0.2%
4,200 Mead Corp 114,975
5,630 Sonoco Products Co 144,269
-----------
259,244
-----------
Pharmaceuticals-- 7.5%
68,600 Abbott Laboratories 2,641,099
5,500 American Home Products Corp 275,688
15,300 Amgen Inc * 931,387
2,600 Bristol Myers Squibb Co 254,475
5,000 Merck & Co Inc 579,688
6,500 Mylan Laboratories Inc 148,688
20,600 Pfizer Inc 1,915,799
9,400 Schering Plough Corp 808,399
8,200 Watson Pharmaceutical Inc * 369,513
-----------
7,924,736
-----------
Primary Materials-- 0.5%
7,100 Crown Cork & Seal Inc 232,525
5,600 Rubbermaid Inc 142,450
1,100 Vulcan Materials Co 122,650
-----------
497,625
-----------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Primary Processing-- 0.5%
1,800 Dow Chemical Co 140,400
5,600 Nucor Corp 201,250
6,500 USX-US Steel Group Inc 136,094
-----------
477,744
-----------
Printing and Publishing-- 0.5%
800 AH Belo Corp 14,800
5,100 Dow Jones and Co Inc 254,044
2,900 Gannett Co Inc 171,100
900 New York Times Co, Class A 26,100
200 Washington Post Co, Class B 102,500
-----------
568,544
-----------
Refining-- 0.3%
8,600 Royal Dutch Petroleum 341,850
-----------
Retail Trade-- 7.8%
13,500 Albertsons Inc 682,594
4,600 American Stores Co 133,400
9,400 Autozone Inc * 243,813
8,700 Best Buy Co Inc * 342,563
11,100 Dayton Hudson Corp 399,600
7,400 Dillards Department Stores Inc 213,675
1,600 Family Dollar Stores Inc 20,300
23,050 Gap Inc 1,176,990
22,000 Kmart Corp * 280,500
12,100 Kroger Co * 544,500
20,200 Limited Inc 421,675
5,200 Office Depot Inc * 132,600
200 Penney (JC) Co Inc 9,913
600 Rite Aid Corp 21,713
9,500 Tandy Corp 518,344
7,600 Toys R Us Inc * 141,075
47,300 Wal Mart Stores Inc 2,778,874
3,100 Winn-Dixie Stores Inc 115,475
-----------
8,177,604
-----------
Services-- 0.3%
500 BHC Communications Inc, Class A 58,250
1,600 Cendant Corp * 18,500
100 Clear Channel Communications Inc * 4,500
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Services-- continued
2,200 Marriott International Inc, Class A 61,738
3,700 Robert Half International Inc * 177,600
100 Supervalu Inc 2,031
200 Time Warner Inc 16,075
-----------
338,694
-----------
Technology-- 9.3%
11,000 BMC Software Inc * 465,438
3,400 Cadence Design Systems Inc * 71,825
2,600 Ceridian Corp * 126,100
22,300 Cisco Systems Inc * 1,825,812
8,712 Compaq Computer Corp 243,392
5,200 Computer Sciences Corp 294,125
3,500 Dell Computer Corp * 350,000
6,400 Grainger (WW) Inc 250,800
34,500 Intel Corp 2,455,968
32,100 Microsoft Corp * 3,079,593
25,500 Novell Inc * 242,250
10,000 Seagate Technology Corp * 175,000
6,200 Storage Technology Corp * 134,850
100 Xerox Corp 8,781
-----------
9,723,934
-----------
Telecommunications-- 10.5%
7,900 Airtouch Communications Inc * 444,375
2,800 Alltel Corp 126,350
16,300 Ameritech Corp 768,137
47,400 AT & T Corp 2,375,924
19,386 Bell Atlantic Corp 855,406
7,700 Bellsouth Corp 527,931
10,400 CBS Corp 270,400
7,600 Century Telephone Enterprises Inc 344,850
2,000 Comcast Corp 74,750
24,500 GTE Corp 1,224,999
5,300 MCI Communications Corp 265,000
23,300 SBC Communications 885,399
4,800 Southern New England Telecommunications Corp 311,100
11,200 Sprint Corp 751,099
4,400 Tele-Communications, Class A * 145,200
19,600 US West Inc 1,019,199
12,500 Viacom Inc, Class B * 620,313
-----------
11,010,432
-----------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
Transportation-- 2.7%
7,200 AMR Corp * 392,400
12,400 Burlington Northern Santa Fe Railroad Co 1,153,974
4,400 CSX Corp 166,100
6,600 Kansas City Southern Industries 216,975
8,350 Southwest Airlines Inc 148,734
2,300 UAL Corp * 138,719
9,700 USAir Group Inc * 565,025
-----------
2,781,927
-----------
Utilities-- 8.3%
12,500 AES Corp * 340,625
9,000 American Electric Power Inc 407,250
8,900 Baltimore Gas and Electric Co 274,231
9,300 Carolina Power and Light Co 400,481
11,800 Cinergy Corp 410,050
5,200 CMS Energy Corp 220,025
18,600 Coastal Corp 483,600
15,700 Consolidated Edison Co. of N.Y. Inc 742,805
6,700 Dominion Resources Inc 279,306
9,250 DPL Inc 166,500
4,700 DQE Inc 167,731
11,900 Duke Power Co 742,263
21,600 Edison International 614,250
800 El Paso Energy Corp 19,850
13,100 Firstenergy Corp 378,263
6,400 Florida Progress Corp 270,000
10,300 FPL Group Inc 685,594
2,400 New Century Energies Inc 110,700
5,500 Nipsco Industries Inc 160,875
12,700 Pacificorp 286,544
21,000 PG & E Corp 674,625
7,100 Pinnacle West Capital Corp 306,631
7,100 Scana Corp 217,881
13,900 Wisconsin Energy Corp 403,969
-----------
8,764,049
-----------
TOTAL COMMON STOCKS (COST $98,420,038) 95,655,823
-----------
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value($) Description Value ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments -- 13.4%
Cash Equivalents-- 3.7%
$ 93,489 BankBoston Eurodollar Time Deposit, 5.8925% due 93,489
9/1/98(a)
802,771 Merrimac Cash Fund Premium Class(a) 802,771
$3,000,000 Prudential Securities Group Inc, Master Note, 3,000,000
5.94% due 9/1/98(a)
------------
3,896,260
-----------
Repurchase Agreements -- 9.2%
$4,082,671 Prudential Securities Inc. Repurchase
Agreement, dated 8/31/98, due 9/1/98, with a maturity value of
$4,083,257 and an effective yield of 5.17%, collateralized by a
U.S.Treasury Obligation with a rate of 9.125%,
maturity date of 5/15/18 and market value of $4,164,358. 4,082,671
$5,610,871 Salomon Smith Barney Inc. Repurchase Agreement,
dated 8/31/98, due 9/1/98, with a maturity
value of $5,611,678 and an effective yield of
5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 5.875%, maturity date
of 11/15/99 and market value of $5,723,088. 5,610,871
------------
9,693,542
------------
U.S. Government-- 0.5%
$ 500,000 U.S. Treasury Bill, 4.875%, due 11/12/98(b) 495,190
-------------
Total Short-Term Investments (Cost $14,084,927) 14,084,992
-------------
Total Investments-- 104.5%
(COST $112,504,965) 109,740,815
Other Assets and Liabilities (net) -- (4.5)% (4,680,216)
------------
TOTAL NET ASSETS-- 100% $105,060,599
============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $112,504,965) (Note 1) $109,740,815
Receivable for investments sold 4,201,359
Dividends and interest receivable 214,170
Receivable for expenses waived or borne by Manager (Note 2) 27,969
-------------
Total assets 114,184,313
-------------
Liabilities:
Payable for investments purchased 3,227,915
Payable upon return of securities loaned (Note 1) 3,896,260
Payable to affiliate for (Note 2):
Management fee 50,622
Shareholder service fee 14,826
Payable for open swap contracts (Note 1 and 6) 1,264,631
Payable for variation margin on open futures contracts (Notes 1 and 6) 634,182
Accrued expenses 35,278
-------------
Total liabilities 9,123,714
-------------
Net Assets $105,060,599
=============
Net Assets Consist of
Paid-in capital $100,583,525
Accumulated undistributed net investment income 313,770
Accumulated undistributed net realized gain 9,307,319
Net unrealized depreciation (5,144,015)
=============
$105,060,599
=============
Net assets attributable to:
Class III shares $105,060,599
=============
Shares outstanding:
Class III 8,835,719
=============
Net asset value per share:
Class III $ 11.89
=============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends (net of withholding taxes of $4,072) $ 909,645
Interest (including securities lending income of $7,259) 242,406
-------------
Total income 1,152,051
-------------
Expenses:
Management fee (Note 2) 307,699
Custodian and transfer agent fees 34,619
Audit fees 15,637
Registration fees 5,511
Legal fees 1,480
Trustees fees (Note 2) 461
Miscellaneous 462
Fees waived or borne by Manager (Note 2) (162,788)
-------------
203,081
Shareholder service fee (Note 2)
Class III 92,310
-------------
Net expenses 295,391
-------------
Net investment income 856,660
-------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 9,916,699
Closed futures contracts 57,525
Closed swap contracts (841,428)
-------------
Net realized gain 9,132,796
-------------
Change in net unrealized appreciation (depreciation) on:
Investments (20,206,995)
Open futures contracts (1,216,364)
Open swap contracts (859,087)
-------------
Net unrealized loss (22,282,446)
-------------
Net realized and unrealized loss (13,149,650)
-------------
Net decrease in net assets resulting from operations $(12,292,990)
=============
</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, 1998 February
(Unaudited) 28, 1998
------------------ -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 856,660 $ 1,309,184
Net realized gain 9,132,796 12,207,291
Change in net unrealized appreciation (depreciation) (22,282,446) 11,550,985
-------------- --------------
Net increase (decrease) in net assets resulting from operations (12,292,990) 25,067,460
-------------- --------------
Distributions to shareholders from:
Net investment income
Class III (765,968) (1,251,164)
-------------- --------------
Total distributions from net investment income (765,968) (1,251,164)
-------------- --------------
Net realized gains
Class III (6,601,541) (16,435,486)
-------------- --------------
Total distributions from net realized gains (6,601,541) (16,435,486)
-------------- --------------
(7,367,509) (17,686,650)
-------------- --------------
Net share transactions: (Note 5)
Class III 24,798,660 26,281,193
-------------- --------------
Increase in net assets resulting from net share transactions 24,798,660 26,281,193
-------------- --------------
Total increase in net assets 5,138,161 33,662,003
Net assets:
Beginning of period 99,922,438 66,260,435
-------------- --------------
End of period (including accumulated undistributed net investment
income of $313,770 and $223,078, respectively) $ 105,060,599 $ 99,922,438
============== ==============
</TABLE>
12 See accompanying notes to the financial statements.
<PAGE>
GMO Tobacco-Free 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, 1998 ------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.05 $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35
----------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.10 0.22 0.24 0.28 0.23 0.34
Net realized and unrealized gain (loss) (1.39) 4.07 2.41 3.71 0.50 1.18
----------- ---------- ---------- ---------- ---------- ----------
Total from investment operations (1.29) 4.29 2.65 3.99 0.73 1.52
----------- ---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (0.09) (0.22) (0.24) (0.25) (0.28) (0.35)
From net realized gains (0.78) (3.00) (2.36) (1.46) (0.87) (1.45)
----------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.87) (3.22) (2.60) (1.71) (1.15) (1.80)
----------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.89 $ 14.05 $ 12.98 $ 12.93 $ 10.65 $ 11.07
=========== ========== ========== ========== ========== ==========
Total Return (a) (10.20)% 37.82% 22.76% 38.64% 7.36% 14.12%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 105,061 $ 99,922 $ 66,260 $ 57,485 $ 47,969 $ 55,845
Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48%
Net investment income to average daily net
assets 1.39% * 1.66% 1.83% 2.25% 2.52% 2.42%
Portfolio turnover rate 47% 70% 131% 81% 112% 38%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.02 $ 0.04 $ 0.04 $ 0.03 $ 0.03 $ 0.03
</TABLE>
(a) Calculation excludes purchase premiums. The total returns would have been
lower had certain expenses not been waived during the periods shown.
* Annualized.
See accompanying notes to the financial statements. 13
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment of substantially all of its assets in
common stocks chosen from the Wilshire 5000 Index and primarily in common
stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange which are not tobacco producing issuers, as defined in
the Fund's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Futures contracts
The Fund may purchase and sell futures contracts on 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 entering into a futures contract, the
Fund is required to deposit with its custodian, in a segregated account in
the name of the futures broker, an amount of cash or U.S. government
obligations in accordance with the initial margin requirements of the
broker or exchange. Futures contracts are marked to market daily and an
appropriate payable or receivable for the change in value ("variation
margin") is recorded by the Fund. The payable or receivable is liquidated
on the following business day. Gains or losses are recognized but not
considered realized until the contracts expire or are closed. Futures
contracts involve, to varying degrees, risk of loss in excess of the
variation margin disclosed in the Statement of Assets and Liabilities.
Losses may arise from changes in the value of the underlying instrument, if
there is an illiquid secondary market for the contracts, or if
14
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
counterparties do not perform under the contract terms. Futures contracts
are valued at the settlement price established each day by the board of
trade or exchange on which they are traded. See Note 6 for all open futures
contracts as of August 31, 1998.
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund loaned securities having a market
value of $3,761,226, collateralized by cash in the amount of $3,896,260,
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. The Fund also enters into contracts for
differences in which the Fund agrees with the counterparty that its return
will be based on the relative performance of two different groups or
"baskets" of securities, adjusted by an interest rate payment. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of August 31, 1998.
15
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. Purchase premiums are included as part of "shares sold" as
summarized in Note 5. For the six months ended August 31, 1998, the Fund
received $12,074 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service
16
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
fee for client and shareholder service, reporting, and other support.
Pursuant to the Shareholder Service Plan, the shareholder service fee is
calculated based on the average daily net assets at the annual rate of .15%
for Class III shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $461. 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, 1998,
aggregated $61,438,851 and $50,686,907, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
--------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
$112,504,965 $6,928,816 $9,692,966 $2,764,150
</TABLE>
4. Principal shareholders
At August 31, 1998, 96.2% of the outstanding shares of the Fund were held
by five shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including the purchase premiums received by the Fund, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares sold 1,426,177 $ 20,485,700 1,705,285 $ 23,536,920
Shares issued to shareholders
in reinvestment of
distributions 500,468 7,198,808 1,411,739 17,655,036
Shares repurchased (204,926) (2,885,848) (1,109,228) (14,910,763)
=============== =============== =============== ===============
Net increase 1,721,719 $ 24,798,660 2,007,796 $ 26,281,193
=============== =============== =============== ===============
</TABLE>
17
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Long futures contracts
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
--------------- --------------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C>
28 S&P 500 September 1998 $6,678,000 $(1,015,324)
5 S&P 500 December 1998 1,204,750 (99,910)
================
$(1,115,234)
================
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any commitments or margin on open futures contracts.
Swap agreements
<TABLE>
<CAPTION>
Net
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Depreciation
--------------------------- ------------ -------------------------------------- ---------------
<S> <C> <C> <C>
$2,510,474/ 9/11/98 Agreement with Morgan Stanley $(300,480)
1,790,549 Capital Services, Inc. dated 9/08/97
to pay (receive) the notional
amount multiplied by the return on
the Standard & Poor's Index
(including dividends) less the
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread and to receive
(pay) the change in market value
of a basket of selected securities
(including dividends) less the
counterparty's notional amount
multiplied by 6 month LIBOR
adjusted by a specified spread.
</TABLE>
18
<PAGE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements--(continued)
<TABLE>
<CAPTION>
Net
Notional Amount Expiration Unrealized
Fund/Counterparty Date Description Depreciation
--------------------------- ------------ -------------------------------------- ---------------
<S> <C> <C> <C>
$1,690,568/ 9/19/98 Agreement with Morgan Stanley $ (226,651)
1,461,135 Capital Services, Inc. dated 9/16/97
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 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 counterparty's
notional amount multiplied by 6
month LIBOR adjusted by a
specified spread.
6,952,574/ 5/18/99 Agreement with Morgan Stanley (557,342)
4,750,489 Capital Services, Inc. dated 5/13/98
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.
2,369,911/ 6/28/99 Agreement with Morgan Stanley (180,158)
2,129,372 Capital Services, Inc. dated 6/23/98
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 counterparty's
notional amount multiplied by 6
month LIBOR adjusted by a
specified
spread.
================
$ (1,264,631)
================
</TABLE>
19
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares /
Par Value ($) Description Value ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS -- 100.0%
162,740 GMO Currency Hedged International Core Fund 1,619,266
249,680 GMO Emerging Country Debt Fund 1,440,651
615,865 GMO Emerging Markets Fund 3,257,925
303,610 GMO Evolving Countries Fund 1,387,497
69,309 GMO Growth Fund 249,511
86,678 GMO Inflation Indexed Bond Fund 885,852
74,380 GMO International Bond Fund 757,935
818,680 GMO International Core Fund 16,913,930
119,353 GMO International Small Companies Fund 1,310,491
210,441 GMO REIT Fund 2,013,920
173,239 GMO Small Cap Growth Fund 1,553,958
124,913 GMO Small Cap Value Fund 1,621,364
116,351 GMO U.S. Bond/Global Alpha A Fund 1,221,685
385,303 GMO U.S. Core Fund 6,392,178
114,620 GMO Value Fund 1,288,330
-----------
TOTAL MUTUAL FUNDS (COST $54,669,559) 41,914,493
-----------
SHORT-TERM INVESTMENTS -- 0.0%
Repurchase Agreement -- 0.0%
$10,168 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $10,169 and an
effective yield of 5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 11.25%, maturity date of 2/15/15 10,168
and market value of $10,371. -----------
TOTAL SHORT-TERM INVESTMENTS (COST $10,168) 10,168
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost $54,679,727) 41,924,661
Other Assets and Liabilities (net) -- 0.0% (11,568)
-----------
TOTAL NET ASSETS -- 100% $41,913,093
===========
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (cost $54,679,727) (Note 1) $41,924,661
Receivable for expenses waived or borne by Manager (Note 2) 1,644
-----------
Total assets 41,926,305
-----------
Liabilities:
Accrued expenses 13,212
-----------
Total liabilities 13,212
-----------
Net assets $41,913,093
===========
Net assets consist of:
Paid-in capital $52,546,997
Accumulated undistributed net investment income 151,930
Accumulated undistributed net realized gain 1,969,232
Net unrealized depreciation (12,755,066)
-----------
$41,913,093
===========
Net assets attributable to:
Class III shares $41,913,093
===========
Shares outstanding:
Class III 5,127,586
===========
Net asset value per share:
Class III $ 8.17
===========
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
<TABLE>
Statement of Operations -- Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends from investment company shares $ 151,643
Interest 287
----------
Total income 151,930
----------
Expenses:
Audit fees 8,188
Custodian and transfer agent fees 4,692
Registration fees 1,878
Legal fees 644
Trustees fees (Note 2) 184
Miscellaneous 184
Fees waived or borne by Manager (Note 2) (15,770)
----------
Net expenses --
----------
Net investment income 151,930
----------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (29,876)
Realized gain distributions from investment company shares 2,278,877
----------
Net realized gain 2,249,001
----------
Change in net unrealized appreciation (depreciation) on investments (11,135,052)
----------
Net realized and unrealized loss (8,886,051)
----------
Net decrease in net assets resulting from operations $(8,734,121)
==========
</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
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 151,930 $ 1,334,630
Net realized gain 2,249,001 7,633,159
Change in net unrealized depreciation (11,135,052) (2,989,836)
------------ -----------
Net increase (decrease) in net assets
resulting from operations (8,734,121) 5,977,953
------------ -----------
Distributions to shareholders from:
Net investment income
Class I -- (239,456)
Class III -- (1,095,174)
------------ -----------
Total distributions from net
investment income -- (1,334,630)
------------ -----------
In excess of net investment income
Class I -- (318)
Class III -- (1,455)
------------ -----------
Total distributions in excess of net
investment income -- (1,773)
------------ -----------
Net realized gains
Class I -- (1,057,705)
Class III (2,542,652) (4,579,052)
------------ -----------
Total distributions from net realized
gains (2,542,652) (5,636,757)
------------ -----------
(2,542,652) (6,973,160)
------------ -----------
Net share transactions: (Note 5)
Class I -- (8,356,794)
Class III 2,238,211 14,133,364
------------ -----------
Increase in net assets resulting from net
share transactions 2,238,211 5,776,570
------------ -----------
Total increase (decrease) in net
assets (9,038,562) 4,781,363
Net assets:
Beginning of period 50,951,655 46,170,292
------------ -----------
End of period (including accumulated
undistributed net investment income of
$151,930 and $0, respectively) $ 41,913,093 $50,951,655
============ ===========
</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>
Period from Period from June 28, 1996
March 1, 1997 (Commencement of Operations)
to January 9, 1998 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)/ 0.28+ 0.09
Net realized and unrealized gain 0.02 0.72
------- -------
Total from investment operations 0.30 0.81
------- -------
Less distributions to shareholders:
From net investment income (0.27) (0.11)
In excess of net investment income --(d) 0.00
From net realized gains (1.17) (0.18)
------- -------
Total distributions (1.44) (0.29)
------- -------
Net asset value, end of period $ 9.38(c) $ 10.52
======= =======
Total Return /(a)/ 2.41% 8.23%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 9,424
Net expenses to average daily net assets 0.13%* 0.16%*
Net investment income to average daily net
assets /(b)/ 2.88%* 1.80%*
Portfolio turnover rate 49% 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.
(c) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(d) The per share distribution in excess of net investment income was $0.0003
+ 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 Year Ended February 28,
August 31, 1998 ----------------------
(Unaudited) 1998 1997*
--------------- ------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.39 $ 10.52 $ 10.07
-------- ------- --------
Income from investment operations:
Net investment income (b) 0.03 0.29+ 0.11
Net realized and unrealized gain (loss) (1.73) 1.03 0.63
-------- ------- --------
Total from investment operations (1.70) 1.32 0.74
-------- ------- --------
Less distributions to shareholders:
From net investment income -- (0.28) (0.11)
In excess of net investment income -- --(c) --
From net realized gains (0.52) (1.17) (0.18)
-------- ------- --------
Total distributions (0.52) (1.45) (0.29)
-------- ------- --------
Net asset value, end of period $ 8.17 $ 10.39 $ 10.52
======== ======= ========
Total return/(a)/ (17.29)% 13.56% 7.51%
Ratios/supplemental data:
Net assets, end of period (000's) $ 41,913 $50,952 $ 36,746
Net expenses to average daily net assets 0.00%** 0.00% 0.00%**
Net investment income to average daily net assets/(b)/ 0.59%** 2.65% 0.91%**
Portfolio turnover rate 2% 49% 31%
Fees and expenses voluntarily waived or borne by
the Manager consisted of the following per
share amounts: (d) $ 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.
(c) The per share distribution in excess of net investment income was $0.0004.
(d) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
* Period from October 22, 1996 (commencement of operations) to February
28, 1997.
** Annualized.
+ Computed using average shares outstanding throughout the period.
6 See accompanying notes to the financial statements.
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO World Equity Allocation Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series of shares
into classes.
The Fund operates as a "fund-of-funds" in that, pursuant to management
provided by the Manager, it makes investments in other funds of the Trust
("underlying funds"). The Fund seeks a total return greater than that of
the GMO World-Lite Extended Index, a benchmark developed by the Manager.
The Fund will pursue its objective by investing primarily in Class III
shares of equity funds of the Trust.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares
ceased operations and all shares were exchanged for Class III shares, and
Class II shares ceased to be offered. 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.
7
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Repurchase agreements
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of
the underlying assets remains sufficient to protect the Fund in the event
of default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated
account for the benefit of the Fund and the counterparty. In connection
with transactions in repurchase agreements, if the seller defaults and the
value of the collateral declines or if the seller enters insolvency
proceedings, realization of collateral by the Fund may be delayed or
limited.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes
are classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative
8
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
size of the funds. In addition, the Fund will also incur fees and expenses
indirectly as a shareholder in the underlying funds. Because the
underlying funds have varied expense and fee levels and the Fund may own
different proportions of underlying funds at different times, the amount
of fees and expenses indirectly incurred by the Fund will vary.
Purchases and redemptions of fund shares
The premium on cash purchases of Fund shares is .66% of the amount
invested. In the case of cash redemptions, the fee is .15% of the amount
redeemed. 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 by the Fund as paid-in capital.
Purchase premiums are included as part of each class' "shares sold" and
redemption fees are included as part of each class' "shares repurchased",
respectively, as summarized in Note 5. For the six months ended August 31,
1998, the Fund received $225 in redemption fees. There is no premium for
reinvested distributions or in-kind transactions.
Investment risk
The Fund is subject to the investment risk associated with an investment
in the underlying funds, some of which may invest in foreign securities.
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments 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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. Fees and other transactions with affiliates
The Manager determines the allocation of the assets of the Fund among
designated underlying funds. The Manager does not charge an advisory fee
for asset allocation advice provided to the Fund, but receives advisory
and shareholder service fees from the underlying funds in which the Fund
invests. The Fund has adopted a Shareholder Service Plan under which the
Fund pays GMO a shareholder service fee for client and shareholder
service, reporting and other support. No shareholder service fee is
charged for Class III shares.
GMO has agreed to reimburse all expenses directly incurred by the Fund
until further notice (excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses).
9
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998 was $184. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
3. Purchases and sales of securities
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the six months ended August 31, 1998,
aggregated $3,315,396 and $1,185,479, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$54,679,727 $18,506 $12,773,572 $12,755,066
</TABLE>
4. Principal shareholders
At August 31, 1998, 91.9% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and
redemption fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997
Class I: to January 9, 1998
-------------------------
Shares Amount
----------- ------------
<S> <C> <C>
Shares sold 204 $ 11,513
Shares issued to shareholders in
reinvestment of distributions 88,972 869,785
Shares repurchased (985,264) (9,238,092)
-------- -----------
Net decrease (896,088) $(8,356,794)
======== ===========
</TABLE>
10
<PAGE>
GMO World Equity Allocation Fund
(A Series of GMO Trust)
Notes to Financial Statements --(Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions - continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Class III: August 31, 1998 February 28, 1998
Shares Amount Shares Amount
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 2,510,385 $ 26,539,533
Shares issued to shareholders in
reinvestment of distributions 237,870 2,388,211 564,648 5,513,999
Shares repurchased (14,585) (150,000) (1,664,735) (17,920,168)
------- ---------- ---------- ------------
Net increase 223,285 $2,238,211 1,410,298 $ 14,133,364
======= ========== ========== ============
</TABLE>
11
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 99.3%
Argentina -- 0.2%
USD 1,000,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.75%, due 3/31/23 610,000
--------------
Australia -- 4.5%
GBP 8,700,000 Commonwealth Bank Australia Series EMTN, 8.13%,
due 12/7/06 16,403,737
AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,680,857
--------------
18,084,594
--------------
Brazil -- 0.4%
USD 3,000,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due
4/15/24 1,740,000
--------------
Bulgaria -- 1.1%
USD 10,000,000 Bulgaria Discount Series B Strips, Basket 2,
0.00%, due 7/28/24 435,000
USD 15,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24 3,385,500
USD 1,000,000 Bulgaria FLIRB Series B,
Variable Rate, Step up, 3.00%, due 7/28/12 352,500
--------------
4,173,000
--------------
Canada -- 4.9%
CAD 3,750,000 Government of Canada, 10.25%, due 3/15/14 3,488,684
CAD 8,000,000 Government of Canada Real Return, 4.25%, due
12/1/21 5,667,971
CAD 5,000,000 Government of Canada Real Return, 4.25%, due
12/1/26 3,353,599
GBP 3,500,000 Province of Quebec, 8.63%, due 11/4/11 6,984,256
--------------
19,494,510
--------------
Cayman Islands -- 0.7%
CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/1/08 2,729,830
--------------
Denmark -- 4.0%
DKK 9,680,000 Kingdom of Denmark Bullet, 8.00%, due 3/15/06 1,731,582
DKK 82,700,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 14,280,146
--------------
16,011,728
--------------
Ecuador -- 0.0%
USD 542,370 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due
2/27/15 165,423
--------------
France -- 3.3%
FRF 21,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 4,036,548
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
France -- continued
FRF 30,000,000 Auxiliare Credit Foncier, 6.25%, due 3/28/03 5,467,005
SEK 30,000,000 Credit Foncier, 6.50%, due 2/22/99 3,736,879
--------------
13,240,432
--------------
Germany -- 4.6%
DEM 1,000,000 Bundesrepublik Deutschland, 6.00%, due 6/20/16 648,710
ESP 320,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 2,518,078
GBP 2,000,000 KFW International Finance, 10.63%, due 9/3/01 3,707,343
DEM 19,000,000 Westdeutsche LB, 5.25%, due 10/14/05 11,291,182
--------------
18,165,313
--------------
Italy -- 5.4%
ITL 1,550,000,000 BTPS, 8.50%, due 8/1/04 1,071,309
ITL 3,485,000,000 BTPS, 6.75%, due 2/1/07 2,284,141
ITL 1,700,000,000 BTPS, 9.00%, due 11/1/23 1,470,436
GBP 7,000,000 Republic of Italy, 10.50%, due 4/28/14 16,836,762
--------------
21,662,648
--------------
Japan -- 5.6%
GBP 2,300,000 Export Import Bank of Japan, 10.75%, due 5/15/01 4,215,303
USD 800,000 Japan Development Bank, 6.88%, due 12/16/99 813,200
GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, 5,789,584
due 2/16/05
GBP 6,000,000 Kobe City, 9.50%, due 10/20/04 11,664,567
--------------
22,482,654
--------------
Jordan -- 0.1%
USD 1,000,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 144A, 5.00%, due
12/23/23 500,000
--------------
Mexico -- 0.3%
FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,269,036
--------------
New Zealand -- 1.1%
NZD 9,200,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 4,489,708
--------------
Norway -- 0.5%
SEK 13,700,000 A/S Eksportfinans, 7.50%, due 8/16/01 1,802,039
--------------
Russia -- 0.0%
USD 223,683 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due
12/15/15 24,605
--------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supra National -- 4.4%
AUD 24,200,000 European Bank Recon and Development, Zero Coupon,
due 2/10/28 2,059,583
CAD 2,700,000 European Investment Bank, 8.50%, due 8/30/05 1,936,709
ESP 821,900,000 European Investment Bank, 10.35%, due 12/20/05 7,425,171
GBP 3,000,000 International Bank Recon and Development, 11.50%,
due 11/9/03 6,216,581
--------------
17,638,044
--------------
Sweden -- 8.3%
SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due 4,702,410
12/1/20
SEK 179,000,000 Kingdom of Sweden, 6.00%, due 2/9/05 23,662,178
SEK 6,100,000 Kingdom of Sweden, 6.50%, due 10/25/06 839,775
SEK 24,800,000 Kingdom of Sweden, 8.00%, due 8/15/07 3,771,987
--------------
32,976,350
--------------
United States -- 49.5%
Asset Backed Securities -- 41.8%
USD 4,000,000 American Express Credit Account Master Trust
Series 98-1A, 3,998,800
Variable Rate, 1 mo. LIBOR + .09%, 5.73%, due
1/17/06
USD 3,000,000 Augusta Funding VI Series 96-A3, 144A, 7.38%, due 3,277,500
4/15/13
USD 12,500,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 12,619,141
USD 8,000,000 Chevy Chase Master Credit Card Trust 95-C Class A,
Variable Rate, 1 mo. LIBOR + .26%, 5.90%, due 8,028,000
5/15/06
USD 7,000,000 Chevy Chase Master Credit Card Trust Series 98-A,
Variable Rate, 1 mo. LIBOR + .15%, 5.79%, due 6,997,900
10/16/06
USD 10,000,000 Chyps CBO 97-1, Class A2, 144A, 6.72%, due 1/15/10 10,301,563
USD 4,000,000 Circuit City Credit Card Master Trust 96-1 Class A,
Variable Rate, 1 mo. LIBOR + .17%, 5.81%, due 3,996,250
10/15/06
USD 2,642,448 CS First Boston Mortgage Securities Corp, Series
96-1 Class A1, 2,642,448
Variable Rate, 3 mo. LIBOR + .23%, 6.04%, due
7/28/29
USD 5,000,000 CS First Boston Mortgage Securities Corp, Series
98-C1 Class A1B, 6.48%, due 5/17/08 5,092,500
USD 11,500,000 Discover Card Master Trust I Series 94-2 Class A,
Variable Rate, 1 mo. LIBOR + .35%, 5.99%, due 11,580,500
10/16/04
USD 40,000,000 Discover Card Trust I Series 97-3 Class A,
Variable Rate, 1 mo. LIBOR + .13%, 5.77%, due 40,006,249
4/16/07
USD 5,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.88%, due 5,002,344
10/15/06
USD 6,500,000 Health Care Receivables Securitization Program
96-1 Class A, 144A, 7.20%, due 7/01/00 6,574,750
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Backed Securities -- continued
USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + .73%, 6.38%, due 1,950,000
11/25/21
USD 5,000,000 MBNA Master Credit Card Trust Series 95-A Class A,
Variable Rate, 1 mo. LIBOR + .27%, 5.91%, due 5,036,719
1/16/07
USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A,
Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due 5,019,000
10/15/02
USD 393,864 New York City Tax Lien Series 96-1 Class B, 144A,
6.91%, due 5/25/05 394,651
USD 5,000,000 Prime Credit Card Master Trust Series 92-2 Class
A2, 7.45%, due 11/15/02 5,082,500
USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2,
144A, 5,459,375
Variable Rate, Step Up, 6.33%, due 9/15/09
USD 15,000,000 SHYPPCO Finance Company Series B Class A-2B,
6.64%, due 6/15/10 15,180,000
USD 5,000,000 Student Loan Marketing Association Series 96-4
Class A2, Variable Rate, 3 mo. U.S. Treasury
Bill + .64%, 5.69%, due 7/25/09 4,920,313
USD 3,465,000 TMS Auto Grantor Trust Series 96-1 Class CTFS,
7.10%, due 12/20/02 3,520,440
--------------
166,680,943
--------------
Corporate Debt -- 1.4%
SEK 44,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 5,744,594
--------------
U.S. Government -- 2.4%
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/13 4,287,766
USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/14 4,155,203
USD 1,000,000 U.S. Treasury Inflation Indexed Note, 3.38%, due 994,692
1/15/07(a)
--------------
9,437,661
--------------
U.S. Government Agency -- 3.9%
USD 1,550,000 Agency for International Development Floater (Support
of Belize),
Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 1,545,883
5.64%, due 1/01/14
USD 5,000,000 Agency for International Development Floater (Support
of India), 5,006,250
Variable Rate, 3 mo. LIBOR + .10%, 5.79%, due
2/01/27
USD 2,250,000 Agency for International Development Floater (Support
of Zimbabwe),
Variable Rate, 3 mo. U.S. Treasury Bill x 115%,
5.75%, due 1/01/12 2,227,500
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency -- continued
USD 7,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due
2/15/02(a) 6,737,500
--------------
15,517,133
--------------
Total United States 197,380,331
--------------
Venezuela -- 0.4%
USD 500,000 Republic of Venezuela, 9.25%, due 9/15/27 205,000
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 6.56%, due
3/31/20 1,180,000
--------------
1,385,000
--------------
TOTAL DEBT OBLIGATIONS (COST $392,666,886) 396,025,245
--------------
LOAN ASSIGNMENTS -- 0.4%
Russia -- 0.4%
USD 15,750,278 Russia Vnesh Restructured Loan Agreements, LIBOR +
.8125% (3.3125% ) 1,634,091
--------------
TOTAL LOAN ASSIGNMENTS (COST $9,841,239) 1,634,091
--------------
Shares
-------------------
PREFERRED STOCKS -- 2.5%
United States -- 2.5%
10,000 Bear Stearns Managed Income Securities Plus Fund
13.27% 9,921,047
--------------
TOTAL PREFERRED STOCKS (COST $9,778,893) 9,921,047
--------------
Principal Amount
-------------------
CALL OPTIONS PURCHASED -- 0.7%
Cross Currency Options -- 0.0%
DEM 109,800,000 DEM Call/ITL Put, Expires 9/22/98, Strike 993 --
--------------
Options on Bonds -- 0.1%
SEK 377,000,000 Sweden Government Bond, Expires 10/27/98, Strike
105.354 569,115
--------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options on Currency -- 0.5%
USD 97,500,000 German Mark, Expires 9/17/98, Strike 1.725 2,028,000
--------------
Options on Futures -- 0.1%
USD 2,800,000 Eurodollar, Expires 9/14/98, Strike 94.375 196,000
--------------
TOTAL CALL OPTIONS PURCHASED
(COST $5,603,063) 2,793,115
--------------
PUT OPTIONS PURCHASED -- 0.1%
Cross Currency Options -- 0.0%
DEM 109,800,000 DEM Put/ITL Call, Expires 9/22/98, Strike 993 224,145
USD 2,948,151 TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires
11/09/98, Strike 654,000 23,489
--------------
247,634
--------------
Options on Currency -- 0.1%
USD 97,500,000 German Mark, Expires 9/17/98, Strike 1.725 282,750
--------------
TOTAL PUT OPTIONS PURCHASED
(COST $4,348,672) 530,384
--------------
Shares
-------------------
RIGHTS AND WARRANTS -- 0.0%
Mexico -- 0.0%
2,262,000 United Mexican States Warrants, Expires 6/30/03 * --
--------------
Venezuela -- 0.0%
33,560 Republic of Venezuela Recovery Warrants,
Expires 04/15/20 * --
--------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
--------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/Par Value Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 8.6%
Cash Equivalents -- 8.6%
USD 8,317,854 BankBoston Eurodollar Time Deposit, 5.8925% due 8,317,854
9/1/98(b)
7,089,081 Merrimac Cash Fund Premium Class(b) 7,089,081
USD 19,000,000 Prudential Securities Group Inc, Master Note,
5.94% due 9/1/98(b) 19,000,000
--------------
34,406,935
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $34,406,935) 34,406,935
--------------
TOTAL INVESTMENTS -- 111.6%
(COST $456,645,688) 445,310,817
Other Assets and Liabilities (net)-- (11.6)% (46,453,477)
--------------
TOTAL NET ASSETS-- 100% $ 398,857,340
==============
Notes to the Schedule of Investments:
EMTN -- Euromarket Medium Term Note
FLIRB -- Front Loaded Interest Reduction Bond
IAN -- Interest Arrears Notes
PDI -- Past Due Interest
PIK -- Payment In Kind
CPI -- Consumer Price Index
144A -- Securities exempt from registration under
Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers.
</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, 1998 (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, 1998, which are
subject to change based on the terms of the
security, including varying reset dates.
Currency Abbreviations:
AUD - Australian Dollar GBP - British Pound
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc MYR - Malaysian Ringgit
DEM - German Mark NZD - New Zealand Dollar
DKK - Danish Krone SEK - Swedish Krona
ESP - Spanish Peseta TRL - Turkish Lira
FRF - French Franc USD - United States Dollar
* Non-income producing security.
(a) All or a portion of this security has been
segregated to cover margin requirements on open financial
futures contracts.
(b) Represents investments of security lending collateral (Note
1).
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $456,645,688) (Note 1) $445,310,817
Cash (Note 1) 5,393,093
Interest receivable 8,379,795
Receivable for variation margin on open futures contracts (Notes 1 and 6) 506,958
Receivable for open forward foreign currency contracts (Notes 1 and 6) 10,879,861
Receivable for expenses waived or borne by Manager (Note 2) 111,714
------------
Total assets 470,582,238
------------
Liabilities:
Payable upon return of securities loaned (Note 1) 34,406,935
Written options outstanding, at value (premiums $9,607,575) (Notes 1 and 6) 18,671,250
Payable for open forward foreign currency contracts (Notes 1 and 6) 13,417,436
Payable for open swap contracts (Notes 1 and 6) 4,887,428
Payable to affiliate for (Note 2):
Management fee 174,346
Shareholder service fee 51,081
Accrued expenses 116,422
------------
Total liabilities 71,724,898
------------
Net assets $398,857,340
============
Net assets consist of:
Paid-in capital $394,685,548
Accumulated undistributed net investment income 8,940,027
Accumulated undistributed net realized gain 24,992,692
Net unrealized depreciation (29,760,927)
============
$398,857,340
============
Net assets attributable to:
Class III shares $398,857,340
============
Shares outstanding:
Class III 38,595,724
============
Net asset value per share:
Class III $ 10.33
============
</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, 1998 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest (including securities lending income of $118,052) $12,567,061
Dividends 663,500
----------
Total income 13,230,561
----------
Expenses:
Management fee (Note 2) 977,579
Custodian and transfer agent fees 112,311
Audit fees 30,730
Legal fees 5,766
Trustees fees (Note 2) 1,569
Miscellaneous 1,402
Fees waived or borne by Manager (Note 2) (640,571)
----------
488,786
Shareholder service fee (Note 2)
Class III 293,276
----------
Net expenses 782,062
----------
Net investment income 12,448,499
----------
Realized and unrealized gain (loss):
Net realized gain on:
Investments 5,440,463
Closed futures contracts 3,899,679
Closed swap contracts 1,809,490
Written options 1,216,400
Foreign currency, forward contracts and foreign currency related
transactions 12,787,927
----------
Net realized gain 25,153,959
----------
Change in net unrealized appreciation (depreciation) on:
Investments (17,341,505)
Open futures contracts (1,694,358)
Open swap contracts (4,297,141)
Written options (9,669,040)
Foreign currency, forward contracts and foreign currency related
transactions (4,761,682)
----------
Net unrealized loss (37,763,726)
----------
Net realized and unrealized loss (12,609,767)
----------
Net decrease in net assets resulting from operations $ (161,268)
==========
</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, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $12,448,499 $ 24,636,532
Net realized gain 25,153,959 61,872,060
Change in net unrealized appreciation (depreciation) (37,763,726) (34,536,133)
----------- ------------
Net increase (decrease) in net assets resulting from operations (161,268) 51,972,459
----------- ------------
Distributions to shareholders from:
Net investment income
Class I -- (93,768)
Class III (6,307,979) (22,677,467)
----------- ------------
Total distributions from net investment income (6,307,979) (22,771,235)
----------- ------------
Net realized gains
Class I -- (232,835)
Class III (9,816,792) (65,046,883)
----------- ------------
Total distributions from net realized gains (9,816,792) (65,279,718)
----------- ------------
(16,124,771) (88,050,953)
----------- ------------
Net share transactions: (Note 5)
Class I -- (1,008,924)
Class III 94,238,172 (112,148,597)
----------- ------------
Increase (decrease) in net assets resulting from net
share transactions 94,238,172 (113,157,521)
----------- ------------
Total increase (decrease) in net assets 77,952,133 (149,236,015)
Net assets:
Beginning of period 320,905,207 470,141,222
----------- ------------
End of period (including accumulated undistributed net
investment income of $8,940,027 and $2,799,507,
respectively) 398,857,340 $320,905,207
============ ============
</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>
Period from
Period from January 2, 1997
March 1, 1997 (commencement of operations)
to January 9, 1998 to February 28, 1997
------------------ ----------------------------
<S> <C> <C>
Net asset value, beginning of period $12.16 $11.75
------ ------
Income from investment operations:
Net investment income 0.69+ 0.11
Net realized and unrealized gain 0.90 0.30
------ ------
Total from investment operations 1.59 0.41
------ ------
Less distributions to shareholders:
From net investment income (0.87) --
From net realized gains (2.23) --
------ ------
Total distributions (3.10) --
------ ------
Net asset value, end of period $10.65(a) $12.16
====== ======
Total Return (b) 14.30% 3.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $1,162
Net expenses to average daily net assets 0.53%* 0.53%*
Net investment income to average daily net 6.60%* 5.91%*
assets
Portfolio turnover rate 135% 90%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following $ 0.04 $ 0.01
per share amounts:
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(b) 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, 1998
------------------------------------------
(Unaudited) 1998 1997 1996 1995 +
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.66 $ 12.16 $ 10.92 $ 9.99 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.30 0.88 0.66 1.05 0.24
Net realized and unrealized gain
(loss) (0.22) 0.73 2.07 1.62 (0.09)
--------- --------- --------- --------- ---------
Total from investment
operations 0.08 1.61 2.73 2.67 0.15
--------- --------- --------- --------- ---------
Less distributions to shareholders:
From net investment income (0.16) (0.88) (0.60) (1.04) (0.16)
From net realized gains (0.25) (2.23) (0.45) (0.42) --
In excess of net realized gains -- -- (0.44) (0.28) --
--------- --------- --------- --------- ---------
Total distributions (0.41) (3.11) (1.49) (1.74) (0.16)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 10.33 $ 10.66 $ 12.16 $ 10.92 $ 9.99
========= ========= ========= ========= =========
Total Return (a) 0.66% 14.44% 25.57% 27.36% 1.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $398,857 $320,905 $468,979 $236,162 $238,664
Net expenses to average daily net
assets 0.40%* 0.40% 0.40% 0.40% 0.40%*
Net investment income to average
daily net assets 6.37%* 6.50% 6.86% 8.54% 8.46%*
Portfolio turnover rate 43% 135% 90% 85% 64%
Fees and expenses voluntarily
waived or borne by the Manager
consisted of the following per
share amounts: $ 0.02 $ 0.05 $ 0.03 $ 0.03 $ 0.01
</TABLE>
* Annualized.
+ Period from September 30, 1994 (commencement of operations) to February 28,
1995.
(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
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares, and to subdivide a series into classes.
The Fund seeks high total return 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.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I shares ceased
operations and all shares were exchanged for Class III shares, and Class II
shares ceased to be offered. The principal economic difference among the
classes of shares is the level of shareholder service fee borne by the
classes. Eligibility for and automatic conversion between the various
classes of shares is generally based on the total amount of assets invested
with GMO, as more fully outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
14
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is kept informed of erratic or unusual movements (including unusual
inactivity) in the prices supplied for a security and has the power to
override any price supplied by a source (by taking a price supplied by
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government 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
15
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
the settlement price established each day by the board of trade or exchange
on which they are traded. See Note 6 for all open futures contracts as of
August 31, 1998.
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, 1998.
Options
The Fund may write call and put options on futures, securities or
currencies 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, 1998.
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
16
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
any fees to which it is entitled only from the lender selling the loan
agreement and only upon receipt by the lender of payments from the
borrower. The Fund generally has no right to enforce compliance with the
terms of the loan agreement with the borrower. As a result, the Fund may be
subject to the credit risk of both the borrower and the lender that is
selling the loan agreement. When the Fund purchases assignments from
lenders it acquires direct rights against the borrower on the loan. Direct
indebtedness of emerging countries involves a risk that the governmental
entities responsible for the repayment of the debt may be unable or
unwilling to pay the principal and interest when due.
Indexed securities
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
Swap agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund may enter into interest rate, total return and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market-linked return based on a notional amount. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Credit
default swaps involve the payment of a specified rate based on the notional
amount. The Fund receives payment upon default of the underlying security.
In connection with these agreements, cash may be set aside as collateral by
the Fund's custodian in accordance with the terms of the swap agreement. At
August 31, 1998, $5,393,093 in cash has been set aside. Swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. 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, 1998.
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
17
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
securities collateralizing the repurchase agreement. The collateral is
marked to market daily to ensure that the market value of the underlying
assets remains sufficient to protect the Fund in the event of default by
the seller. Collateral for certain tri-party repurchase agreements is held
at the counterparty's custodian in a segregated account for the benefit of
the Fund and the counterparty. In connection with transactions in
repurchase agreements, if the seller defaults and the value of the
collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower fail financially.
The Fund receives compensation for lending its securities. At August 31,
1998, the Fund loaned securities having a market value of $33,130,265,
collateralized by cash in the amount of $34,406,935, which was invested in
short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Distributions in excess of tax basis
earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital. Differences in the recognition or
classification of income for financial statement and tax purposes which
result in temporary over-distributions for financial statement purposes are
classified as distributions in excess of net investment income or
accumulated net realized gains.
Security transactions and related investment income
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis, and is adjusted for the accretion of
discounts. Dividend income is recorded on the ex-dividend date. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis. Interest income on the U.S.
Treasury inflation indexed securities is accrued daily based upon an
inflation adjusted principal. Additionally, any increase in the principal
or face amount of the securities adjusted for inflation is recorded as
income.
18
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .15% of the amount
invested. The premium will be reduced by 50% with respect to any portion of
a purchase that is offset by a corresponding redemption occurring on the
same day. In addition, the purchase premium or redemption fee for the Fund
will be reduced by 50% if the purchaser makes an in-kind purchase of Fund
shares or if the purchase or redemption is part of a transfer from or to
another Fund where the Manager is able to transfer securities among the
Funds to effect the transaction. All purchase premiums are paid to and
recorded by the Fund as paid-in capital. Purchase premiums are included as
part of each class' "shares sold" as summarized in Note 5. For the six
months ended August 31, 1998, the Fund received $189,050 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. The risks described above apply to an even greater extent to
investments in emerging markets. The securities markets of emerging
countries are generally smaller, less developed, less liquid, and more
volatile than the securities markets of the U.S. and developed foreign
markets.
2. Fees and other transactions with affiliates
GMO earns a management fee paid monthly at the annual rate of .50% of
average daily net assets. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .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 six months ended August 31, 1998, was $1,569. No
remuneration is paid to any Trustee or officer who is affiliated with the
Manager.
19
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. Purchases and sales of securities
For the six months ended August 31, 1998, cost of purchases and proceeds
from sales of investments, other than short-term obligations, were as
follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------- --------------
<S> <C> <C>
U.S. Government securities $ 7,751,100 $ 6,995,617
Investments (non-U.S. Government securities) 265,673,505 150,330,830
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
----------------------- ----------------------- ---------------------- --------------------
<S> <C> <C> <C>
$456,645,688 $12,876,793 $24,211,664 $11,334,871
</TABLE>
4. Principal shareholders
At August 31, 1998, 69.2% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums received by the
Fund, were as follows:
<TABLE>
<CAPTION>
Period from March 1, 1997
to January 9, 1998
--------------------------------
Class I: Shares Amount
-------------- --------------
<S> <C> <C>
Shares sold 6,040 $ 71,065
Shares issued to shareholders in
reinvestment of distributions 30,405 326,603
Shares repurchased (132,046) (1,406,592)
============== ==============
Net decrease (95,601) $ (1,008,924)
============== ==============
</TABLE>
20
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Share transactions -- continued
<TABLE>
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
-------------------------------- ---------------------------------
Class III: Shares Amount Shares Amount
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares sold 11,452,505 $ 126,033,636 12,690,672 $ 148,729,246
Shares issued to shareholders in
reinvestment of distributions 1,473,568 15,546,141 7,589,419 82,702,082
Shares repurchased (4,425,429) (47,341,605) (28,743,588) (343,579,925)
============== ============== ============== ==============
Net increase (decrease) 8,500,644 $ 94,238,172 (8,463,497) $ (112,148,597)
============== ============== ============== ==============
</TABLE>
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 is as
follows:
Forward currency contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
---------- --------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Buys
11/06/98 AUD 6,500,000 $ 3,721,735 $ (237,577)
9/18/98 CAD 74,000,000 47,302,176 (3,151,641)
10/02/98 DEM 217,300,000 123,459,736 764,545
1/04/99 ESP 10,902,591,000 73,130,278 922,618
10/16/98 GBP 26,900,000 44,933,437 606,947
1/04/99 ITL 155,782,350,000 89,613,004 274,675
11/06/98 JPY 670,000,000 4,792,127 33,029
--------------
$ (787,404)
==============
</TABLE>
21
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- -------------------------------------------------------------------------------
Forward currency contracts -- continued
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units of Currency Value (Depreciation)
------------ ---------------- --------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Sales
11/06/98 AUD 29,000,000 $ 16,604,666 $ 492,544
9/18/98 CAD 133,800,000 85,527,448 4,980,407
10/02/98 DEM 288,500,000 163,912,259 (3,008,391)
1/04/99 DEM 285,300,000 162,942,162 (1,396,173)
10/16/98 GBP 17,100,000 28,563,635 (1,018,271)
11/06/98 JPY 16,960,000,000 121,305,175 (2,164,831)
9/21/98 MYR 29,000,000 6,847,698 8,094
9/28/98 MYR 8,000,000 1,881,659 (12,500)
10/01/98 NZD 9,200,000 4,558,793 87,208
-------------------
$ (2,031,913)
===================
</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>
10/30/98 CHF 85,667,352 DEM 103,200,000 $ (906,185)
10/23/98 DEM 54,979,153 GBP 18,700,000 (51,281)
9/11/98 DEM 9,000,000 SEK 40,397,430 (110,420)
10/29/98 DKK 200,168,000 DEM 52,400,000 (40,762)
1/04/99 FRF 538,491,310 DEM 160,600,000 (35,264)
10/23/98 GBP 34,600,000 DEM 99,302,000 (1,284,140)
9/11/98 SEK 726,360,907 DEM 163,100,000 2,709,794
-----------------------
$ 281,742
=======================
</TABLE>
22
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Futures contracts
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Date Contract Value Appreciation
Contracts Type (Depreciation)
------------- ---------------------------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Buys
131 MATIF FRF Bond September 1998 $ 12,036,041 $ 480,692
384 MATIF FRF Bond December 1998 4,025,144 (36,771)
9 Japanese Government Bond December 1998 8,622,636 47,287
54 German Government Bond September 1998 8,698,639 359,329
257 German Government Bond December 1998 478,282 11,613
190 Canadian Government Bond December 1998 14,804,501 98,519
145 Australian Government Bond 3 yr. September 1998 9,716,445 (35,616)
420 Australian Government Bond 10 yr. September 1998 34,959,480 (619,655)
48 U.S. Treasury Bond December 1998 6,096,000 62,008
================
$ 367,406
================
Sales
383 Spanish Government Bond 10 yr. September 1998 $ 28,813,548 $ (898,774)
167 Spanish Government Bond 10 yr. December 1998 12,597,062 11,001
1 Swiss Government Bond September 1998 88,398 (1,311)
116 U.K. Gilt December 1998 21,865,939 (217,230)
98 Italian Government Bond 10 yr. September 1998 13,832,516 (329,865)
150 Italian Government Bond 10 yr. December 1998 18,801,962 7,389
315 U.S. Treasury Bond December 1998 36,894,375 (782,165)
================
$ (2,210,955)
================
</TABLE>
At August 31, 1998, the Fund has sufficient cash and/or securities to cover
any margin requirements on open futures contracts.
23
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Written option transactions
<TABLE>
<CAPTION>
Puts Calls
Principal Amount Principal Amount
of Contracts of Contracts
(000's omitted) Premiums (000's omitted) Premiums
------------------ --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Outstanding,
beginning of
period 249,100 $ 5,746,705 139,100 $ 5,859,350
Options closed (41,600) (470,080) (41,600) (468,000)
Options expired (110,000) (1,060,400) -- --
================== =============== ================= ===============
Outstanding, end
of period 97,500 $ 4,216,225 97,500 $ 5,391,350
================== =============== ================= ===============
</TABLE>
Summary of written options outstanding
<TABLE>
<CAPTION>
Principal
Amount of
Contracts Exercise Expiration
(000's omitted) Price Date Value
----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Calls
Japanese Yen 97,500 113.65 JPY 9/17/98 $ 18,671,250
Puts
Japanese Yen 97,500 113.65 JPY 9/17/98 --
==============
$ 18,671,250
==============
</TABLE>
24
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Expiration Net
Amount Date Description Unrealized
Fund/Counterparty Depreciation
---------------------- ------------ ------------------------------------------------- --------------
<S> <C> <C> <C>
CREDIT DEFAULT SWAPS
288,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (236,131)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Italy, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Italy BTP, 6.00% due
11/01/07.
6,036,000,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company (185,279)
dated 3/26/98 to pay .07% per year times the
notional amount. The Fund receives payment
only upon a default event in Belgium, the
notional amount times the difference between
the purchase cost of 100 USD and the
then-market value of Kingdom of Belgium, 5.75%
due 3/28/08.
INTEREST RATE SWAPS
17,700,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company (156,845)
dated 6/03/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a specified spread.
23,700,000 CHF 6/10/05 Agreement with Credit Suisse Financial Products (237,685)
dated 6/08/98 to pay the notional amount
multiplied by 3.2625% and to receive the
notional amount multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a specified spread.
</TABLE>
25
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Notional Expiration Net
Amount Date Description Unrealized
Fund/Counterparty Depreciation
---------------------- ------------ ------------------------------------------------ --------------
<S> <C> <C> <C>
14,200,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company
dated 6/09/98 to pay the notional amount $ (116,850)
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month Floating
Rate Swiss LIBOR adjusted by a specified
spread.
TOTAL RETURN SWAPS
7,500,000 USD/ 9/15/98 Agreement with Morgan Guaranty Trust Company (2,038,435)
6,837,317 USD dated 7/13/98 to receive the notional amount
multiplied by the change in market
value (including accrued interest) of
Brazil Capitalization Fixed/Floating
Rate Bond due 4/15/14 and to pay
initial market value multiplied by 2
month LIBOR adjusted by a specified
spread.
3,697,979 USD/ 5/14/99 Agreement with Bank of America dated 5/29/97 (1,947,131)
494,875,000,000 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) on the Turkey Index
Linked Bond due 5/14/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
1,448,524 USD/ 6/04/99 Agreement with Bank of America dated 6/20/97 (124,433)
316,183,601,428 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) on the Turkey Index
Linked Bond due 6/04/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
</TABLE>
26
<PAGE>
GMO Currency Hedged International Bond Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
SWAP AGREEMENTS -- CONTINUED
<TABLE>
<CAPTION>
Notional Expiration Net
Amount Date Description Unrealized
Fund/Counterparty Appreciation
---------------------- ------------ ------------------------------------------------ --------------
<S> <C> <C> <C>
488,115 USD/ 6/04/99 Agreement with Bank of America dated 11/13/97 $ 155,361
152,951,203,814 TRL to receive the notional amount multiplied by
the change in market value (including
accrued interest) on the Turkey Index
Linked Bond due 6/04/99 and to pay the
notional amount multiplied by 3 month
LIBOR adjusted by a specified spread.
==============
$ (4,887,428)
==============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
27
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of Gmo Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 97.6%
Advertising -- 0.2%
200 Interpublic Group Inc 11,400
------------
Aerospace -- 0.5%
200 Cordant Technologies Inc 7,125
300 General Dynamics 14,269
------------
21,394
------------
Automotive -- 2.6%
200 Bandag Inc 6,025
200 Borg Warner Automotive Inc 8,100
300 Eaton Corp 17,569
200 General Motors Corp 11,550
1,300 Genuine Parts Co 40,706
500 Goodyear Tire & Rubber Co 24,500
200 Lear Corp * 8,113
------------
116,563
------------
Banking and Financial Services -- 2.9%
500 BankAmerica Corp 32,031
200 Bankers Trust New York Corp 14,863
500 First Chicago NBD Corp 31,688
400 First Union Corp 19,400
600 MBNA Corp 14,100
200 Republic New York Corp 8,250
200 Student Loan Group 8,775
------------
129,107
------------
Chemicals -- 2.0%
400 Ferro Corp 8,075
600 Great Lakes Chemical Corp 23,475
200 Minerals Technologies Inc 7,263
400 Morton International Inc 8,900
150 Octel Corp * 2,306
600 PPG Industries Inc 30,488
100 Rohm & Haas Co 8,631
------------
89,138
------------
Computer and Office Equipment -- 0.6%
400 Electronic Data Systems Corp 13,400
200 Lexmark International Group Inc * 12,113
------------
25,513
------------
</TABLE>
See accompanying notes to the financial statements. 1
<PAGE>
GMO Tax-managed U.s. Equities Fund
(A Series Of GMO Trust)
Schedule Of Investments -- (Continued)
(Showing Percentage Of Total Net Assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods -- 2.7%
400 Fortune Brands Inc 11,025
300 Hasbro Inc 9,394
400 Jones Apparel Group Inc 7,750
400 Lancaster Colony Corp 11,550
400 Mattel Co 12,950
400 Nautica Enterprises Inc * 7,725
600 Nike Inc, Class B 20,813
300 Standard Register Co 9,413
300 Unifi Inc * 6,675
600 VF Corp 22,725
------------
120,020
------------
Electronic Equipment -- 2.6%
600 AVX Corp 8,925
2,400 Raytheon Co, Class B 109,499
------------
118,424
------------
Food And Beverage -- 8.9%
1,000 Anheuser Busch Cos Inc 46,125
2,000 McDonald's Corp 112,124
600 Seagrams Co Ltd 18,525
1,500 Sysco Corp 30,281
400 Tootsie Roll Industries Inc 13,500
2,200 Unilever NV ADR 139,424
800 Universal Foods Corp 16,900
600 Whitman Corp 9,300
200 Wrigley (William Jr) Co 15,500
------------
401,679
------------
Health Care -- 9.4%
400 Arrow International Inc 10,850
400 First Health Group Corp 8,075
400 Invacare Corp 8,100
3,600 Johnson & Johnson 248,399
400 Lincare Holdings Inc 13,575
300 Mallinckrodt Inc 6,863
1,600 Medtronic Inc 82,200
1,000 Perrigo Co * 8,500
600 United Healthcare Corp 21,675
300 Wellpoint Health Network * 16,013
------------
424,250
------------
</TABLE>
2 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance -- 5.0%
300 AMBAC Inc 14,156
200 General Re Corp 41,500
400 Hartford Financial Services Group 17,900
500 Loews Corp 42,188
200 MBIA Inc 11,225
200 Orion Capital Corp 7,450
100 Progressive Corp 9,744
200 Reinsurance Group of America 10,000
200 Safeco Corp 8,125
400 Saint Paul Cos Inc 12,225
400 Torchmark Corp 14,300
200 Transamerica Corp 20,513
200 Transatlantic Holding Inc 16,238
------------
225,564
------------
Machinery -- 1.0%
500 Case Corp 13,500
600 Donaldson Co Inc 10,650
200 FMC Corp * 10,350
300 Nordson Corp 12,788
------------
47,288
------------
Manufacturing -- 0.3%
600 International Game Technology 11,625
------------
Metals and Mining -- 0.6%
600 Phelps Dodge Corp 26,850
------------
Oil and Gas -- 6.0%
2,100 Amoco Corp 95,155
1,700 Atlantic Richfield Co 98,599
200 Consolidated Natural Gas Co 8,763
800 Phillips Petroleum Co 32,650
600 Questar Corp 9,750
200 Texaco Inc 11,113
1,200 Union Pacific Resources Group 10,275
100 Veritas DGC Inc * 1,500
------------
267,805
------------
</TABLE>
See accompanying notes to the financial statements. 3
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals -- 8.9%
7,000 Abbott Laboratories 269,499
2,000 Amgen Inc * 121,749
600 Mark IV Industries Inc 8,513
----------
399,761
----------
Primary Materials -- 0.4%
500 Schulman (A) Inc 7,938
100 Vulcan Materials Co 11,150
----------
19,088
----------
Primary Processing -- 0.9%
600 Nucor Corp 21,563
400 USX-US Steel Group Inc 8,375
300 Valspar Corp 9,975
----------
39,913
----------
Printing and Publishing -- 2.2%
200 Central Newspapers, Class A 12,400
600 McClatchy Newspapers Inc 18,000
200 Pulitzer Publishing Co 15,213
100 Washington Post Co, Class B 51,250
----------
96,863
----------
Retail Trade -- 5.8%
2,100 Albertsons Inc 106,180
500 Autozone Inc * 12,969
400 Hannaford Brothers Co 16,625
300 Lands End Inc * 6,150
600 Office Depot Inc * 15,300
300 Outback Steakhouse Inc * 9,019
400 Richfood Holdings Inc 8,225
300 Ross Stores Inc 10,913
500 Safeway Inc 19,688
500 Toys R Us Inc * 9,281
800 Wal Mart Stores Inc 47,000
----------
261,350
----------
Services -- 2.0%
400 Banta Corp 11,200
100 BHC Communications Inc, Class A 11,650
200 Catalina Marketing Corp * 8,413
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value ($)
- -----------------------------------------------------------------------------
<S> <C> <C>
Services -- continued
200 Chris Craft Industries Inc 8,325
400 KingWorld Productions Inc 8,400
400 Lee Enterprises Inc 9,450
600 Supervalu Inc 12,188
100 United Television Inc 11,000
600 United Video Satellite Group Inc 9,150
----------
89,776
----------
Technology -- 4.8%
200 BMC Software Inc * 8,463
400 Grainger (WW) Inc 15,675
1,600 Intel Corp 113,899
800 Microsoft Corp * 76,750
----------
214,787
----------
Telecommunications -- 6.8%
400 Ameritech Corp 18,850
4,100 AT & T Corp 205,512
200 MCI Communications Corp 10,000
1,100 Sprint Corp 73,769
----------
308,131
----------
Tobacco -- 4.4%
4,800 Philip Morris Cos Inc 199,499
----------
Transportation -- 3.9%
1,900 Burlington Northern Santa Fe Railroad Co 176,818
----------
Utilities -- 12.2%
1,612 Citizens Utilities, Class B 11,586
300 Consolidated Edison Co. of N.Y. Inc 14,194
300 Dominion Resources Inc 12,506
500 DTE Energy Co 21,063
300 Energy East Corp 13,500
1,600 Entergy Corp 46,100
500 Houston Industries Inc 14,406
792 MarketSpan Corp 21,681
1,900 Niagara Mohawk Power Corp * 29,450
1,900 Northeast Utilities * 28,500
1,400 Peco Energy Co 47,950
3,300 PG & E Corp 106,012
700 PP & L Resources Inc 16,494
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/
Par Value($) Description Value ($)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities -- continued
1,000 Public Service Enterprise Group Inc 36,625
1,100 Texas Utilities Co 46,750
1,900 Unicom Corp 67,688
300 Western Resources Inc 12,094
----------
546,599
----------
TOTAL COMMON STOCKS (COST $4,931,640) 4,389,205
----------
SHORT-TERM INVESTMENTS -- 2.3%
Repurchase Agreement -- 2.3%
$103,067 Salomon Smith Barney Inc. Repurchase Agreement, dated
8/31/98, due 9/1/98, with a maturity value of $103,082 and an
effective yield of 5.18%, collateralized by a U.S. Treasury
Obligation with a rate of 5.625%, a maturity date of 12/31/99
and a market value of $105,128. 103,067
----------
TOTAL SHORT-TERM INVESTMENTS (COST $103,067) 103,067
----------
TOTAL INVESTMENTS -- 99.9%
(COST $5,034,707) 4,492,272
Other Assets and Liabilities (net)-- 0.1% 3,554
----------
TOTAL NET ASSETS-- 100% $4,495,826
==========
</TABLE>
Notes to the Schedule of Investments:
ADR - American Depositary Receipt
* Non-income producing security.
6 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost $5,034,707) (Note 1) $4,492,272
Dividends and interest receivable 7,660
Receivable for expenses waived or borne by Manager (Note 2) 10,171
----------
Total assets 4,510,103
----------
Liabilities:
Payable to affiliate for (Note 2):
Management fee 2,179
Shareholder service fee 622
Accrued expenses 11,476
----------
Total liabilities 14,277
----------
Net assets $4,495,826
==========
Net assets consist of:
Paid-in capital $5,031,640
Accumulated undistributed net investment income 6,621
Net unrealized depreciation (542,435)
==========
$4,495,826
==========
Net assets attributable to:
Class III shares $4,495,826
==========
Shares outstanding:
Class III 511,422
==========
Net asset value per share:
Class III $ 8.79
==========
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Statement of Operations --
For the Period From July 23, 1998 (commencement of operations) to August 31,
1998 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends $ 8,543
Interest 540
---------
Total income 9,083
---------
Expenses:
Audit fees 6,232
Custodian and transfer agent fees 4,180
Management fee (Note 2) 2,693
Registration fees 418
Legal fees 380
Trustees fees (Note 2) 76
Miscellaneous 190
Fees waived or borne by Manager (Note 2) (12,476)
---------
1,693
Shareholder service fee (Note 2)
Class III 769
---------
Net expenses 2,462
---------
Net investment income 6,621
---------
Realized and unrealized gain (loss):
Net realized gain (loss) on investments --
Change in net unrealized appreciation (depreciation) on investments (624,995)
---------
Net realized and unrealized loss (624,995)
---------
Net decrease in net assets resulting from operations $(618,374)
=========
</TABLE>
8 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-managed U.s. Equities Fund
(A Series Of GMO Trust)
<TABLE>
<CAPTION>
Statement Of Changes In Net Assets
- -------------------------------------------------------------------------------------------------
Period From July 23, 1998
(Commencement Of Operations)
to August 31, 1998
(Unaudited)
----------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,621
Net realized gain --
Change in net unrealized appreciation (depreciation) (624,995)
----------
Net decrease in net assets resulting from operations (618,374)
----------
Net share transactions: (Note 5)
Class III 5,114,200
----------
Increase in net assets resulting from net share transactions 5,114,200
----------
Total increase in net assets 4,495,826
Net assets:
Beginning of period --
----------
End of period (including accumulated undistributed net investment
income of $6,621) $4,495,826
==========
</TABLE>
See accompanying notes to the financial statements. 9
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Financial Highlights
(For a Class III share outstanding throughout the period)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
July 23, 1998
(commencement of
operations)
to August 31, 1998
(Unaudited)
-----------
<S> <C>
Net asset value, beginning of period $ 10.00
--------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized loss (1.22)
--------
Total from investment operations (1.21)
--------
Net asset value, end of period $ 8.79
========
Total Return (a) (12.10)%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,496
Net expenses to average daily net assets 0.48%*
Net investment income to average daily net assets 1.29%*
Portfolio turnover rate 0%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amount: $ 0.02
</TABLE>
* Annualized.
(a) Calculation excludes purchase premiums. The total return would have been
lower had certain expenses not been waived during the period shown.
10 See accompanying notes to the financial statements.
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Tax-Managed U.S. Equities Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund, which commenced operations on July 23, 1998, is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the
"Manager" or "GMO"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares, and
to subdivide a series into classes.
The Fund seeks to maximize after-tax total return through investment in a
portfolio of common stocks traded in the U.S.
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. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
11
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income are withheld in accordance with
the applicable country's tax treaty with the United States.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income quarterly, and from net realized short-term and long-term capital
gains at least annually. All distributions will be paid in shares of the
Fund, at net asset value, unless the shareholder elects to receive cash
distributions.
Income 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.
Expenses
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
Purchases and redemptions of Fund shares
The premium on cash purchases of Fund shares is .14% of the amount
invested. All purchase premiums are paid to and recorded by the Fund as
paid-in capital. Purchase premiums are included as part of "shares sold",
as summarized in Note 5. For the period ended August 31, 1998, the Fund
received no purchase premiums. There is no premium for cash redemptions,
reinvested distributions or in-kind transactions.
12
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting, and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on average daily net assets at the annual rate of .15% for Class III
shares.
GMO has agreed to waive a portion of its fee and bear other expenses until
further notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions, certain other
transaction costs (including transfer taxes), shareholder service fees and
extraordinary expenses) exceed .33% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the period ended August 31, 1998 was $76. 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, 1998, aggregated
$4,931,640 and $0, respectively.
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C>
$5,034,707 $103,568 $646,003 $542,435
</TABLE>
4. Principal shareholder
At August 31, 1998, 100% of the outstanding shares of the Fund were held by
one shareholder.
13
<PAGE>
GMO Tax-Managed U.S. Equities Fund
(A Series of GMO Trust)
Notes to Financial Statements - (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from July 23, 1998
Class III: (commencement of operations)
to August 31, 1998
-----------------------------------------
Shares Amount
------------------ -------------------
<S> <C> <C>
Shares sold 511,422 $ 5,114,200
Shares issued to shareholders
in reinvestment of distributions -- --
Shares repurchased -- --
================== ===================
Net increase 511,422 $ 5,114,200
================== ===================
</TABLE>
The Fund was formed with a $100,000 purchase and an initial contribution of
securities in-kind, which had a historical cost of $4,931,640 and
unrealized appreciation of $82,560 on the date of contribution.
14
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Semi-Annual Report
August 31, 1998
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEBT OBLIGATIONS -- 82.6%
Argentina -- 18.1%
ARP 35,134,370 Argentina Pro 1 Co-Participation Rights,
Variable Rate, 1 mo. Peso Deposit Rate, 3.04%, due 4/01/07 15,096,745
USD 3,075,000 Argentina Pro 4,
Variable Rate, 1 mo. LIBOR, 5.63%, due 12/28/10 1,968,000
ARP 4,400,000 Provincia Corrientes Series 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 3.04%, due 4/01/09 1,320,264
ARP 2,500,000 Provincia Corrientes Series 2, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 3.04%, due 4/01/09 750,150
ARP 15,000,000 Republic of Argentina, 8.75%, due 7/10/02 9,151,830
ARP 32,323,800 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, 3.04%, due 4/01/07 17,256,280
USD 27,600,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 3/31/23 17,388,000
USD 57,600,000 Republic of Argentina Par Bond,
Variable Rate, Step Up, 5.75%, due 3/31/23 35,136,000
------------------
98,067,269
------------------
Bosnia & Herzegovina -- 0.2%
DEM 5,244,000 Bosnia & Herzegovina Series A, Step Up, 2.00%, due 12/11/17 765,710
DEM 3,447,000 Bosnia & Herzegovina Series B, Zero Coupon, due 12/11/17 83,072
------------------
848,782
------------------
Brazil -- 6.4%
USD 346,140 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 184,321
USD 10,700,000 Brazil DCB (Bearer),
Variable Rate, 6 mo. LIBOR + .88%, 6.69%, due 4/15/12 5,109,250
USD 42,025,000 Brazil Discount ZL Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 4/15/24 24,374,500
USD 10,000,000 Brazil New Money Bond,
Variable Rate, 6 mo. LIBOR + .88%, 6.69%, due 4/15/09 4,900,000
------------------
34,568,071
------------------
Bulgaria -- 0.2%
USD 18,000,000 Bulgaria Discount Series B Strips, Basket 2, 0.00%, due 7/28/24 783,000
USD 5,000,000 Bulgaria Par Bond, Series B Strips, Tranche B, 0.00%, due 7/28/24 275,000
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costa Rica -- 0.4%
USD 1,017,088 Central Bank of Costa Rica Interest Series A,
Variable Rate, 3 mo. LIBOR + .81%, 6.57%, due 5/21/05 920,465
USD 644,688 Central Bank of Costa Rica Interest Series B,
Variable Rate, 3 mo. LIBOR + .81%, 6.57%, due 5/21/05 570,549
USD 1,000,000 Central Bank of Costa Rica Principal Bond Series A, 6.25%, due 5/21/10
835,000
------------------
2,326,014
------------------
Dominican Republic -- 1.2%
USD 10,957,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 8/30/24 6,656,378
------------------
Ecuador -- 6.1%
USD 20,215,000 Republic of Ecuador Discount Bond (Global Registered), Variable Rate,
6 mo. LIBOR + .81%, 6.63%, due 2/28/25 9,096,750
USD 44,500,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.50%, due 2/28/25 18,022,500
USD 226,332 Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 2/27/15
69,031
USD 19,811,561 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 2/27/15 6,042,526
------------------
33,230,807
------------------
Ivory Coast -- 4.4%
FRF 25,000,000 Ivory Coast Discount Bond,
Variable Rate, Step Up, 3.00%, due 3/31/28 2,072,758
FRF 468,720,000 Ivory Coast FLIRB,
Variable Rate, Step Up, 2.00%, due 3/29/18 15,861,929
FRF 170,410,000 Ivory Coast PDI,
Variable Rate, Step Up, 1.90%, due 3/29/18 5,766,836
------------------
23,701,523
------------------
Jordan -- 4.1%
USD 4,530,215 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 5.00%, due 12/23/23 2,248,119
USD 21,250,000 Hashemite Kingdom of Jordan Par Bond,
Variable Rate, Step up, 144A, 5.00%, due 12/23/23 10,625,000
USD 10,263,110 Hashemite Kingdom of Jordan PDI,
Variable Rate, 6 mo. LIBOR + .81%, 6.56%, due 12/23/05 9,134,168
------------------
22,007,287
------------------
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Macedonia -- 1.7%
USD 21,068,784 Macedonia Capitalization Bond, PIK,
Variable Rate, 6 mo. LIBOR + .81%, 6.53%, due 7/02/12 9,480,953
------------------
Mexico -- 21.3%
USD 10,000,000 Mexico Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + .81%, 6.48%, due 12/31/19 7,800,000
USD 5,000,000 Mexico Discount Bond Series C,
Variable Rate, 6 mo. LIBOR + .81%, 6.62%, due 12/31/19 3,900,000
USD 25,000,000 Mexico Discount Bond Series D,
Variable Rate, 6 mo. LIBOR + .81%, 6.60%, due 12/31/19 19,500,000
DEM 30,000,000 Mexico Discount Bond,
Variable Rate, 6 mo. DEM LIBOR + .81%, 4.50%, due
12/31/19 11,950,666
FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 42,544,416
CHF 65,000,000 Mexico Par Bond, 3.75%, due 12/31/19 29,381,007
------------------
115,076,089
------------------
Nigeria -- 3.4%
USD 35,326,032 Central Bank of Nigeria Par Bond,
Variable Rate, Step up, 6.25%, due 11/15/20 18,192,907
------------------
Panama -- 0.9%
USD 7,828,000 Panama Interest Reduction Bond,
Variable Rate, Step up, 4.00%, due 7/17/14 4,833,790
------------------
Peru -- 0.7%
USD 3,775,000 Peru FLIRB,
Variable Rate, Step up, 3.25%, due 3/07/17 1,510,000
USD 5,150,000 Peru FLIRB,
Variable Rate, Step up, 144A, 3.25%, due 3/07/17 2,060,000
USD 200,000 Peru PDI,
Variable Rate, Step up, 4.00%, due 3/07/17 94,500
------------------
3,664,500
------------------
Russia -- 0.1%
USD 4,042,707 Russia Vnesheconombank IAN,
Variable Rate, 6 mo. LIBOR + .81%, 6.63%, due 12/15/15 444,698
------------------
Supra National -- 0.5%
ZAR 250,000,000 International Bank Recon and Development, 0.00%, due 5/14/12 2,980,406
------------------
Venezuela -- 6.0%
USD 1,607,762 Republic of Venezuela DCB DL Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 12/18/07 647,124
</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, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Venezuela -- continued
USD 15,366,387 Republic of Venezuela DCB IL,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 12/18/08 5,800,813
USD 20,256,672 Republic of Venezuela DCB,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 12/18/07 8,153,310
USD 5,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + .81%, 6.56%, due 3/31/20 2,950,000
USD 360,000 Republic of Venezuela FLIRB Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + .88%, 6.63%, due 3/31/07 139,500
CHF 34,285,600 Republic of Venezuela FLIRB,
Variable Rate, 6 mo. CHF LIBOR + .88%, 2.31%, due 3/31/07 8,652,592
USD 14,227,435 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1%, 6.75%, due 12/18/05 5,584,265
USD 1,061,029 Republic of Venezuela New Money Bond Series B Odd Lot, Variable Rate,
6 mo. LIBOR + .88%, 6.63%, due 12/18/05 416,454
------------------
32,344,058
------------------
United States -- 6.9%
Asset Backed Securities -- 5.3%
USD 3,897,988 Americredit Automobile Receivables Trust 97-6 Class A2,
Variable Rate, 1 mo. LIBOR + .10%, 5.76%, due 3/05/01 3,896,818
USD 20,000,000 Dreamworks Film Trust Series 1 Class A,
Variable Rate, 3 mo. LIBOR + .22%, 5.88%, due 10/15/06 20,009,375
USD 5,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due 6/15/10
5,060,000
------------------
28,966,193
------------------
U.S. Government Agency -- 1.6%
USD 9,000,000 Federal Home Loan Bank,
Variable Rate, CPI + 3.15%, 4.83%, due 2/15/02(a) 8,662,500
------------------
TOTAL UNITED STATES 37,628,693
------------------
TOTAL DEBT OBLIGATIONS
(COST $565,179,810) 447,110,225
------------------
LOAN ASSIGNMENTS -- 10.4%
Algeria -- 2.0%
JPY 376,793,704 Algeria Tranche 1, JPY LIBOR + .8125%, (1.75%) 920,701
JPY 4,379,685,758 Algeria Tranche 3 Loan, JPY 6 mo. LIBOR + 13/16, (1.75%) 9,616,138
------------------
10,536,839
------------------
</TABLE>
4 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Angola -- 0.2%
USD 400,015 Banco Nacional de Angola Letter of Credit* 120,005
DEM 5,950,127 Banco Nacional de Angola Letter of Credit* 1,012,213
------------------
1,132,218
------------------
Congo Republic -- 1.6%
FRF 102,097,963 Republic of Congo Loan Agreement* 4,837,129
ECU 8,195,761 Republic of Congo Loan Agreement* 2,565,142
USD 4,179,127 Republic of Congo Loan Agreement* 1,211,947
------------------
8,614,218
------------------
Russia -- 6.4%
ECU 5,000,000 International Bank for Economic Cooperation Loan Agreement* 705,611
USD 323,440,310 Russia Vnesh Restructured Loan Agreements, LIBOR + .8125% (3.3125%) 33,556,932
DEM 5,208,190 Russia Vnesheconombank Foreign Trade Obligations*(1) 403,129
------------------
34,665,672
------------------
Yugoslavia -- 0.2%
USD 1,400,368 Yugoslavia New Financing Agreement Tranche A* 490,129
USD 1,852,004 Yugoslavia New Financing Agreement Tranche C* 648,201
------------------
1,138,330
------------------
TOTAL LOAN ASSIGNMENTS
(Cost $202,356,186) 56,087,277
------------------
LOAN PARTICIPATIONS -- 6.9%
Algeria -- 2.1%
JPY 118,636,364 Algeria Tranche 1, JPY LIBOR + .8125%, (1.75%)
(Participation with Bank of America) 289,890
USD 2,000,000 Algeria Tranche 2, LIBOR + .8125%, (6.625%), (Participation with
Salomon) 1,020,000
FRF 90,564,324 Algeria Tranche 3, FRF LIBOR + .81%, (4.4375%), (Participation with
Salomon) 9,768,995
------------------
11,078,885
------------------
Cameroon -- 0.7%
NLG 28,052,902 Cameroon Loan Agreement, (Participation with Bank of America and
Solomon)* 3,665,019
------------------
</TABLE>
See accompanying notes to the financial statements. 5
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jamaica -- 0.9%
USD 5,437,500 Jamaica Refinancing Agreement Tranche B, LIBOR + .81%, (6.4375%),
(Participation with Chase Manhattan Bank and Salomon) 4,730,625
------------------
Morocco -- 2.2%
JPY 384,300,844 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese
Long Term Fixed Prime + .2175%, (3.0175%), (Participation with
J.P. Morgan) 1,388,154
JPY 2,971,603,837 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese
Long Term Floating Prime + .1175%, (2.5175%), (Participation with
Bankers Trust Co. and J.P. Morgan) 10,733,890
------------------
12,122,044
------------------
Russia -- 0.9%
CHF 1,500,000 International Bank for Economic Cooperation Loan Agreement,
(Participation with Oppenheimer)* 132,234
DEM 2,000,000 International Bank for Economic Cooperation Loan Agreement,
(Participation with Salomon)* 201,304
DEM 1,500,000 International Bank for Economic Cooperation Loan Agreement,
(Participation with Salomon)* 150,978
JPY 900,000,000 International Investment Bank Loan Agreement, (Participation with
Bank of America)* 613,535
USD 18,000,000 International Investment Bank Loan Agreement, (Participation with
Salomon)* 3,555,000
USD 2,000,000 International Investment Bank Loan Agreement, (Participation with
Salomon)* 395,000
------------------
5,048,051
------------------
Yugoslavia -- 0.1%
USD 2,100,416 Yugoslavia New Financing Agreement Tranche B, (Participation with
Chase Manhattan Bank)* 735,145
------------------
TOTAL LOAN PARTICIPATIONS
(COST $51,735,855) 37,379,769
------------------
PROMISSORY NOTES -- 1.4%
Kenya -- 0.8%
GBP 5,058,280 Republic of Kenya Promissory Notes, 0.00%, due 7/30/01 - 1/30/03*
4,571,663
------------------
4,571,663
------------------
</TABLE>
6 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Par Value Description Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nigeria -- 0.2%
USD 3,000,000 Nigeria Promissory Notes, 5.09%, due 1/05/10 900,000
------------------
Russia -- 0.4%
USD 17,500,000 Russia Vnesheconombank Foreign Trade Obligation, 0.00%, due 6/30/99(1) 2,187,500
------------------
TOTAL PROMISSORY NOTES
(COST $15,772,736) 7,659,163
------------------
Principal Amount
-----------------------
CALL OPTIONS PURCHASED -- 0.0%
Options on Futures -- 0.0%
USD 3,500,000 Eurodollar, Expires 9/14/98, Strike 94.375 245,000
------------------
TOTAL CALL OPTIONS PURCHASED
(COST $87,650) 245,000
------------------
PUT OPTIONS PURCHASED -- 1.1%
Cross Currency Options -- 0.0%
USD 5,886,603 TRL Put/1.00 USD + 1.50 DEM Basket Call, Expires 11/09/98, Strike
654,000 46,901
------------------
Options on Currency -- 1.1%
USD 10,000,000 Brazilian Real, Expires 10/16/98, Strike 1.30 2,000
USD 10,000,000 Russian Ruble, Expires 9/15/98, Strike 6.55 5,591,000
USD 10,000,000 Taiwan Dollar, Expires 11/24/98, Strike 34.20 376,000
------------------
5,969,000
------------------
TOTAL PUT OPTIONS PURCHASED
(COST $851,703) 6,015,901
------------------
Shares
----------------------
RIGHTS AND WARRANTS -- 0.0%
Mexico-- 0.0%
177,003,000 United Mexican States Warrants, Expires 6/30/03 ** --
------------------
Nigeria -- 0.0%
23,500 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20 **
--
------------------
</TABLE>
See accompanying notes to the financial statements. 7
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Schedule of Investments -- (Continued)
(showing percentage of total net assets)
August 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares/Par Value Description Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Venezuela -- 0.0%
108,020 Republic of Venezuela Recovery Warrants,
Expires 04/15/20 ** --
------------------
TOTAL RIGHTS AND WARRANTS (COST $0) --
------------------
SHORT-TERM INVESTMENTS -- 6.2%
CASH EQUIVALENTS -- 1.8%
USD 573,223 BankBoston Eurodollar Time Deposit, 5.8925% due 9/1/98(b) 573,223
1,965,279 Merrimac Cash Fund Premium Class(b) 1,965,279
USD 7,000,000 Prudential Securities Group Inc, Master Note, 5.94% due 9/1/98(b) 7,000,000
------------------
9,538,502
------------------
Commercial Paper -- 4.4%
USD 23,900,000 GE Capital Corp, 5.83% due 9/01/98 23,900,000
------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $33,438,502) 33,438,502
------------------
TOTAL INVESTMENTS-- 108.6%
(Cost $869,422,442) 587,935,837
Other Assets and Liabilities (net)-- (8.6)% (46,647,646)
------------------
TOTAL NET ASSETS-- 100% $ 541,288,191
==================
Notes to the Schedule of Investments:
DCB - Debt Conversion Bond
FLIRB - Front Loaded Interest Reduction Bond
IAN - Interest Arrears Note
PIK - Payment In Kind
PDI - Past Due Interest
</TABLE>
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments -- continued
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,
1998, which are subject to change based
on the terms of the security, including
varying reset dates.
Currency Abbreviations:
ARP - Argentinian Peso JPY - Japanese Yen
BRL - Brazilian Real MYR - Malaysian Ringgit
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark SGD - Singapore Dollar
ECU - European Currency Unit TRL - Turkish Lira
FRF - French Franc TWD - New Taiwan Dollar
GBP - British Pound USD - United States Dollar
IDR - Indonesian Rupiah ZAR - South African Rand
(a) Security has been segregated to cover
margin requirements on open financial futures contracts.
(b) Represents investments of security lending collateral
(Note 1).
(1) When-issued security.
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost $869,422,442) (Note 1) $ 587,935,837
Cash (Note 1) 63,136,794
Interest receivable 13,386,800
Receivable for investments sold 21,327,697
Receivable for Fund shares sold 62,748
Receivable for closed swap contracts (Notes 1 and 6) 6,128,466
Receivable for open forward foreign currency contracts (Notes 1 and 6) 2,524,104
Receivable for expenses waived or borne by Manager (Note 2) 116,003
-------------
Total assets 694,618,449
-------------
Liabilities:
Payable for investments purchased 54,482,442
Payable upon return of securities loaned (Note 1) 9,538,502
Written options outstanding, at value (premiums $1,577,062) (Notes 1 and 6) 13,725,000
Payable for open forward foreign currency contracts (Notes 1 and 6) 7,757,272
Payable for open swap contracts (Note 1 and 6) 66,671,449
Payable for variation margin on open futures contracts (Notes 1 and 6) 541,200
Payable for Fund shares repurchased 24,123
Payable to affiliate for (Note 2):
Management fee 298,319
Shareholder service fee 71,672
Accrued expenses and other liabilities 220,279
-------------
Total liabilities 153,330,258
-------------
Net assets $ 541,288,191
=============
Net assets consist of:
Paid-in capital $ 860,997,427
Accumulated undistributed net investment income 71,556,426
Distributions in excess of net realized gains (24,866,664)
Net unrealized depreciation (366,398,998)
=============
$ 541,288,191
=============
Net assets attributable to:
Class III shares $ 253,154,809
=============
Class IV shares $ 288,133,382
=============
Shares outstanding:
Class III 43,847,986
=============
Class IV 49,925,591
=============
Net asset value per share:
Class III $ 5.77
=============
Class IV $ 5.77
=============
</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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest (including securities lending income of $7,658) $ 43,518,953
------------------
Total income 43,518,953
------------------
Expenses:
Management fee (Note 2) 2,031,309
Custodian fees 216,898
Registration fees 52,709
Audit fees 36,072
Legal fees 22,692
Transfer agent and dividend disbursing agent fees 18,474
Trustees fees (Note 2) 3,501
Miscellaneous 2,938
Fees waived or borne by Manager (Note 2) (754,326)
------------------
1,630,267
Shareholder service fee (Note 2)
Class III 297,454
Class IV 207,960
------------------
Net expenses 2,135,681
------------------
Net investment income 41,383,272
------------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 17,068,239
Closed futures contracts (4,005,045)
Closed swap contracts (12,738,617)
Foreign currency, forward contracts and foreign currency related transactions 8,985,688
------------------
Net realized gain 9,310,265
------------------
Change in net unrealized appreciation (depreciation) on:
Investments (362,175,922)
Open futures contracts (632,467)
Open swap contracts (74,888,475)
Written options (12,147,938)
Foreign currency, forward contracts and foreign currency related transactions (5,072,832)
------------------
Net unrealized loss (454,917,634)
------------------
Net realized and unrealized loss (445,607,369)
------------------
Net decrease in net assets resulting from operations $ (404,224,097)
==================
</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
August 31, 1998 Year Ended
(Unaudited) February 28, 1998
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 41,383,272 $ 48,250,976
Net realized gain 9,310,265 142,856,114
Change in net unrealized appreciation (depreciation) (454,917,634) (73,348,483)
---------------- ----------------
Net increase (decrease) in net assets resulting from operations (404,224,097) 117,758,607
---------------- ----------------
Distributions to shareholders from:
Net investment income
Class I -- (615,704)
Class II -- (162,060)
Class III (6,645,802) (37,765,550)
Class IV (8,602,550) --
---------------- ----------------
Total distributions from net investment income (15,248,352) (38,543,314)
---------------- ----------------
Net realized gains
Class I -- (2,479,219)
Class II -- (728,281)
Class III (33,919,909) (156,588,472)
Class IV (42,640,524) --
---------------- ----------------
Total distributions from net realized gains (76,560,433) (159,795,972)
---------------- ----------------
(91,808,785) (198,339,286)
---------------- ----------------
Net share transactions: (Note 5)
Class I -- 2,299,312
Class II -- 494,022
Class III 18,448,512 (3,460,212)
Class IV 247,906,094 296,725,667
---------------- ----------------
Increase in net assets resulting from net share transactions 266,354,606 296,058,789
---------------- ----------------
Total increase (decrease) in net assets (229,678,276) 215,478,110
Net assets:
Beginning of period 770,966,467 555,488,357
---------------- ----------------
End of period (including accumulated undistributed net investment income
of $71,556,426 and $45,421,506, respectively) $ 541,288,191 $ 770,966,467
================ ================
</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>
Period from Period from December 31, 1996
March 1, 1997 (commencement of operations)
to January 9, 1998 to February 28, 1997
------------------ ---------------------------
<S> <C> <C>
Net asset value, beginning of period $ 14.08 $ 12.87
--------- ---------
Income from investment operations:
Net investment income 1.05+ 0.10
Net realized and unrealized gain 0.94 1.11
--------- ---------
Total from investment operations 1.99 1.21
--------- ---------
Less distributions to shareholders:
From net investment income (0.84) --
From net realized gains (4.25) --
--------- ---------
Total distributions (5.09) --
--------- ---------
Net asset value, end of period $ 10.98(a) $ 14.08
========= =========
Total Return (b) 15.42% 9.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) -- $ 36
Net expenses to average daily net assets 0.66%* 0.71%*
Net investment income to average daily net assets 9.27%* 6.06%*
Portfolio turnover rate 255% 152%
Fees and expenses voluntarily waived or borne by the Manager
consisted of the following per share amounts: $ 0.02 (c)
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a) All Class I shares of the Fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(b) Calculation excludes purchase premiums and redemption fees. The total
returns would have been lower had certain expenses not been waived during
the periods shown.
(c) Fees and expenses waived or borne by the Manager were less than $0.01 per
share.
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 January 9, 1998
-------------------------------
<S> <C>
Net asset value, beginning of period $ 13.74
--------
Income from investment operations:
Net investment income 0.92+
Net realized and unrealized gain 1.42
--------
Total from investment operations 2.34
--------
Less distributions to shareholders:
From net investment income (0.84)
From net realized gains (4.25)
--------
Total distributions (5.09)
--------
Net asset value, end of period $ 10.99(a)
========
Total Return /(b)/ 18.34%
Ratios/Supplemental Data:
Net assets, end of period (000's) --
Net expenses to average daily net
assets 0.60%*
Net investment income to average daily net assets 8.61%*
Portfolio turnover rate 255%
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following per share amount: $ 0.02
</TABLE>
* Annualized.
+ Computed using average shares outstanding throughout the period.
(a) All Class II shares of the fund were exchanged for Class III shares on
January 9, 1998. Amount represents ending net asset value per share on
January 9, 1998.
(b) Calculation excludes purchase premiums and redemption fees. The total return
would have been lower had certain expenses not been waived during the period
shown.
14 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A series of GMO Trust)
Financial Highlights
(For Class III shares outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998 Year Ended February 28/29,
---------------------------------------------------------
(Unaudited) 1998 1997 1996 1995*
-------------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.64 $ 14.09 $ 11.76 $ 8.39 $ 10.00
----------- ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income 0.41 1.13 + 1.48 1.35 0.48
Net realized and unrealized gain (loss) (5.05) 1.51 6.40 3.84 (1.59 )
----------- ------------ ------------ ------------ ------------
Total from investment operations (4.64) 2.64 7.88 5.19 (1.11 )
----------- ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.20) (0.84 ) (1.58 ) (1.17 ) (0.40 )
From net realized gains (1.03) (4.25 ) (3.97 ) (0.65 ) --
In excess of net realized gains -- -- -- -- (0.10 )
----------- ------------ ------------ ------------ ------------
Total distributions (1.23) (5.09 ) (5.55 ) (1.82 ) (0.50 )
----------- ------------ ------------ ------------ ------------
Net asset value, end of period $ 5.77 $ 11.64 $ 14.09 $ 11.76 $ 8.39
=========== ============ ============ ============ ============
Total Return (a) (44.06)% 22.27 % 74.32 % 63.78 % (11.65 )%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 253,155 $ 460,387 $ 555,452 $ 615,485 $ 243,451
Net expenses to average daily net assets 0.55%** 0.53 % 0.57 % 0.50 % 0.50 %**
Net investment income to average daily net
assets 10.32%** 8.62 % 8.35 % 12.97 % 10.57 %**
Portfolio turnover rate 107% 255 % 152 % 158 % 104 %
Fees and expenses voluntarily waived or borne
by the Manager consisted of the following
per share amounts: $ 0.01 $ 0.03 $ 0.03 $ 0.02 $ 0.01
</TABLE>
* For the period from April 19, 1994 (commencement of operations) to February
28, 1995.
** 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.
See accompanying notes to the financial statements. 15
<PAGE>
GMO Emerging Country Debt Fund
(A series of GMO Trust)
Financial Highlights
(For a Class IV share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period from January 9, 1998
August 31, 1998 (commencement of operations)
(Unaudited) to February 28, 1998
----------------------- ---------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 11.63 $ 10.99
----------- ------------
Income from investment operations:
Net investment income 0.40 0.10 +
Net realized and unrealized gain (loss) (5.02) 0.54
----------- ------------
Total from investment operations (4.62) 0.64
----------- ------------
Less distributions to shareholders:
From net investment income (0.21) --
From net realized gains (1.03) --
----------- ------------
Total distributions (1.24) --
----------- ------------
Net asset value, end of period $ 5.77 $ 11.63
=========== ============
Total Return (a) (43.97)% 5.82 %
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 288,133 $ 310,580
Net expenses to average daily net assets 0.50%* 0.50 %*
Net investment income to average daily net assets 10.05%* 7.17 %*
Portfolio turnover rate 107% 255 %
Feesand expenses voluntarily waived or borne by the Manager
consisted of the following per share amounts: $ 0.01 (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.
16 See accompanying notes to the financial statements.
<PAGE>
GMO Emerging Country Debt Fund
(A Series Of Gmo Trust)
Notes To Financial Statements
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant accounting policies
GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC
(the "Manager" or "GMO"). The Trust was established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts on June
24, 1985. The Declaration of Trust permits the Trustees to create an
unlimited number of series ("Funds"), each of which issues a separate
series of shares, and to subdivide a series into classes.
The Fund seeks high total return by investing primarily in sovereign debt
of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa.
Prior to January 9, 1998, the Fund offered three classes of shares: Class
I, Class II and Class III. Effective January 9, 1998, Class I and Class II
shares ceased operations and all shares were exchanged for Class III
shares. Additionally, Class IV shares commenced operations on January 9,
1998. The principal economic difference among the classes of shares is the
level of shareholder service fee borne by the classes. Eligibility for and
automatic conversion between the various classes of shares is generally
based on the total amount of assets invested with GMO, as more fully
outlined in the Trust's prospectus.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Portfolio valuation
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees or other persons acting at their direction.
Some fixed income securities and options thereon are valued at the closing
bid for such securities as supplied by a primary pricing source chosen by
the Manager. The Manager evaluates such primary pricing sources on an
ongoing basis, and may change any pricing source at any time. The Manager
is informed of erratic or unusual movements (including unusual inactivity)
in the prices supplied for a security and has the power to override any
price supplied by a source (by taking a price supplied by
17
<PAGE>
GMO Emerging Country Debt Fund
(A Series Of Gmo Trust)
Notes To Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
another source) because the Manager has other reasons to suspect that a
price supplied may not be reliable.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. These prices may differ
from the value that would have been used had a broader market for the
securities existed and the differences could be material to the financial
statements.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
Futures contracts
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
entering into a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts as of August 31, 1998.
18
<PAGE>
Gmo Emerging Country Debt Fund
(A Series Of Gmo Trust)
Notes To Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Forward currency contracts
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
Realized gains or losses equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed
are recorded upon delivery or receipt of the currency or, if a forward
currency contract is offset by entering into another forward currency
contract with the same broker, upon settlement of the net gain or loss.
These contracts may involve market risk in excess of the unrealized gain or
loss reflected in the Fund's Statement of Assets and Liabilities. In
addition, the Fund could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar. The U.S. dollar value of the
currencies the Fund has committed to buy or sell is shown under Note 6 and
represents the currency exposure the Fund has acquired or hedged through
currency contracts as of August 31, 1998.
Options
The Fund may write call and put options on futures, securities or
currencies 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, 1998.
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
19
<PAGE>
GMO EMerging Country Debt Fund
(A Series Of Gmo Trust)
Notes To Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 may enter into interest rate, total return and
credit default swap agreements. Interest rate swap agreements involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. Total
return swap agreements involve commitments to pay interest in exchange for
a market linked return based on a notional amount. To the extent the total
return of the security or index underlying the transaction exceeds or falls
short of the offsetting interest rate obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Credit
default swaps involve the payment of a specified rate based on the notional
amount. The Fund receives payment upon default of the underlying security.
In connection with these agreements, cash may be set aside as collateral by
the Fund's custodian in accordance with the terms of the swap agreement. At
August 31, 1998, $61,136,794 in cash has been set aside. Swaps are marked
to market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of the measurement period are recorded
as realized gain or loss in the Statement of Operations. 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, 1998.
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
20
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
default by the seller. Collateral for certain tri-party repurchase
agreements is held at the counterparty's custodian in a segregated account
for the benefit of the Fund and the counterparty. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
Security lending
The Fund may lend its securities to 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, 1998, the Fund loaned securities
having a market value of $6,554,219 collateralized by cash in the amount of
$9,538,502, which was invested in short-term instruments.
Taxes
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
Distributions to shareholders
The Fund's policy is to declare and pay distributions from net investment
income semi-annually, and from net realized short-term and long-term
capital gains at least annually. All distributions will be paid in shares
of the Fund, at net asset value, unless the shareholder elects to receive
cash distributions. 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. Interest income on the U.S. Treasury inflation
indexed securities is accrued daily based upon an inflation adjusted
principal. Additionally, any increase in the principal or face amount of
these securities adjusted for inflation is recorded as income.
21
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Allocation of operating activity
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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 of shares of the Fund based on the relative net
assets of each class. Shareholder service fees, which are directly
attributable to a class of shares, are charged to that class' operations.
Purchases and redemptions of fund shares
The premium on cash purchases of Fund shares is .50% of the amount
invested. In the case of cash redemptions, the fee is .25% of the amount
redeemed. These fees will be reduced by 50% with respect to any portion of
a purchase or redemption that is offset by a corresponding redemption or
purchase, respectively, occurring on the same day. In addition, the
purchase premium or redemption fee for the Fund will be reduced by 50% if
the purchaser makes an in-kind purchase of Fund shares or if the purchase
or redemption is part of a transfer from or to another Fund where the
Manager is able to transfer securities among the Funds to effect the
transaction. All purchase premiums and redemption fees are paid to and
recorded by the Fund as paid-in capital. These fees are allocated relative
to each class' net assets on the share transaction date. Purchase premiums
are included as part of each class' "shares sold" and redemption fees are
included as part of each class' "shares repurchased", respectively, as
summarized in Note 5. For the six months ended August 31, 1998, the Fund
received $1,043,919 in purchase premiums and $124,798 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 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. The Fund has adopted a Shareholder Service Plan
under which the Fund pays GMO a shareholder service fee for client and
shareholder service, reporting and other support. Pursuant to the
Shareholder Service Plan, the shareholder service fee is calculated based
on the average daily net assets of each class at the annual rate of .15%
for Class III shares and .10% for Class IV shares.
22
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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.
The Fund's portion of the fee paid by the Trust to the unaffiliated
Trustees during the six months ended August 31, 1998, was $3,501. 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, 1998, 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 $ 8,693,181 $ 8,997,193
Investments (non-U.S. Government securities) 939,809,841 783,548,439
</TABLE>
At August 31, 1998, the cost for Federal income tax purposes and gross
unrealized appreciation and depreciation in value of investments held were
as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Net Unrealized
Aggregate Cost Appreciation Depreciation Depreciation
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
$ 869,422,442 $ 19,484,332 $ 300,970,937 $ 281,486,605
</TABLE>
4. Principal shareholders
At August 31, 1998, 29.8% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
23
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares, including a class' portion of the purchase premiums and redemption
fees received by the Fund, were as follows:
<TABLE>
<CAPTION>
Period from
March 1, 1997 to
January 9, 1998
-----------------------------------------
Class I: Shares Amount
-------------------- --------------------
<S> <C> <C>
Shares sold 665,873 $ 9,485,099
Shares issued to shareholders in
reinvestment of distributions 224,120 2,611,210
Shares repurchased (892,559) (9,796,997)
==================== ====================
Net increase (decrease) (2,566) $ 2,299,312
==================== ====================
<CAPTION>
Period from March 21, 1997
(commencement of operations)
to January 9, 1998
-----------------------------------------
Class II: Shares Amount
-------------------- --------------------
<S> <C> <C>
Shares sold 159,652 $ 2,197,620
Shares issued to shareholders in
reinvestment of distributions 76,497 890,341
Shares repurchased (236,149) (2,593,939)
-------------------- --------------------
Net increase -- $ 494,022
==================== ====================
<CAPTION>
Six Months Ended Year Ended
August 31, 1998 February 28, 1998
----------------------------------------- ------------------------------------------
Class III: Shares Amount Shares Amount
------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 16,133,451 $ 166,367,807 20,511,879 $ 265,135,023
Shares issued to shareholders in
reinvestment of distributions 3,272,856 31,386,686 15,802,080 183,720,164
Shares repurchased (15,109,052) (179,305,981) (36,173,053) (452,315,399)
------------------- --------------------- -------------------- --------------------
Net increase (decrease) 4,297,255 $ 18,448,512 140,906 $ (3,460,212)
=================== ===================== ==================== ====================
<CAPTION>
Period from January 9, 1998
Six Months Ended (commencement of operations) to February
August 31, 1998 28, 1998
----------------------------------------- ------------------------------------------
Class IV: Shares Amount Shares Amount
------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 21,016,669 $ 233,555,234 26,699,294 $ 296,725,667
Shares issued to shareholders in
reinvestment of distributions 5,224,628 50,051,936 -- --
Shares repurchased (3,015,000) (35,701,076) -- --
------------------ -------------------- -------------------- ---------------------
Net increase 23,226,297 $ 247,906,094 26,699,294 $ 296,725,667
================== ==================== ==================== =====================
</TABLE>
24
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
6. Financial instruments
A summary of outstanding financial instruments at August 31, 1998 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>
12/14/98 IDR 25,000,000,000 $ 1,883,239 $ (3,116,761)
===============
Sales
9/25/98 CHF 82,000,000 $ 56,856,918 $ (1,563,594)
10/02/98 DEM 72,500,000 41,191,122 (767,370)
10/08/98 FRF 540,000,000 91,575,092 (1,517,304)
10/16/98 GBP 1,500,000 2,505,582 (89,322)
11/6/98 JPY 5,535,000,000 39,588,688 (702,921)
9/21/98 MYR 30,000,000 7,083,825 8,373
12/14/98 MYR 18,950,000 4,310,606 689,394
9/28/98 SGD 15,000,000 8,439,293 312,165
11/19/98 ZAR 38,000,000 5,686,594 1,504,928
===============
$ (2,125,651)
===============
</TABLE>
Forward cross currency contract
<TABLE>
<CAPTION>
Settlement Net Unrealized
Date Deliver/Units of Currency Receive/In Exchange For Appreciation
------------- --------------------------- --------------------------- ----------------------
<S> <C> <C> <C>
1/04/99 DEM 42,000,000 FRF 140,826,000 $ 9,244
====================
</TABLE>
25
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short futures contracts
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------- ------------------------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
100 MATIF FRF Bond December 1998 $ 9,148,054 $ (619)
45 U.S. Treasury Bond 10 YR December 1998 5,270,625 (111,738)
500 U.S. Long Bond December 1998 63,500,000 (1,487,969)
32 Russian Ruble September 1998 1,398,400 1,042,892
--------------
$ (557,434)
==============
</TABLE>
At August 31, 1998, the Fund has cash and/or securities to cover any margin
requirements on open futures contracts.
<TABLE>
<CAPTION>
Written option transactions
Puts
Principal Amount
of Contracts
(000's omitted) Premiums
------------------ ----------------
<S> <C> <C>
Outstanding, beginning of period $ -- $ --
Options written 27,500 740,125
Options exercised -- --
Options expired -- --
Options sold -- --
================== ================
Outstanding, end of period $ 27,500 $ 740,125
================== ================
<CAPTION>
Calls
Principal Amount
of Contracts
(000's omitted) Premiums
------------------ ----------------
<S> <C> <C>
Outstanding, beginning of period $ -- $ --
Options written 17,500 836,937
Options exercised -- --
Options expired -- --
Options sold -- --
================== ================
Outstanding, end of period $ 17,500 $ 836,937
================== ================
</TABLE>
26
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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
Russian Ruble 17,500 6.8325 RUB 3/19/99 $ 13,671,000
Puts
Russian Ruble 17,500 6.8325 RUB 3/19/99 7,000
Brazilian Real 10,000 1.189 BRL 10/16/98 47,000
==============
$ 13,725,000
==============
</TABLE>
27
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
Credit Default Swaps
5,000,000 USD 2/09/99 Agreement with Union Bank of Switzerland $ 233,323
dated 2/04/98 to pay 2.45% per year times
the notional amount. The Fund receives
payment only upon a default event in
Argentina, the notional amount times the
difference between the par value and the
then-market value of Argentina Floating Rate
Note due 3/31/05.
54,278,259 USD 2/26/99 Agreement with Credit Suisse Financial (7,517,014)
(par value) Products dated 2/12/97 to purchase, for a
set price, a specified amount of
Bulgaria FLIRB Fixed/Floating Rate Note
Series A due 7/28/12 and Bulgaria FLIRB
Fixed/Floating Rate Note Series B due
7/28/12. 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 bonds to the Fund for a lower
set price.
15,000,000 USD 11/03/00 Agreement with Credit Suisse Financial 1,252,570
Products dated 10/29/97 to pay 3.45% per
year times the notional amount. The Fund
receives payment only upon a default event
in Bulgaria, the notional amount times the
difference between the purchase cost of
59.50 USD and the then-market value of
Bulgaria FLIRB Note Series A due 7/28/12.
</TABLE>
28
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Appreciation
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
10,000,000 USD 11/07/00 Agreement with Credit Suisse Financial $ 788,042
Products dated 11/04/97 to pay 3.50% per
year times the notional amount. The Fund
receives payment only upon a default event
in Brazil, the notional amount times the
difference between the purchase cost of
74.75 USD and the then-market value of
Brazil Debt Conversion "DCB" Bond due
4/15/12.
21,500,000 USD 5/29/01 Agreement with Credit Suisse Financial 4,412,220
Products dated 5/21/97 to pay 4.78% per year
times the notional amount. The Fund
receives payment only upon a default event
in Ecuador, the notional amount times the
difference between par value and the
then-market value of the Republic of Ecuador
Past Due Interest "PDI" Floating Rate Note
due 2/27/15.
47,000,000 USD 5/29/01 Agreement with Credit Suisse Financial 4,133,119
Products dated 5/23/97 to pay 3.30% per year
times the notional amount. The Fund
receives payment only upon a default event
in Ecuador, the notional amount times the
difference between the purchase cost of
60.25 USD and the then-market value of the
Republic of Ecuador Past Due Interest "PDI"
Floating Rate Note due 2/27/15.
25,000,000 USD 9/10/01 Agreement with Credit Suisse Financial 4,505,515
Products dated 9/05/97 to pay 1.75% per year
times the notional amount. The Fund
receives payment only upon a default event
in Brazil, the notional amount times the
difference between the purchase cost of
83.625 USD and the then-market value of
Brazil Debt Conversion "DCB" Bond due
4/15/12.
</TABLE>
29
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
-------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 5/12/98 $ (45,562)
to pay .75% per year times the notional
amount. The Fund receives payment only upon
a default event, the notional amount times
the difference between the purchase cost of
100 USD and the then-market value of any
series of Banco Latinoamericano de
Exportaciones S.A. Euro Medium Term Notes.
INTEREST RATE SWAPS
60,000,000 MYR 12/16/00 Agreement with Morgan Guaranty Trust Company 2,282,135
dated 12/12/97 to pay the notional amount
multiplied by 10.60% and to receive the
notional amount multiplied by 6 month
Floating Rate KLIBOR adjusted by a specified
spread.
94,750,000 MYR 4/08/03 Agreement with Morgan Guaranty Trust Company 3,146,528
dated 4/03/98 to pay the notional amount
multiplied by 10.50% and to receive the
notional amount multiplied by 6 month
Floating Rate KLIBOR adjusted by a specified
spread.
</TABLE>
30
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
2,400,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company $ (20,177)
dated 6/03/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
3,300,000 CHF 6/10/05 Agreement with Credit Suisse Financial (33,095)
Products dated 6/08/98 to pay the notional
amount multiplied by 3.2625% and to receive
the notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
2,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (20,572)
dated 6/09/98 to pay the notional amount
multiplied by 3.245% and to receive the
notional amount multiplied by 6 month
Floating Rate Swiss LIBOR adjusted by a
specified spread.
TOTAL RETURN SWAPS
15,000,000 USD/ 9/04/98 Agreement with Bank of America dated 7/31/98 (4,210,483)
9,457,290 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Republic of
Bulgaria FLIRB Series A bond, 2.50% due
7/28/12 and to pay initial market value
multiplied by 1 month LIBOR adjusted by
a specified spread.
</TABLE>
31
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Net Unrealized
Notional Amount Expiration Appreciation
Fund/Counterparty Date Description (Depreciation)
---------------------- ----------- ---------------------------------------------- ---------------
<S> <C> <C> <C>
15,000,000 USD/ 9/08/98 Agreement with Morgan Guaranty Trust Company $ (3,917,210)
13,565,664 USD dated 8/04/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil
Capitalization Fixed/Floating Rate Bond
due 4/15/14 and to pay initial market
value multiplied by 1 month LIBOR
adjusted by a specified spread.
2,741,528 USD/ 9/08/98 Agreement with Morgan Guaranty Trust Company (397,431)
10,000,000 USD dated 8/28/98 to pay the notional amount
multiplied by the change in market value
(including accrued interest) of Russia
Ministry of Finance, 9.25% due 11/27/01
and to receive initial market value
multiplied by 1 week LIBOR adjusted by a
specified
spread.
107,450,000 RUB/ 9/10/98 Agreement with Morgan Guaranty Trust Company (6,245,898)
7,120,960 USD dated 6/30/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Russia
RB PA PDOFZ Participation #25023, 14.00%
due 9/12/01 and to pay initial market
value multiplied by 2 month LIBOR
adjusted by a
specified spread.
3,891,593 USD/ 9/10/98 Agreement with Morgan Guaranty Trust Company 3,920,261
26,875,000 RUB dated 6/30/98 to pay the notional amount
multiplied by the change in market value
(including accrued interest) of Russia
RB PA GKO Participation #21088 due
8/26/98 and to receive initial market
value multiplied by 2 month LIBOR
adjusted by a specified spread.
</TABLE>
32
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------ ---------- -------------------------------------------- ---------------
<S> <C> <C> <C>
39,463,513 RUB/ 9/10/98 Agreement with Morgan Guaranty Trust Company $ (2,120,825)
2,323,710 USD dated 7/29/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Russia RB PA
PDOFZ Participation #25021 due 1/17/01 and
to pay initial market value multiplied by 1
month LIBOR adjusted by a specified spread.
25,000,000 USD/ 9/11/98 Agreement with Bank of America dated 8/06/98 (6,445,412)
24,361,450 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Republic of Argentina
USD Global Bond, 9.75% due 9/19/27 and to
pay initial market value multiplied by 1
month LIBOR adjusted by a specified spread.
1,950,000 USD/ 9/18/98 Agreement with Morgan Guaranty Trust dated (455,629)
1,284,857 USD 8/14/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Bulgaria IAB
Floating Rate Note due 7/28/11 and to pay
initial market value multiplied by 1 month
LIBOR adjusted by a specified spread.
</TABLE>
33
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------ ---------- -------------------------------------------- ---------------
<S> <C> <C> <C>
6,000,000 USD/ 9/21/98 Agreement with Bank of America dated 8/18/98 $ (1,196,396)
4,607,813 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Republic of Brazil USD
Global Bond, 10.125% due 5/15/27 and to pay
initial market value multiplied by 1 month
LIBOR adjusted by a specified spread.
10,000,000 USD/ 9/21/98 Agreement with Morgan Guaranty Trust Company (617,432)
8,646,623 USD dated 8/17/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Mexico
Discount Floating Rate Note Series A due
12/31/19 and to pay initial market value
multiplied by 1 month LIBOR adjusted by a
specified spread.
29,000,000 USD/ 9/21/98 Agreement with Morgan Guaranty Trust Company (4,396,526)
23,113,392 USD dated 8/19/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil
Capitalization Fixed/Floating Rate Bond due
4/15/14 and to pay initial market value
multiplied by 1 month LIBOR adjusted by a
specified spread.
</TABLE>
34
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------ ----------- ------------------------------------------ ---------------
<S> <C> <C> <C>
30,900,000 USD/ 9/23/98 Agreement with Bank of America dated 6/18/98 $ (12,044,781)
34,613,686 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Republic of Argentina
USD Global Bond, 11.375% due 1/30/17 and to
pay initial market value multiplied by 3
month LIBOR adjusted by a specified spread.
40,000,000 USD/ 9/22/98 Agreement with Morgan Guaranty Trust dated (10,665,301)
36,132,504 USD 6/18/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil
Capitalization Fixed/Floating Rate Bond due
4/15/14 and to pay initial market value
multiplied by 3 month LIBOR adjusted by a
specified spread.
17,000,000 USD/ 9/25/98 Agreement with Morgan Guaranty Trust Company (4,237,021)
15,070,725 USD dated 6/22/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Brazil
Capitalization Fixed/Floating Rate Bond due
4/15/14 and to pay initial market value
multiplied by 2 month LIBOR adjusted by a
specified spread.
</TABLE>
35
<PAGE>
GMO Emerging Country Debt Fund
(A Series of GMO Trust)
Notes to Financial Statements -- (Continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Swap agreements -- continued
<TABLE>
<CAPTION>
Notional Amount Expiration Net Unrealized
Fund/Counterparty Date Description Depreciation
------------------ ------------- ----------------------------- -----------------
<S> <C> <C> <C>
25,000,000 USD/ 9/29/98 Agreement with Morgan Guaranty Trust Company $ (8,685,818)
17,152,144 USD dated 6/24/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Ecuador Past Due Interest "PDI" Registered
Bond due 2/27/15 and to pay initial market
value multiplied by 3 month LIBOR adjusted
by a specified spread.
22,500,000 USD/ 9/29/98 Agreement with Morgan Guaranty Trust Company (7,810,482)
15,436,930 USD dated 6/24/98 to receive the notional amount
multiplied by the change in market value
(including accrued interest) of Republic of
Ecuador Past Due Interest "PDI" Bearer Bond
due 2/27/15 and to pay initial market value
multiplied by 3 month LIBOR adjusted by a
specified spread.
15,000,000 USD/ 10/09/98 Agreement with Bank of America dated 8/05/98 (3,687,488)
13,345,605 USD to receive the notional amount multiplied by
the change in market value (including
accrued interest) of Brazil Capitalization
Bond, 8.00% due 4/15/14 and to pay initial
market value multiplied by 3 month LIBOR
adjusted by a specified spread.
</TABLE>
36
